WBOP Debt Mountain
Updated: Sep 16, 2022
The wave of red ink on the attached chart shows the WBOP District Council’s official borrowing figures. Up until this year (the blue line), the council has paid down debt while still gradually investing in new infrastructure. But now it plans to go on a huge debt-fueled splurge. Imagine if you gave a teenager the family credit card and told them that your credit limit was a target. That is essentially what our council is doing, and the bill will come back to haunt us in the form of much higher rates.
Unless it changes direction soon, the council will have maxxed out its credit limit completely within a few years, leaving nothing in the tank for emergencies or new things we may need. The planned investment in new infrastructure such as libraries, swimming pools and boat ramps is logical but the frenzied pace of spending is crazy. If we instead spread these projects over more years, we could get them all done without having to pay big interest bills from our rates. The splurge is front-loaded. The council plans to borrow $150 million over the next three years and total borrowings will near $300 million by 2031. At that pace, the ratepayers' bill for debt interest will approach $15 million EVERY YEAR. That annual number is enough to build a couple of libraries or swimming pools every year if the council would just slow down a bit. It’s NOT a case of slashing and burning the council budget. We do need the council to provide public infrastructure – just at a more reasoned pace.
People justify debt as spreading the cost of an asset over several generations but there are some big problems when that is used as an excuse to load up the council credit card all at once: 1) Interest rates are rising fast so the debt load will squeeze out any new spending within a few years. This means the splurge can only be a one-off as there will be nothing left for anything else; 2) Inflation, especially in the construction industry, means the debt (and interest burden on ratepayers) will need to go even higher for all the promised projects to be delivered; 3) The council has admitted it has not got enough staff to manage all this spending. To get this all done, it will need to increase its costs – and this has not been included in its budget. 4) The council has no plan in place to repay this debt. It has left that to the next generation.
The council has framed this year’s local elections as “Generation Change”, but its spending plans mean the next generation will be tied down by high council debt with no money left to set its own priorities. The only change left for the next generation will be loose change.
Adding to the uncertainty is the government’s unwanted Three Water "reforms". If these (unfortunately) go ahead next year, that will blow a $32 million hole in the council’s annual revenue and a $389 million crater in its balance sheet as both revenue and assets related to our water, wastewater and stormwater system pass to a Hamilton-based water company. It will also mean most of the council’s current debt will go to Hamilton too, and so will some of its future investment needs as it will no longer be responsible for maintaining Three Waters assets.
However, that raises a new risk if we elect a spendthrift council. We need a strong mayor to ensure the council (freed up from Three Waters responsbilities) does not splurge on even more new projects and push up debt and rates even further.