The Dunedin City Council will need to raise its group debt ceiling by hundreds of millions of dollars to fund its planned capital spending and that of its companies.
The quantum of the planned increase of $400million is higher than past increases and appears to be driven by an accelerated spend from the council on water infrastructure and Aurora Energy continuing to invest in its network, partly to make up for historical deferred maintenance.
Term loans across the group are forecast to rise to almost $1.55billion by the end of June 2026 and the existing group debt limit is $1.2b.
The council’s group borrowing arrangements require uncalled share capital from the Dunedin City Holdings Ltd set of companies to be higher than group debt.
A report to be discussed by the council next week seeks approval to increase uncalled capital from $1.2b to $1.6b.
When the council raised the group debt ceiling in November 2021 by $225m, Cr Lee Vandervis called it "the steepest, most massive debt increase in our history".
The council had failed to control the companies it owned and engaged in its own spending on pet projects, he said.
Mayor Jules Radich, a councillor at the time, voted against raising the ceiling, saying the council should operate within "enforced" boundaries.
"I don’t see any need to just simply keep increasing debt when the return on investment from that debt, in my opinion, is insufficient."
Mr Radich also noted the increase in December 2019 was $125m.
Cr Carmen Houlahan, too, voted against lifting the ceiling in 2021, saying that there were "consequences to adding to your debt all the time".
One councillor who offered a counterargument was Jim O’Malley, who pointed out deferred maintenance produced inevitable consequences.
The council has ramped up its capital programme in recent years and much of the focus has been on replacing ageing pipes.
A revamped kerbside rubbish and recycling service is due to come into full effect from July next year.
Lifting the group debt limit to $1.6b would give the council and its companies some liquidity headroom, the report for next week’s meeting said.
Lifting debt was in line with budgets and was primarily driven by planned capital expenditure for Aurora and for the council’s 2021-31 long-term plan.
The council’s portion of existing debt is about $460m. It is budgeted to rise to almost $590m by the end of June next year.
