Let's talk about debt

Today Council's $70 million debt is $50 million of water infrastructure, $20 million of property and other projects.

The Local Water Done Well reforms rely on increased borrowing (more debt!)

Where that debt is, and how it is managed, is an important part of the future of water services.

The reforms mean CCO's can borrow up to 500% of their water revenue, to pay for infrastructure, consents and meeting standards. Council can't do this.

Council could stick with its current 175% debt ceiling or get a credit-rating and expand that to 250%. The graphs below show that.

Graph 1 shows what that looks like over the next nine years based on our LTP. Council hits and breaches its debt limit by 2027/28 at its current 175% debt ceiling. That is not financially sustainable, and illegal. It also shows that without waters debt; Council's overall debt reduces to 50% of its revenue by 2034. At 250%, Council heads above 200% debt to revenue by 2031 and stays there for a long period of time.

Graph 2 shows the longer term out to 2054, and the breakdown of that debt with a 250% ceiling. It doesn't have the 175% in there, because that gets blown through so early.

The vast majority of debt would be waters, with a thin slice of everything else Council needs to borrow for - roads, property, parks etc. There would be very little room for delivering anything that is not water without significant additional cost to the ratepayer.

The idea that the Mayor and Councillors could keep water-charges low, by deferring projects, is how things used to be. That's not the way it will work in future, because of the Local Water Done Well reforms.

The infrastructure regulator has the power to direct Councils or CCOs to invest in infrastructure.

The Commerce Commission has the power to set pricing, meaning either more borrowing or higher charges.

Three of the four options being consulted on use the additional borrowing capacity that the Local Water Done Well reforms give to CCOs.

All four options require either Council, or a CCO, to take on additional debt to fund infrastructure, consents and meet water standards.

These graphs are on Page 33 and 34 of the consultation document.