Forecasts of rising interest rates has sparked a warning that the Tauranga City Council will struggle to live within its self-imposed rating cap.
The financial straitjacket imposed by the council's debt of about $400 million has been highlighted by candidates seeking to unseat the city's mayor Stuart Crosby in next month's elections.
Bethlehem mayoral candidate Mike Baker said the council would have to slash and burn next year to get the rates increase down to to the cap of about 5 per cent - let alone if interest rate forecasts were correct. He said a 1.5 per cent rise in interest rates next year would add about 6 per cent to rates, making it next to impossible to keep within the rating cap. "When interest rates start going up, the council will somehow have to find the additional revenue."
Mr Baker compared selling assets to pay off debt as tinkering with the lifeboats on the Titanic.
Council financial manager Paul Davidson told the Bay of Plenty Times that he expected to see an upward pressure on interest rates some time in the next 12 months, but would not predict how much.
The average interest rate for the year to June 30 was nearly 6 per cent.
Avenues candidate Kelvin Clout said that even a 1 per cent rise in interest rates would have a big impact on rates and he was promoting a "debt crisis summit" to try and address the issue.
"Because the council has such a high debt, there are less options for some of the things that we would like to have."
Mr Clout said if all else failed, then the council's debt would have a massive impact on ratepayers because they were the final backstop. The council had paid to put infrastructure in the ground but the recession meant the growth did not arrive so that the costs were not being spread over as many ratepayers as the council originally hoped.
His philosophy was to run the council more like a business and less like an institution.
Papamoa candidate Richard Moore said the council's half billion dollar debt was a "horror story" and would get worse when the historically low interest rate levels moved up.
He described the debt as a "poisoned chalice" for the next council, but it was crucial that it was solved. "Hard decisions will have to be made to rein in the spending."
Mr Moore called for a two-year moratorium on employing new staff and he backed the call for a community debt forum.
Tauriko mayoral candidate John Robson said the debt was sustainable in pure economic terms because of the way local government worked. "They can rate you."
A lot of the debt was for infrastructure but development fees had not come in at anywhere near council forecasts. "There is all this shiny infrastructure but no people."
Mr Robson highlighted the years in which the council had chosen not to charge developers for the cost of the capital spent to put infrastructure in the ground.
Mr Robson said these costs had built up and compounded because no revenue was coming in to pay for them. Although the council has since decided to pass on the cost of capital, it had now decided to try to kick-start development by cutting development contributions.