Timaru District Council hits debt-to-income ceiling

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A drop in funding for the Waka Kotahi NZ transport agency and a host of large projects have pushed Timaru District Council to its “self-imposed” debt level for the next fiscal year.

The council will adopt its Long-Term Plan (LTP) on Tuesday, with a rate hike for next year set at 11.5%, about 1% more than it originally budgeted.

Timaru District Mayor Nigel Bowen has confirmed that Waka Kotahi NZTA’s lack of funding, as well as a host of online projects, means his debt level will rise to his self-borrowing limit. taxed 210% of debt-to-income ratio.

“We can borrow up to 280 percent, so we still have a lot of headroom,” Bowen said.

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“We set the interim level at this rate of 210% because we knew there would be challenges in the future.”

Bowen said this would be the first time the board has reached its self-imposed debt limit, but “borrowing is cheap right now.”

Over the next three years, the reduction in funding for Waka Kotahi NZTA is equivalent to $ 7.5 million of the council’s PLT.

As a result, road maintenance will be reduced by $ 1 million, pavement resurfacing and renewals will be reduced by $ 4.5 million, and the remaining $ 2 million will be financed through interest rates or loans.

“We have real concerns about the agency’s approach to funding,” Bowen said in a comment that matches similar concerns from other boards across the country.

“We have seen them withdraw in some areas, or not fund the levels they had promised before. It is incredibly frustrating.

Bowen said another reason for the increased debt ratio for the coming year is also due to multiple projects coming online at the same time.

“Much of it is doing things that we’ve been promising to do for years and are catching up, be it the Aigantighe Art Gallery, the Aorangi Stadium, the Royal Theater and the Pareora Pipeline.

“But this is an entirely new infrastructure, so we can expect debt levels to fall below the self-imposed limit over the next few years as these projects are completed.”

Waimate District Council chief executive Stuart Duncan said he shared Timaru’s concerns about Waka Kotahi NZTA’s lack of funding.

“The Council will receive $ 15.4 million in funding over the next three years, after requesting $ 16.8 million in the last funding round,” Duncan said.

“The funding allocated to Waimate District represents a 3.6% increase over the 2018-21 allocation. Contract costs have increased more than that, so less work will be undertaken.

“Waka Kotahi’s funding constraints will mean that improved drainage and trail repairs could be reduced, and the budget for road filling and pavement renewal reduced. “

Duncan said the board’s debt limit on loans was “no more than 100% of total income.”

A spokesperson for Mackenzie District Council said “the council has no borrowing at this time.”

A senior New Zealand local government spokesperson said that although there is no legal debt limit, there is an “industry practice” established by the various rating agencies, such as S&P Global Ratings.

“Over the past year, to get an AA rating from credit bureaus, metro councils would need a debt-to-income ratio of around 300%, and for provincial councils it’s around 280%.” , said the spokesperson. .

“This was an increase of around 30% from previous allowed debt ratios, and it was done to recognize the loss of income stream due to Covid-19. “

The spokesperson said boards could access “very cheap loans” if they had a good credit rating, while if they didn’t they would likely be subject to higher interest rates. from banks and institutional bond buyers.

“But in terms of credit rating, New Zealand boards are widely regarded as gold plated because of their fiscal powers and central government underwriting,” he said.

“We have seen in recent years an increase in the number of municipalities that borrow prudently to manage large infrastructure projects over time.


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