Super city will start $3b in the red

By Bernard Orsman

An Auckland super city council would inherit more than $3 billion in debt, the equivalent of about $6000 for each of the region's half a million ratepayers.

A Herald survey has found varying levels of debt among the region's councils and council offshoots.

The Royal Commission of Inquiry on Auckland Governance is expected to recommend the creation of a super city, which, among other things, would pick up councils' debt.

Councils have been steadily increasing their level of debt over recent years in line with increasing spending on capital projects, running at about $1.4 billion this year.

The region's wholesale water and wastewater company, Watercare Services, is also undertaking big capital projects, such as the $118 million replacement of the ageing sewer line across Hobson Bay.

Growing pains in Rodney and a small industrial/commercial base in Waitakere have contributed to these two councils having the largest debt per ratepayer across the region. Large capital projects, such as the Rosedale water treatment plant and wastewater pipeline out to sea, are largely responsible for North Shore's relatively high debt.

Auckland City Mayor John Banks, who sold pensioner houses and airport shares to pay down a "mountain of debt" in his first term, is now cranking his city's debt up to $733 million next year.

Debt is now a friendly term to kick along a $505 million capital programme, hold rates to inflation and pick up the slack for sharply falling development contributions and the end of "charitable payments" from Auckland City's water company, Metrowater.

Peter McKinlay, director of the local government sector at Auckland University of Technology, said his reading was that the royal commission would not go down the super city path.

But if it did, he said, it could create "equity squeals" among ratepayers when it came to transferring debt and other financial assets, for instance Auckland and Manukau councils' shares in Auckland Airport.

Local Government New Zealand governance manager Michael Reid said Auckland councils' debt levels were entirely within prudent levels.

He said a review of local government rates had come up with a benchmark that said debt repayments should not exceed 20 per cent of a council's income. Very few councils in New Zealand were near that figure and no councils in Auckland.

The Local Government Rates Inquiry in 2007, chaired by a member of the royal commission, David Shand, said councils should consider using more debt to fund long-life assets. The inquiry found councils had low levels of debt.

Mr Reid said there could be advantages in bundling up Auckland councils' debt. A single council treasury could better manage and refinance council debt, and bring savings.

Larger councils, such as Auckland City, were already looking at retail bond offers to raise debt funding effectively and efficiently.

"We think that has got huge advantages," Mr Reid said.

Government debt is currently running at about $30 billion and set to rise to $80 billion by 2013.

- NZ Herald

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