‘‘It is not the debt number itself that is the issue, it is the debt to revenue ratio. If revenue improves, it is not necessarily bad to take on new debt.’’
The Waimakariri District Council has come under fire since Covid-19 restrictions, finding itself having to respond to social media commentary and a growing number of official information requests.
Many of the criticisms have related to the council’s debt levels and the role of the Local Government Funding Agency (LGFA).
Mr Walker said it made sense to debt fund long term assets which provided long term benefits for the community.
‘‘There is no way you can provide them without borrowing.’’
He said the LGFA is the best funding model available for councils.
‘‘The rating of the LGFA is the best rating you can get in New Zealand and there is an element of Government support.
‘‘If you were to fund it from banks, from a purely council point of view, interest rates would be at least one percent higher.’’
Mr Walker said some councils would find their three waters assets ‘‘would not be bankable’’ or they could be paying 2% more interest.
The amount a council could borrow from the LGFA is based on debt to revenue ratios.
While overall business confidence in New Zealand was low, Mr Walker said it appeared to be improving.
The Reserve Bank lowered the Official Cash Rate (OCR) last month by 0.25% to 5.25%, and it is expected to fall further.
But Mr Walker said banks were divided in their predictions of how fast the OCR would come down.
‘‘The banks are saying the economy is in a dark place, but while this is happening key areas are still stubbornly high.’’
The dairy farming and kiwifruit sectors were ‘‘doing well’’ and other sectors were ‘‘doing OK’’, he said.
The Reserve Bank is projecting by 2027, inflation will drop to 2% and GDP (Gross Domestic Product) will see 3.5% growth.
‘‘It looks like happy days and let’s hope they’re right,’’ Mr Walker said.
The council’s debt is around $200 million, which is around 150% of its rates revenue - and well below its self-imposed borrowing limit of 250%.
Council chief executive Jeff Millward said a big chunk of Waimakariri’s debt was due to borrowing $100 million to repair and replace assets following the 2010 and 2011 earthquakes.
By David Hill, Local Democracy Reporter
■ LDR is local body journalism co-funded by RNZ and NZ On Air.
