Ratepayers could be asked to bail out the Tauranga City Council from a property deal in which it was forced to pay $10 million towards the purchase of a 170 hectare farm in Papamoa East.
The $15 million purchase of the Bell Rd farm took place a year before the 2008 global credit crunch crippled development in Tauranga.
The Carrus/Hickson block was jointly purchased by the Tauranga City and Western Bay District councils to stop an unwanted 48-lot rural subdivision from going ahead. The two councils secured rights over the land for 10 years in order to buy time until the 20,000 population satellite city of Te Tumu was ready to be developed.
"The idea was to sell it back," Tauranga Mayor Stuart Crosby said.
The farm sat in the middle of the 765 hectare Te Tumu block and the subdivision threatened to scuttle the years of planning that had gone into the satellite city. It would also have created roading and stormwater issues for the council.
Mr Crosby explained that they paid substantially less than the full value of the land because the farm did not have development rights attached to it - except for what was allowed in a rural zone.
However, the development slowdown and depressed land values meant the council now faced a financial predicament because the interest repayments on the original $10 million loan had been being rolled into the loan. The accumulated debt had reached the point where it was close to exceeding the value of the investment.
The council yesterday faced the prospect of asking ratepayers to at least repay the accumulated interest component of the loan.
It was part of a bigger picture in which the same funding arrangements were driving up the original value of loans for Route K and the council's $10 million share of costs for the Pyes Pa bypass.
The council opted to let the funding issues with the bypass and Bell Rd property "lie on the table" until the next annual plan budget meeting on January 29.
In the meantime, the council will receive a report on the outcome of confidential negotiations with "other parties" on the Bell Rd block.
Mr Crosby said he was unable to release financial details until the negotiations were settled.
The original plan was for development of the the 765 hectare Te Tumu block to begin once the adjoining 370 hectare Wairakei block nearer Mount Maunganui was close to full. However a lot of uncertainty now surrounded Te Tumu's original 2021 start date.
Cr Murray Guy called for full disclosures of how the situation had been reached, together with options on a pathway out of the predicament. "We were given to understand that ratepayers would not be put at risk."
The debt on the Bell Rd farm was part of the $29 million of loans currently sitting in the council's strategic properties portfolio.
The council's business services manager Dean Riley said that about half of this debt was associated with properties earmarked to be sold.
One of the options for the council was for rates to repay the $1.4 million interest-only component of the strategic property loans. An option for the bypass loan was to not only repay the $1 million of interest due next year but to also repay some of the capital of the $10 million loan.
Mr Riley said the council had made decisions that had not panned out and had to be addressed.
Land values were not increasing, debt was equal to or about to exceed values, and the low property cycle was expected to continue for about five years.
It was about being financially prudent in the current economic climate.
Council deputy chief executive Christine Jones said there came a point when the council had to stop capitalising loans (rolling the interest into the capital) and a stronger short-term financial strategy was needed.
Councillor Rick Curach said it was one area where the council needed to bite the bullet. The council needed to face up to the bypass and take a hit sooner rather than later by paying the interest.
Councillor Bill Faulkner called it "a very unfortunate set of circumstances".
Councillor Larry Baldock said there was no way that ratepayers should have been paying off the bypass portion of the State Highway 36.
The council was in negotiations with the New Zealand Transport Agency for the agency to take over Route K.
The Route K loan would accumulate interest next year of $3.7 million.
