Tauranga ratepayers have been asked to pay $1.7 million to bail out the council from unsustainable loans for the Pyes Pa Bypass and the purchase of a 170-hectare farm in Papamoa East.
The city council yesterday acted to stop the spiralling interest costs on the two loans, which were compounding each year because the interest was being rolled into the original loans.
By coincidence, both loans started out at $10 million, with the Papamoa property purchase taking place a year before the 2008 global credit crunch crippled development. The council agreed to hold the debt on the Bell Rd farm at $15 million in order to stop it ballooning out by a further $1 million in a year's time.
Depending on the outcome of a property consultant's report due in March, the council could end up spending an additional $600,000 this year to begin reducing the debt on the Carrus/Hickson block.
The purchase was forced on the Tauranga and Western Bay councils to stop an unwanted 48-lot rural subdivision from going ahead. The 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 farm sat in the middle of the 765ha Te Tumu block and the subdivision threatened to scuttle the years of planning that had gone into the satellite city. Two-thirds of the purchase costs were met by Tauranga but its original loan had grown so much from the impact of interest that it now exceeded the estimated $12-$14 million value of the farm.
A similar loan scenario has seen the council's original $10 million share of the cost to build the Pyes Pa bypass threaten to blow out by a further $730,000 this year. The council responded by agreeing to repay the interest from rates - leaving a loan of $11 million on its books.
However, the potential impact on rates from reining in the loans has been watered down by the council's decision last year to put $3.2 million of its $3.7 million rates surplus into reducing rates.
It meant that despite a potential $2.3 million hit on ratepayers, rates were forecast to increase by only half a per cent this year.
Yesterday's decisions were part a big package of decisions on the council's 2013-14 Annual Plan that now go out for public consultation.
The most contentious part of the Te Tumu debt debate was the successful move by Councillor Murray Guy to include the $600,000 into the budgets going out to the public, rather than waiting to see what the property expert had to say about the value of the property.
Cr Guy said it was a prudent approach to dealing with the community. "I would rather have the amount in and then claw it back."
He was opposed by Councillor Larry Baldock, who argued that it was wrong to put the $600,000 into the draft budgets without having the report from the consultant. He said there was no rationale to begin retiring the debt, because it was a strategic asset that the council intended to sell.
Cr Baldock believed there was a big difference between the value presented before Christmas and the real value of the property.
Cr Guy won the day on a vote of 6-5.
The council also agreed to begin repaying the bypass debt at the rate of $440,000 a year. It would initially be funded from the roading depreciation reserve and not rates.
No decision was made on the $1.8 million which would be added this year to the $61 million Route K loan - a loan that originally stood at $45 million.
The operating deficit would continue to be loan funded.