TERRITORY BANKING ACCOUNT
Objectives
An objective of the Territory Banking Account (TBA) is to effectively manage capital market functions through the maximisation of returns on investments, within relevant risk tolerances, the achievement of competitive borrowing rates commensurate with the Territory’s credit rating and the development of effective financial risk management strategies.
The TBA manages the surplus cash balances of the Government and invests funds through external investment managers within known cash flow requirements and established investment policies.  The Superannuation Provision Unit (SPA) is also responsible for the administration of the Government’s debt portfolio and the management of the Territory’s debt servicing liabilities.
The TBA provides services to the Government including financial asset and liability management through the establishment of investment and borrowing policies and objectives, and the coordination and implementation of investment and borrowing activities.
Treasury, through the TBA, recognises and manages the general government’s debt liability.  Revenues on behalf of the Territory are transferred to the TBA and fortnightly appropriation disbursements are made to agencies from the TBA.  The TBA operates within the boarder Treasury Portfolio.
2007‑08 Priorities
Strategic and operational issues to be pursued in 2007‑08 include:
•	managing the Government’s debt portfolio and associated risks;
•	managing the General Government Sector’s investment portfolio and devising effective investment policies with the aim of maximising returns on the portfolio; and
•	implementation of the Government’s agreed recommendations arising out of the Review of the Application of Environmental, Social and Governance Issues to Territory Investment Practices.
Business and Corporate Strategies
Assets are managed in accordance with guidelines set out in the Financial Management (Investment and Borrowing) Guidelines 2005.  These guidelines set investment and credit risk parameters for general government investments.  The investment performance of the institutional funds managers contracted to manage investments is also monitored and reviewed.  Monitoring of investment performance is done in conjunction with the Territory’s investment adviser and the Investment Advisory Board.
Debt is managed in accordance with a debt management policy that balances interest rate risk and budget volatility.  This involves ensuring that debt is managed within tolerances set out in the current policy.
Estimated Employment Level
	2006‑07
Est.  Outcome	2007‑08
Budget	
Staffing (FTE)1	-	- 	
Note:
1	The offices responsible for undertaking the functions of the TBA are employees of the Department of Treasury .
Output Class
	Total Cost	Expenses on Behalf of the Territory	
	2006‑07
Est. Outcome
$’000	2007‑08
Budget
$’000	2006‑07
Est. Outcome
$’000	2007‑08
Budget
$’000	
EBT 1:  Territory Banking Account	2,622,718	3,006,153	12,139	12,288	
EBT 1:  Territory Banking Account	2,622,718	3,006,153	12,139	12,288	
Description
This output includes the management of the investment and borrowing activities.
The key outputs to be delivered in 2007‑08 include:
•	investment management – maximising the return on investments within acceptable risk tolerances;
•	borrowing management – achieving competitive borrowing rates commensurate with the ACT Government’s credit rating; and
•	risk management – developing and maintaining effective financial risk management strategies.
Strategic Indicators
Strategic Indicator 1
Investment returns meeting or exceeding benchmark
The investment performance is measured against a standard market benchmark.  The conservative policy for general government investments is such that returns equal to or marginally in excess of the benchmark are expected.

Strategic Indicator 2
Borrowing portfolio in line with benchmark
General government borrowings are managed to minimise excess interest rate and market risk.  The strategy for managing the general government debt portfolio is to strike an appropriate balance between the risks associated with debt that has a floating (variable) interest rate and is therefore exposed to volatility in market interest rates and the costs associated with a fixed (and therefore more certain) rate of interest.
The two strategic indicators for the management of the debt portfolio are:
•	a maximum of 30 per cent of the general government debt portfolio be exposed to floating (variable) interest rates; and
•	the general government debt portfolio to have an average debt maturation timeframe (modified duration) of three years with a range tolerance of ±0.5 year.
Accountability Indicators
	2006‑07
Targets	2006‑07
Est. Outcome	2007‑08
Targets	
1.1: Territory Banking Account	
a.	Ratio of investment earnings rate divided by the established benchmark	≥ 1	1.02	≥ 1	
b.	Exposure of debt portfolio to floating interest rates	< 30%	18%	< 30%	
c.	Modified duration of debt portfolio	between 2.5 and 3.5 years	2.95 years	between 2.5 and 3.5 years	

Changes to Appropriation

Changes to Appropriation - Territorial						
 	2006‑07	2007‑08	2008‑09	2009‑10	2010-11	
Payment for Expenses on Behalf of Territory	Est. Out.	Budget	Estimate	Estimate	Estimate	
						
 	$'000	$'000	$'000	$'000	$'000	
						
2006‑07 Budget	11,943	11,916	11,888	11,862	11,862	
						
2007‑08 Budget Technical Adjustments						
Interest Rate Adjustment	196	372	379	451	603	
						
2007‑08 Budget	12,139	12,288	12,267	12,313	12,465	

Changes to Appropriation - Territorial						
 	2006‑07	2007‑08	2008-2009	20098-2010	2010-2011	
Capital Injections	Est. Out.	Budget	Estimate	Estimate	Estimate	
						
 	$'000	$'000	$'000	$'000	$'000	
						
2006‑07 Budget	214	214	214	214	214	
						
	 - 	 - 	 - 	 - 	 - 	
						
2007‑08 Budget	214	214	214	214	214	

Territory Banking Account	
Statement of Income and Expenses on Behalf of the Territory	
  2006‑07			  2006‑07	   2007‑08		  2008‑09	  2009‑10	  2010-11		
    Budget			Est.Outcome	   Budget	   Var	  Estimate	   Estimate	  Estimate		
    $'000			   $'000	   $'000	    %	   $'000	    $'000	   $'000		
		Income								
		Revenue								
11,943		Payment for Expenses on behalf of Territory	12,139	12,288	1	12,267	12,313	12,465		
61,334		Interest	98,895	91,649	-7	90,733	101,862	115,935		
167,789		Other Revenue	165,120	142,942	-13	136,654	130,111	123,162		
2,347,478		Transfer Revenue	2,405,588	2,707,273	13	2,697,983	2,800,223	2,937,285		
2,588,544		Total Revenue	2,681,742	2,954,152	10	2,937,637	3,044,509	3,188,847		
		Gains								
0		Total Gains	0	0	-	0	0	0		
2,588,544		Total Income	2,681,742	2,954,152	10	2,937,637	3,044,509	3,188,847		
		Expenses								
56,130		Borrowing Costs	74,136	66,120	-11	63,471	66,976	69,369		
323		Other Expenses	671	516	-23	409	470	604		
2,719,854		Transfer Expenses	2,547,911	2,939,517	15	2,803,831	2,828,578	2,867,899		
2,776,307		Total Ordinary Expenses	2,622,718	3,006,153	15	2,867,711	2,896,024	2,937,872		
-187,763		Operating Result	59,024	-52,001	-188	69,926	148,485	250,975		

Territory Banking Account	
Statement of Assets and Liabilities on Behalf of the Territory	
    Budget			Est.Outcome	   Planned		   Planned	   Planned	   Planned	
as at 30/6/07			as at 30/6/07	as at 30/6/08	   Var	as at 30/6/09	as at 30/6/10	as at 30/6/11	
   $'000			   $'000	    $'000	    %	    $'000	    $'000	    $'000	
		Current Assets							
287,812		Cash and Cash Equivalents	795,847	489,280	-39	521,192	645,420	862,754	
153,558		Receivables	128,279	150,486	17	156,501	173,977	190,141	
11,348		Other	300	300	-	300	300	300	
452,718		Total Current Assets	924,426	640,066	-31	677,993	819,697	1,053,195	
		Non Current Assets							
387,826		Receivables	433,190	511,937	18	607,417	656,022	683,569	
179,616		Investments	215,637	191,137	-11	191,666	190,528	188,275	
11,461		Property, Plant and Equipment	12,575	3,832	-70	1,209	0	0	
578,903		Total Non Current Assets	661,402	706,906	7	800,292	846,550	871,844	
1,031,621		TOTAL ASSETS	1,585,828	1,346,972	-15	1,478,285	1,666,247	1,925,039	
		Current Liabilities							
10,153		Payables	6,962	6,963	..	6,962	6,964	6,964	
182,092		Interest Bearing Liabilities	441,704	239,006	-46	248,191	252,763	253,699	
11,462		Finance Leases	8,743	2,623	-70	1,209	0	0	
0		Other Provisions	0	0	-	4,162	0	0	
203,707		Total Current Liabilities	457,409	248,592	-46	260,524	259,727	260,663	
		Non Current Liabilities							
749,243		Interest Bearing Liabilities	736,006	754,948	3	808,245	842,914	848,228	
0		Finance Leases	3,832	1,209	-68	0	0	0	
0		Other Provisions	5,273	4,503	-15	0	0	0	
749,243		Total Non Current Liabilities	745,111	760,660	2	808,245	842,914	848,228	
952,950		TOTAL LIABILITIES	1,202,520	1,009,252	-16	1,068,769	1,102,641	1,108,891	
78,671		NET ASSETS	383,308	337,720	-12	409,516	563,606	816,148	
		REPRESENTED BY FUNDS EMPLOYED							
78,671		Accumulated Funds	383,308	337,720	-12	409,516	563,606	816,148	
78,671		TOTAL FUNDS EMPLOYED	383,308	337,720	-12	409,516	563,606	816,148	

Territory Banking Account	
Budgeted Statement of Cashflows on Behalf of the Territory	
  2006‑07			  2006‑07	   2007‑08		  2008‑09	  2009‑10	  2010-11		
    Budget			Est.Outcome	   Budget	   Var	  Estimate	   Estimate	  Estimate		
    $'000			   $'000	   $'000	    %	   $'000	    $'000	   $'000		
		CASH FLOWS FROM OPERATING ACTIVITIES								
		Receipts								
11,943		Cash from Government for EBT	12,139	12,288	1	12,267	12,313	12,465		
61,011		Interest Received	98,226	90,680	-8	90,777	101,387	115,326		
172,808		Other Revenue	169,613	146,148	-14	142,325	128,705	121,842		
2,331,103		Territory Receipts transferred from Agencies	2,389,205	2,707,286	13	2,688,636	2,796,642	2,934,590		
2,576,865		Operating Receipts	2,669,183	2,956,402	11	2,934,005	3,039,047	3,184,223		
		Payments								
56,109		Borrowing Costs	74,954	66,035	-12	63,489	66,983	69,384		
29		Other	62	43	-31	37	43	55		
31,828		Payments to PTE Agencies for Outputs	31,489	32,343	3	32,828	33,341	33,876		
1,808,714		Payments to GGS Agencies for Outputs	1,799,341	1,863,740	4	1,892,018	1,952,900	2,026,260		
404,308		Payments to Agencies for EBT	359,728	429,739	19	476,898	517,400	544,831		
2,300,988		Operating Payments	2,265,574	2,391,900	6	2,465,270	2,570,667	2,674,406		
275,877		NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES	403,609	564,502	40	468,735	468,380	509,817		
		CASH FLOWS FROM INVESTING ACTIVITIES								
		Receipts								
51,318		Proceeds from Sale/Maturities of Investments	2,678	24,500	815	0	1,138	2,253		
12,728		Repayment of Advance	10,675	20,955	96	30,309	20,518	19,397		
0		Other	0	12,398	-	7,920	2,349	1,256		
36,339		Capital Distributions from Government Agencies	36,977	6,525	-82	1,655	1,205	1,205		
100,385		Investing Receipts	50,330	64,378	28	39,884	25,210	24,111		
		Payments								
0		Purchase of Investments	0	0	-	529	0	0		
25,600		Advances Issued to Government Agencies	23,048	113,557	393	116,000	68,000	45,000		
486,600		Capital Payments to Government Agencies	366,260	625,946	71	414,956	338,474	276,808		
72,465		Repayment of Investments to Agencies (CFU only)	129,045	241,264	87	177	875	812		
584,665		Investing Payments	518,353	980,767	89	531,662	407,349	322,620		
-484,280		NET CASH INFLOW/(OUTFLOW) FROM INVESTING ACTIVITIES	-468,023	-916,389	-96	-491,778	-382,139	-298,509		
		CASH FLOWS FROM FINANCING ACTIVITIES								
		Receipts								
214		Capital Injection from Government	214	214	-	214	214	214		
0		Borrowings Received	4,244	45,660	976	55,291	38,324	6,361		
214		Financing Receipts	4,458	45,874	929	55,505	38,538	6,575		
		Payments								
1,525		Repayment of Borrowings	554	554	-	554	554	554		
1,525		Financing Payments	554	554	-	554	554	554		
-1,311		NET CASH INFLOW/(OUTFLOW) FROM FINANCING ACTIVITIES	3,904	45,320	1,061	54,951	37,984	6,021		
-209,714		NET INCREASE/(DECREASE) IN CASH HELD	-60,510	-306,567	407	31,908	124,225	217,329		
497,529		CASH AT BEGINNING OF REPORTING PERIOD	856,321	795,811	-7	489,244	521,152	645,377		
287,815		CASH AT THE END OF THE REPORTING PERIOD	795,811	489,244	-39	521,152	645,377	862,706		

Territory Banking Account	
Statement of Changes in Equity on Behalf of the Territory	
    Budget			Est.Outcome	   Planned		   Planned	   Planned	   Planned		
as at 30/6/07			as at 30/6/07	as at 30/6/08	   Var	as at 30/6/09	as at 30/6/10	as at 30/6/11		
   $'000			   $'000	    $'000	    %	    $'000	    $'000	    $'000		
230,158		Opening Balance	281,058	383,308	36	337,720	409,516	563,606		
		Accumulated Funds								
0		Net Effect of a Correction of an Error	6,312	0	-100	0	0	0		
-187,763		Operating Result for the Period	59,024	-52,001	-188	69,926	148,485	250,975		
		Reserves								
-187,763		Total Income And Expense For The Period	65,336	-52,001	-180	69,926	148,485	250,975		
		Transactions Involving Equity Holders Affecting Accumulated Funds								
214		Capital Injections	214	214	-	214	214	214		
36,062		Capital (Distributions)	36,700	6,199	-83	1,656	1,353	1,353		
0		Inc/Dec in Net Assets due to Admin Restructure	0	0	-	0	4,038	0		
78,671		Closing Balance	383,308	337,720	-12	409,516	563,606	816,148		
Notes to the Budget Statements
Many of the variations within the Territory Banking Account (TBA) budget statements are driven by agency activity during and between financial years.  This will be disclosed within the relevant explanations below.
Significant variations are as follows:
Statement of Income and Expenses on Behalf of the Territory
•	payment for expenses on behalf of the Territory:  represents the appropriation paid to meet the debt servicing expenses incurred on general government borrowings:
–	the actual debt servicing interest costs are directly influenced by prevailing market interest rates; and
–	variances reflect the difference between budgeted interest rates and actual interest rates.
•	interest:  represents investment interest returns received from banks and fund managers and interest paid by agencies for loans provided from the TBA:
–	the increase of $37.561 million in the 2006‑07 estimated outcome from the original budget is due mainly to higher balances of funds under investment; and
–	the decrease of $7.246 million in the 2007‑08 Budget from the 2006‑07 estimated outcome comprises a reduction in investment earnings due to a lower level of funds to be held on investment during the year ($6.754 million), and a net decrease in loan interest ($0.492 million).
•	other revenue:  represents mainly notional CSS and PSS employer superannuation contributions from agencies.  Variances are driven by agency activities. 
•	transfer revenue:  represents the transfer from agencies of revenue received on behalf of the Territory and includes taxes, fees, fines and grants.  Variances are driven by agency activity.
•	borrowing costs:  represents interest payments made in respect of borrowings for the general government sector and ACTEW Corporation and investment interest payments to agencies.
–	the increase of $18.006 million in the 2006‑07 estimated outcome from the original budget mainly reflects higher payments of investment interest to agencies than originally anticipated due to higher balances of funds under investment; and
–	the decrease of $8.016 million in the 2007‑08 Budget from the 2006‑07 estimated outcome reflects lower anticipated payments of investment interest to agencies.
•	other expenses:  represents investment related management fees for the investments managed through the TBA:
–	the increase of $0.348 million in the 2006‑07 estimated outcome from the original budget is largely due to higher balances of funds under investment, resulting in higher management fees payable.  Management fees are based on the amount of funds under management; and
–	the decrease of $0.155 million in the 2007‑08 Budget from the 2006‑07 estimated outcome is due to lower balances of funds under investment.
•	transfer expenses:  represents the transfer of appropriated funds to agencies for outputs, expenditure on behalf of the Territory and capital injections.  Variances are driven by agency activity.
Statement of Assets and Liabilities on Behalf of the Territory
•	current and non-current receivables:  
–	the increase of $20.085 million in the 2006‑07 estimated outcome from the original budget is mainly due to increased transfer revenue accrued; and
–	the increase of $100.954 million in the 2007‑08 Budget from the 2006‑07 estimated outcome is due largely to new loans provided to the Land Development Agency ($37.057  million) and Department of Treasury ($12 million) and ACTEW Corporation ($60 million), partially offset by loan repayments. 
•	current and non current investments:  represents the total of all agency and the TBA funds held on investment.  
•	property, plant and equipment:  represents the outstanding Territory motor vehicle assets leased through the now closed ACT Fleet Financing Facility with Macquarie Bank.  The decrease in the estimated balance across the budget and forward years reflects the expiry of outstanding leases and subsequent sale of vehicles. 
•	current and non current interest bearing liabilities:  comprises agencies’ investment deposits with the TBA and external market borrowings.  External borrowings include electronic promissory notes and indexed annuity bonds.  The 2006‑07 estimated outcome comprises $588.783 million external borrowings and $588.927 million agency investments.  The 2007‑08 Budget comprises $633.887 million external borrowings and $360.067 million agency investments.
•	finance leases:  represents the outstanding balance of the Territory’s motor vehicle financing facility with Macquarie Bank.  This facility is no longer available to finance new ACT Fleet motor vehicles and is gradually being reduced as leases expire and vehicles are sold.  This is reflected by the decrease in the estimated balance across the budget and forward years.  
•	current and non current other provisions:  represents the balance of the ‘Residual Management Reserve Account' for the Fleet Financing Facility with Macquarie Bank.  This account reflects mainly the accumulated shortfall of net sale proceeds against agreed residual values since the facility has been in place.  It is likely that the account will be in a deficit balance position after the disposal of the last remaining vehicle leased from the facility in 2009‑10.  The provision reflects the amount the Territory will be required to pay to discharge this liability.