JUGGLING WITH RISING DEBT FUNDINGBy Betty van Gaalan
We are told by the Kapiti Coast District Council (KCDC) that Council has a current debt of $62 million which will rise to $184 million by 2015/16.
That is three times the current debt in 3 years! Loan servicing costs will cause large rate increases over the next three years..yes, large.
Yet the Council is considering a scheme which could expose it — and all of us — to more potential expense.
KCDC may join Funding Agency
KCDC is considering participating as a shareholder in the New Zealand Local Government Funding Agency which is being established by a group of Local Authorities and the Crown.
So the Council has called for submissions on a proposed amendment to the Long Term Council Community Plan (LTCCP).
The Funding Agency will be a Council Controlled Trading Organisation that will enable participating Local Authorities to borrow at lower interest margins than they can obtain through normal bank channels
‘Tell us more,’ you say, ‘Isn’t it a good thing that Council can borrow money at a lower interest rate?’
But there’s more on this: To borrow, local authorities will have to invest capital in the LGFA. The KCDC is thinking of $100,000, and it will get a small return on the investment.
Guaranteeing debts of other bodies
However, all local authorities borrowing from the LGFA will be required to guarantee the debts of other participating Local Authorities.
This guarantee commitment is not contained in the LTCCP — that’s why it is being amended.
So the amendment has clauses that say:
‘Provide guarantees of the indebtedness of other Local Authorities to the LGFA, and of the indebtedness of the LGFA itself.
Commit to contributing additional equity, or subordinated debt to the LGFA if required:
‘Charge over…our rates!’
And the one that causes Kapiti Grey Power the greatest concern:
e) Secure the borrowing from the LGFA and the performance of other obligations to the LGFA or its creditors with a charge over the Council’s rates, and rates revenue. That’s us, our rates!
We have no idea what our commitment will be, especially when Auckland or Christchurch may accrue billions of debt, so we do not know if the risk is minimal as stated in the documents.
On Tuesday 27th September a Hearing of submissions occurred. There were only 3 submissions on this important issue, 2 from Kapiti Grey Power,
mine and one from Hellene Donaldson, our secretary, writing as an individual.
The other submission was from Aldous McIvor and his Waikanae on One group.
What has happened? Is the community unaware of the issues, fed up with consultation, not interested, or do you think the risks are far outweighed by the savings of up to $300,000 from loan repayments?
Council is striving to cut down the level of rates by considering joining this scheme and saving on interest charges, when another answer is to cut down on the projects that cause the increase in the level of debt.
Betty van Gaalen.