Can Tauranga council afford a $230m debt?

Simon Bridges, Nick Smith and Greg Brownless at the waterfront for the Housing Infrastructure Fund announcement. Photo/Alan Gibson

The Government wants to give Tauranga a $230 million interest-free loan for new infrastructure to fast-track the building of 35,000 houses.

However, the big question hanging over yesterday's announcement about divvying up the Government's billion-dollar Housing Infrastructure Fund was whether the city council could afford the debt.

Three Tauranga projects were approved, putting the city in line for almost a quarter of a billion dollars by 2021 for new roads and upgrades to wastewater and water systems.

It would be enough new infrastructure to fast-track the building of another 35,000 houses over 10 years, adding about 100,000 people to the city, Building and Construction Minister Dr Nick Smith told guests at Tauranga's waterfront.

"The Government's perspective is the single most important thing is to bring more sections and land into the supply.

"But your council and others have raised the huge challenge around how you fund the infrastructure to be able to bring those new sections."

The fund was announced a year ago to meet that need, Dr Smith said.

A criticism of the fund has been that debt-laden councils would exceed borrowing limits if they took the loan. Tauranga councillors have expressed concern over it on multiple occasions over the past year.

According to Labour's housing spokesman, Phil Twyford, the Government was essentially writing big lines of credit instead of fixing a broken infrastructure funding system.

"It doesn't solve the problem; it just loads councils up with more debt they can ill-afford."

Take, for example, the Tauranga City Council. Councillor Gail McIntosh said the council had a debt limit of $500m and a budget for the year that would take its debt level to $442m.

Add to that, a policy of keeping the ratio of external debt to operating revenue below 225 per cent. By June 30 next year, the council expected the ratio to be about 210 per cent.

"So if we accept all of the Government's housing infrastructure funding as debt then we will be exceeding our ratios," Cr McIntosh said.

To make it work, council staff would need to work with the government staff to figure out how to keep some of that new debt off the council's balance sheet, she said.

Yesterday, Tauranga mayor Greg Brownless was feeling confident it could be done - even if he was not sure exactly how.

"Everyone assures me that there is a way to keep it off our balance sheet."

Christine Jones, the council's general manager of growth and infrastructure, said having no interest on the loan would take a lot of pressure off - to the tune of about $10m a year.

Without the loan, the council may have had to defer some of the infrastructure work, slowing development, she said. "It's still debt, but it's interest-free."

Both Ms Jones and Mr Brownless were happy with Tauranga's slice of the fund, even though a fourth project was not approved.

The council had requested $45.8m for infrastructure in the Tauriko West new urban growth area. Planning for that project would continue regardless, the council said.

The next step is for the council and the Government to work together on the details of the funding agreements over the next few months.

Approved projects

Te Tumu Eastern Corridor in Papamoa East

Total funding: $60 million

- $39m for a new Papamoa East Interchange - connecting the Tauranga Eastern Link to the new Te Tumu housing area.
- $21m for water - stormwater ponds, overflow paths and wider catchment plus wastewater and water network mains.
Te Tumu is a large new housing area planned for Papamoa East.

Te Maunga Wastewater Treatment Plant for Mount Maunganui and Papamoa

Total funding: $55.9m

Increasing the capacity of the wastewater treatment plant. The extension plans already have resource consent.

Waiari Water Treatment Plant South of Te Puke

Total funding: $114.6m

Adding more capacity to the public water supply.