Media release

Auckland Councillor Cameron Brewer

16 December 2011

Council debt ceiling dramatically lifted

A majority of Auckland councillors signed off a new debt ceiling this afternoon, only 12 months after setting the last one. The ratio of net debt as a percentage of total council revenue was today extended from 175% to 275%.

The six councillors who voted against the new debt limit were Brewer, Penrose, Quax, Raffills, Stewart and Wood. Ten councillors supported it.

“Just 12 months ago we signed off the council’s debt limit of 175% in good faith. We’re now up to 275%. Back then we told the council would review and approve to the Treasury Management Policy at least every three years. No one in their right mind thought it would be back on the agenda so quickly,” says Councillor for Orakei, Cameron Brewer.

“The Wellington City Council is facing tough budget decisions and is worried sick that its debt is projected to go from $310m to $500m in the next 10 years. Well Auckland’s debt is set to peak at $8.6b in eight years, with Auckland’s annual interest payments alone ballooning to $475m. By 2017/18 the council will be paying the equivalent of 21% of its annual rates income on interest alone, up from 8% currently.

“Alarmingly, unlike Wellington there’s no talk of conservative spending for Auckland, despite our debt set to nearly triple and our annual interest rates set to rocket from $147m per year to $475m in 2021/22. The interest alone is going to be a big annual cost for Auckland’s 500,000 ratepayers to shoulder. Let’s not forget that the $475m in annual interest payments is more than what the former Auckland City Council used to totally collect in general rates each year.

“Wellington is having to cut its cloth and Aucklanders will need to decide as to whether this council runs a leaner operation now, or keep spending big and shift the burden onto future generations. Let’s not forget that this debt policy will go out for consultation with the Long Term Plan so people can make submissions early next year. However unfortunately it looks like some damage has already been done. A credit downgrade is likely to happen before then.

“Standard and Poor’s has simply got the jitters on the council’s big 10-year budget. Council officials now see a credit downgrade as imminent, and are now interestingly forecasting for one. Such a downgrade will only add to our woes, making the council’s borrowing more expensive, adding to the interest bills. The council’s finance department forecasts that a one notch downgrade alone could add an additional $12.75m to the growing annual interest bill.

“Aucklanders were promised that amalgamation would make local government much more cost effective and efficient, and provide greater economies of scale. Unfortunately while the world economy is in disarray, we in Auckland are building a debt mountain that will only burden our children in the long run,” says Cameron Brewer.

Ends

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