Debt-free Napier City Council considers borrowing $33 million to get it out of Covid-19 hole

The Napier City Council building, itself becoming a cost to the council as it looks to develop a new civic precinct. Photo / File

A usually debt-free Napier City Council could look to borrow $33 million to fill a finding gap resulting from the Covid-19 crisis.

The possibility is revealed in a proposal to join the Local Government Funding Agency on the agenda for a council meeting on Thursday, including highlighting a potential to reduce rather than increase rates.

But mayor Kirsten Wise says that with the council "looking to be going into external debt" in the next year it "makes sense" go with the cheapest option the LGFA facility enables.

Councillors are being told that in preparation for the 2020/2021 Annual Plan, forecasting has identified that Napier may have a funding gap of about $33m due to the impact of Covid-19.

A report says that through "prudent management" over a number of years, the council has "been in the fortunate position to not require external borrowing whilst still maintaining some of the lowest rates in New Zealand."

"However, as no borrowing has been required in the past, Napier City Council does not currently have material lending facilities in place to meet any shortfalls," says the report from council investment and funding manager Garry Hrustinsky.

He is recommending going to public consultation on whether to join the agency, a borrowing group formed in 2009 and now operating as a limited liability company to access funding options and interest rates for councils throughout the country.

Agency chief executive Mark Butcher told Hawke's Bay Today that 67 of the 78 councils are members, four others are already going through the application process, and Napier and several others are known to be considering options, particularly as they consider impacts of the crisis.

Napier has not previously joined because of a lack of need, having among the lowest debt profiles and rates in New Zealand and the benefits its leasehold land portfolio investment.

If the public agrees, the council will seek to join the LGFA with as an "unrated guaranteeing local authority" which would allow the council to borrow more than $20m, "with higher risk" than other categories, the cost being legal and ongoing trustee fees.

"Debt will increase by the mount borrowed (estimated at $33m total)," according to documentation for councillors, which says that under the membership option recommended there will be "potential to reduce rates "due to savings in facility and interest rate costs."

According to 2019 figures, supplied by the LGFA, the Hastings District Council had debt of $106m, the Hawke's Bay Regional Council debt was $33m, Tararua had debt $25 m, Central Hawke's Bay's was $20m, and Wairoa's $5m.

Butcher said member councils see benefits of joining as outweighing costs of membership, and it's "not surprising" Napier and other councils are looking at joining.
Across the members combined savings compared with borrowing the bank sector are currently put at $35m a year.

But he warned: "When looking at the data I think you also need to consider not just debt levels but the quality of infrastructure."

"Some councils have very little debt but their infrastructure needs upgrading (due to many years of underinvestment) whereas other councils with higher debt levels have much better quality infrastructure," he said.