Mix of more debt and higher rates

EDITORIAL

The draft Long-Term Plan consultation document released yesterday by Gisborne District Council presents an ambitious LTP that aims to address infrastructure deficits and major community concerns, but comes with plans to fund this that many ratepayers will likely object to. As well as hiking its rates-take progressively by up to 5 percent a year for the next decade, the council plans to add $45 million to its debt limit.

The document sets the scene by saying the council has been on an ambitious journey and while it hasn’t achieved all it has set out to, it better understands “where investment is now needed for our district to thrive”.

“Over the past three years we kept rates at 2 percent or less. This meant that for some projects we used reserves (savings) instead of rating or borrowing to pay for them . . . . continuing to use reserves to pay for these ‘big ticket items’ (particularly roads, wastewater, stormwater and water systems) is no longer sustainable.

“The most efficient way to pay for district-wide infrastructure is to borrow the money, and then to spread the cost of this borrowing over many years (paying it back through rates).”

The council’s debt limit now is $55m, which is equal to 67 percent of its total income. The LTP proposes changing the limit to $100m so council borrowings can rise to a peak of $98m in 2023, its “infrastructure hump”, when major projects like the wastewater treatment plant upgrades are due to be completed. At this time it would still be under 95 percent of income.

The LTP document indicates this would remain a conservative setting compared to Taupo and Western Bay of Plenty councils with debt around 200 percent of income, Hastings at 150 percent and Napier at 100 percent.

Regarding rate increases, the council proposes a maximum cap of 5 percent rises (averaged across the district) a year for the 10 years of the plan, which includes a buffer that could see rises of about 3-4 percent in many years — and also the flexibility to impose up to 5 percent rises and repay debt sooner.

The draft Long-Term Plan consultation document released yesterday by Gisborne District Council presents an ambitious LTP that aims to address infrastructure deficits and major community concerns, but comes with plans to fund this that many ratepayers will likely object to. As well as hiking its rates-take progressively by up to 5 percent a year for the next decade, the council plans to add $45 million to its debt limit.

The document sets the scene by saying the council has been on an ambitious journey and while it hasn’t achieved all it has set out to, it better understands “where investment is now needed for our district to thrive”.

“Over the past three years we kept rates at 2 percent or less. This meant that for some projects we used reserves (savings) instead of rating or borrowing to pay for them . . . . continuing to use reserves to pay for these ‘big ticket items’ (particularly roads, wastewater, stormwater and water systems) is no longer sustainable.

“The most efficient way to pay for district-wide infrastructure is to borrow the money, and then to spread the cost of this borrowing over many years (paying it back through rates).”

The council’s debt limit now is $55m, which is equal to 67 percent of its total income. The LTP proposes changing the limit to $100m so council borrowings can rise to a peak of $98m in 2023, its “infrastructure hump”, when major projects like the wastewater treatment plant upgrades are due to be completed. At this time it would still be under 95 percent of income.

The LTP document indicates this would remain a conservative setting compared to Taupo and Western Bay of Plenty councils with debt around 200 percent of income, Hastings at 150 percent and Napier at 100 percent.

Regarding rate increases, the council proposes a maximum cap of 5 percent rises (averaged across the district) a year for the 10 years of the plan, which includes a buffer that could see rises of about 3-4 percent in many years — and also the flexibility to impose up to 5 percent rises and repay debt sooner.

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Bob Hughes - 6 months ago
Economics always confuse me. Have I got this right? Example: embarking on a new business in 1972, then NZ-owned BNZ credited me an amount, on the condition I provide an equal worth in collateral. I produced an ownership document which they returned to me when my debt was fully repaid. Now about the councils throughout New Zealand that carry a debt of 100 percent of income or more. Are they not completely owned by their creditors? If our GDC is in debt of 67 percent of total income, would it not be better to increase our rates rather than have our creditors own our city holus bolus? Explanations welcome please.

Footnote from Ed: You seem to be mixing up income and assets. Gisborne District Council owns assets worth about $2 billion, so debt of $100m would amount to "lendor ownership" of about 5 percent of the council's assets.

Bob Hughes - 6 months ago
Thank you ed, looks like I need more schooling.

Goldie - 6 months ago
Just because other councils have overspent and are heavily indebted it does not justify us following their stupidity.
An ongoing 5% annual rate rise will continue the financial strangulation of businesses and families. We need a low-cost environment to compensate for the high cost of doing business and providing employment here.
This council needs to cut its cloth to match the existing income, cut the nice-to-have spend, sort out the sewage discharges and save for the rest - or convince private entities to invest in the infrastructure that would be nice to have.
Remember the Waimata tip and the millions lost there on a council whim? Why must we continue to think that public spending is more efficient than private investment?
If we increase debt to $100m that means at say 8% that every dollar collected (assuming rates don't rise) in revenue, 10cents to go to pay interest - not debt, just interest. Private businesses can't survive on that, how will the council without raising rates substantially?

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