Borrowing guidelines for public hospitals and community health centres

Purpose

The purpose of these guidelines is to provide guidance for public hospitals, community health centres and metropolitan health services seeking to borrow money, or enter into financial arrangements such as leases or overdrafts.

Background

Victorian budget sector bodies' powers to spend, borrow or enter into other financial arrangements are set out in legislation, primarily the Health Services Act 1988. In particular, Section 30 of the Health Services Act requires registered funded agencies to obtain approval from the Minister for Health and the Treasurer before seeking financial accommodation (1). Registered funded agencies include public hospitals, community health centres and metropolitan health services and are detailed in the budget papers and Schedules one to five of the Health Services Act.

One purpose of the legislation is to regulate the circumstances in which registered funded agencies are able to borrow money, so as to limit the State's exposure to the risk of unplanned expenditure arising from inappropriate management of borrowings.

The requirement to obtain Ministerial approval before borrowing is also stated in the Department of Human Services' Health (Hospital) Service Agreement (s5.6) and the Community Health Centres Service Agreement (s5.5).

These guidelines are a tool to help agencies comply with existing legislation and guidelines by outlining the appropriate steps that must be followed before entering into borrowing arrangements.

Schedule 5.4 of the Department of Human Services' Health (Hospital) Service Agreement also states that if the public hospital intends to enter into any expenditure (including operating leases) related to capital works, whether or not funded by borrowings or from reserves, where the estimated total end cost of the works exceeds 10% of the annual revenue of the hospital or $2 million, which ever is the lesser amount then:

• The hospital must provide the Secretary with a detailed business plan relating to the proposed expenditure; and,
• Obtain approval from the Secretary for the expenditure.

The guidelines set out herein do not change these requirements under s5.4 of the Department of Human Services' Health (Hospital) Service Agreement.

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(1) Financial accommodation means a financial benefit or assistance to obtain a financial benefit arising from or as a result of-

• a loan;
• issuing, endorsing or otherwise dealing in promissory notes;
• drawing, accepting, endorsing ort otherwise dealing in bills of exchange;
• issuing, purchasing or otherwise dealing in securities;
• granting or taking a lease of any real or personal property for financing but not for operating purposes; or,
• any other arrangement that the Governor in Council on the recommendation of the Treasurer approves.