Council tightens investment rules as budget pressures bite

Cowra Shire Council has tightened its investment safeguards to protect public money, with councillors warning that the financially constrained organisation cannot afford to lose funds needed for staff entitlements, government-funded projects and essential operations. The warning came as Council approved an updated Investment Policy at its September 28 meeting, introducing tighter investment limits and more frequent reviews to reduce financial risk. Councillor Erin Watt said Council's investments were intended to generate additional income without putting money needed for existing financial commitments at risk. "These investments are to get that little extra, as you said, but not something where we want to take any risk of losing funds here, as we would need to find them somewhere else," Cr Watt said. "And as we all know, our budget is quite constrained." Her comments highlighted the importance of protecting Council's existing funds at a time when financial pressures continue to influence decisions about infrastructure, services and future spending. Unlike investments made purely to generate returns, some of Council's invested funds must remain available to meet obligations that have already been committed. Councillor Peter Wright said this included money needed to pay staff entitlements when employees retired or left the organisation, as well as government funding being held for projects awaiting completion. He warned that pursuing higher interest rates could expose money intended for those purposes to unnecessary risk. "But it's a risk-averse type situation, and the money we're getting for these is a little bit of a bonus," Cr Wright said. "So we can't go chasing all the higher interest at the time." The updated policy places greater emphasis on preserving Council's capital, maintaining access to funds and ensuring investment decisions remain consistent with its financial risk tolerance. While the overall approach remains largely unchanged, the revisions introduce more restrictive portfolio parameters to limit exposure to lower-rated financial institutions and products. The policy also clarifies internal investment controls and revises the maximum periods for which certain investments can be held. These safeguards are intended to reduce the risk of financial losses while allowing Council to continue earning interest on money that is not immediately required. Under the revised arrangements, Council will continue spreading its investments across financial institutions and credit ratings rather than concentrating funds with individual providers. The approach is designed to balance the opportunity to earn investment income against the need to protect public money and maintain sufficient cash for day-to-day operations. Cr Watt said the changes were appropriate given the nature of Council's financial responsibilities. She emphasised that the organisation had limited tolerance for investment risk because the money involved was needed to meet existing obligations. Council's investment decisions must also consider how quickly funds can be accessed when payments fall due. Although the updated policy permits certain investments to be held for up to three years, Council's report indicates that investments are unlikely to extend beyond 12 months in many cases because of cash flow requirements. Cr Watt said Council rarely held investments for longer than a year, reflecting the need to maintain access to money for operational expenses and project payments. "In reality, we very rarely hold investments for longer than 12 months," she said. She also questioned whether Council would make significant use of longer investment terms, given its financial circumstances. "But in reality, due with our cash flow and our financial stability, I think it's unlikely we will ever take advantage of that," Cr Watt said. The discussion highlighted the potential consequences of tying money up in longer-term investments, even where higher interest rates might be available. Funds committed to staff entitlements, infrastructure works or other obligations must remain accessible when required, regardless of the returns that could be earned elsewhere. Another significant change is the decision to review Council's Investment Policy annually rather than at least every four years. Cr Watt welcomed the shorter review cycle, arguing it would allow Council to respond more quickly to changing financial conditions. "I think [it] is very sound, as it allows us to react to what's happening in the market at different times, rather than looking at a four to five year review," she said. The revised schedule will provide more regular opportunities to assess investment limits, market conditions and Council's financial position. Monthly reporting on Council's investment holdings will also continue, maintaining oversight of the organisation's investment activities. Councillor Nikki Kiss supported the inclusion of Council's existing risk tolerance within the updated policy, saying it reinforced the importance of protecting long-term financial sustainability. The policy incorporates wording from Council's broader Risk Management Policy, which states: "Council has no appetite for decisions that have a significant negative impact on long term financial sustainability, risk generational inequity or are highly speculative." Cr Kiss said it was appropriate for those principles to be explicitly reflected in the rules governing Council's investments. The discussion also raised questions about whether Council should develop a separate policy governing borrowing. Corporate Services Director Alan Dalton confirmed that Council did not have an internal borrowing policy, but explained that borrowing and investments were subject to different regulatory arrangements. "We don't have internal policy on borrowing. However, the regulatory environment between investments and borrowing is quite different," Mr Dalton said. He explained that the Ministerial Investment Order required councils to maintain an investment policy because investing public money involved financial risk. Borrowing, meanwhile, was governed by separate requirements, including restrictions on the institutions and currencies councils could borrow from and notification obligations to the NSW Office of Local Government. Mr Dalton said Council was required to notify the Office of Local Government within seven days of borrowing. Cr Wright agreed that borrowing and investment policies should be considered separately, rather than combining the two matters within the updated investment framework. The absence of a separate borrowing policy was not identified as a breach of regulatory requirements during the discussion. Council approved the revised Investment Policy, with annual reviews and existing monthly investment reporting forming part of its ongoing financial oversight. A separate financial reserves policy was also expected to come before councillors later in October, continuing the examination of how Council manages its funds. While the changes do not indicate that Council has suffered investment losses or previously managed its money irresponsibly, they reinforce the importance of limiting financial exposure as budget pressures continue. For Cowra, the decision reflects a broader challenge facing local government: generating additional income from available funds while ensuring the money needed to deliver services, complete projects and meet future obligations remains protected. As Cr Wright warned, the opportunity to earn higher interest must not come at the expense of financial security. "So we can't go chasing all the higher interest at the time."