Hastings District Council has reached a record $205 million in debt and it has no plans to get that back to zero.
The council's CEO says it is "good debt" when community benefits through intergenerational infrastructure and projects and low interest rates are taken into account.
The council owes $205m - most of which has been accrued during the past five years - and it plans to reach $291m in debt by 2026.
About half of its current debt has gone toward improved water services, including an $80m project to upgrade the region's drinking water infrastructure which is nearing completion.
That project was launched following the 2016 Havelock North water contamination disaster, which contributed to four deaths and more than 40 people being hospitalised.
The bulk of the rest of the borrowed money has gone toward state-of-the-art playgrounds in Flaxmere, Hastings and Havelock North, earthquake-strengthening of the Opera House and Municipal Building, roading, and about $38m is sitting in reserve for future projects.
CEO Nigel Bickle said the council was well within borrowing limits set by the Local Government Funding Agency (LGFA).
"You have to view debt first and foremost in terms of debt to income levels.
"Councils are basically limited by the LGFA, where you can't borrow more than 280 per cent of your annual income," Bickle said.
"Our debt peak will be 2025/26 in the high $200 millions before we have a long-term fiscal strategy where we will start to pay down debt."
He said even when the council reaches its projected debt peak in 2026, of $291m, it would still be less than 175 per cent of the council's annual revenue.
Bickle said the council had billions of dollars worth of assets and saw its borrowing as "good debt" which would support the community for decades to come.
He said the council did not have any plans to reach zero debt in the future.
"It's almost negligent from a director's point of view or a false economy in saying 'we will pride ourselves on not having a dollar of debt and we will save up to invest on a new wastewater plant but in the meantime we will pump it all into the ocean and rivers because we will not compromise this reputation that we don't have a dollar's worth of debt'."
He said the council's philosophy was to take on debt for intergenerational assets, rather than wait until you have saved enough money to fund vital projects.
Hastings Mayor Sandra Hazlehurst said Hastings was in a "boom time" and infrastructure had to be built to meet future growth.
"Yes, there is a little bit spent on parks and the nice-to-haves, but fundamentally all of our long-term plan [spending] looks at how are we going to manage our roading, water and infrastructure for housing.
"We have to put in the infrastructure for all those things to manage the growth and Hastings is in a boom time - there is a huge amount of investment happening."
She said future borrowing - in the next five years - would go toward projects to support that growth across the region such as roading and water infrastructure.
She said it made sense that future generations should help repay debt for investments made now that will benefit them in the future.
Hastings District Council covers a large land mass of about 5500sqkm which includes a huge network of roads and infrastructure.
WHERE THE MONEY COMES FROM
Hastings District Council has borrowed all its debt from the Local Government Funding Agency.
The majority of councils in New Zealand are registered with the LGFA which allows them to borrow money at low interest rates.
The LGFA is owned by the New Zealand Government and local councils, and is based on a funding model from Norway, Sweden and Finland.
The LGFA issues bonds onto the NZX Debt Market which goes toward loans for councils.
Hastings District Council has fixed and floating loans with the LGFA and its current average interest rate across those loans was 2.73 per cent per annum - equating to roughly $5.6m per year in interest.
However, interest rates can change. The council is currently repaying $6.9m in 2021/22 for its debt increasing to $18.6m in 2030/31.
Councils are not required to pay back the principle on LGFA loans and can choose simply to pay the interest.
The LGFA sets caps on how much a council can borrow depending on its annual revenue, and confirmed Hastings has room to continue borrowing.
Hastings District Council has a credit rating of AA which is above average compared to all councils in New Zealand.
THREE WATERS REFORM
If the Three Waters Reform goes ahead as proposed in July 2024, with a new entity taking over drinking water, stormwater and wastewater infrastructure and services, then it will dramatically impact Hastings District Council's debt levels.
Any debt associated with the council's three waters infrastructure will be transferred to the new entity.
That could see around $100m in debt wiped from council debt levels.
That debt would ultimately be passed onto property owners who will be charged for water services in the region by the new entity, rather than through council rates.
"If in July 2024, we have all new public water entities managing our [three water services] then all of our debt associated with three waters transfers to that new entity," Bickle said. "Over half of our debt will go."
The Department of Internal Affairs confirmed that was correct.
Hastings District Council has plans to "more aggressively pay down debt" beyond 2026, Bickle said.
Increased rates will help the council pay down its debt.
The long-term plan outlines rates revenue will increase from $95m in 2021/2022 to $121 million in 2025/26 to $150m by 2030/31.
Bickle said the council would look to get its debt levels down to about 100 per cent of annual revenue in the future.