Councils spent $700 million more than they earned in the past financial year, leading to the worst operating deficit on record, but officials say this was one of the symptoms of keeping rates low in tough economic times.
Statistics New Zealand figures published yesterday showed local authorities' operating deficit rose by $98 million in the year to June 2012.
The total operating deficit of $700 million was the largest since the records began in 1993.
Once all transactions such as valuation changes were included, councils made a total surplus of $1.1 billion. This was a drop of $2.4 billion from the previous year and the lowest in five years.
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Local Government NZ head Lawrence Yule said councils had tried to keep rates as low as possible since the economic downturn and so had incurred some operating deficits.
"It's nothing to worry about, it's simply reflecting the tighter operating environment where councils have deliberately been trying to keep the rates down ... and that potentially exposed us to slightly more deficit situations," he said.
Until 2008, councils had successive operating surpluses. Since that year, when the pinch of the recession was felt, there had been successive and growing deficits.
Mr Yule said councils that had heavily invested in infrastructure projects did not get the return they expected between 2008 and 2012 because of the financial crisis so their operating deficits had widened.
Hamilton City Council and Tauranga City Council had the largest budget deficits. Mr Yule said the two regions were responding to massive population growth.
Local Government Minister Chris Tremain said Government expected councils to achieve a surplus "unless there is a good reason not to".