16 Sep 2016

New strategies needed to cope with council debt

7:38 am on 16 September 2016

There are warnings the traditional way of funding essential projects by councils won't be enough, and more creative solutions are needed to get them built.

Christchurch construction.

Christchurch, Rebuild, Building, Workers, Migrants, Immigration Photo: RNZ / Alexander Robertson

Councils traditionally borrow funds to build new roads, water and sewage.

In 2015, total local government debt stood at $16.3 billion, an increase of 70 percent from the $9.6 billion in 2010.

But more than half of that relates to Auckland, while Christchurch accounts for another ten percent. Debt levels remain low for most of the rest.

But economist Shamubeel Eaqub warns population shifts will put local bodies, whether big or small, under pressure in the decades to come

He said Auckland was near its self-imposed debt limits, and was struggling to build the infrastructure needed to keep up.

"Right now we've got councils like Auckland that are really quite constrained in their ability to borrow and that means they're constrained in their ability to invest in infrastructure at a time when Auckland is very short of it."

Mr Eaqub said new ways of thinking are needed, including tax sharing by central government to allow councils to enjoy some of the economic growth it paid for.

A research fellow at New Zealand Initiative, Jason Krupp, agreed.

He said this approach is currently being used in Manchester in the United Kingdom, and it could be worth considering here.

"It's a pool of money that [Manchester] council can use to invest in infrastructure and they get a share of any tax uplift that comes from that. The catch is they're then obliged to spend that portion of funds that they get from that tax uplift on more infrastructure and so you get this virtuous cycle forming."

"Many of our fast growing regions, I would posit, would have far more infrastructure if they had that kind of incentive arrangement in place," Mr Krupp said.

The government has been distinctly cool on tax sharing.

NZ lagging in shared funding models

Employers and Manufacturers Association chief executive Kim Campbell favours public-private partnerships, where the project is financed, built and operated by the private firms for local authorities.

But Mr Campbell is frustrated that not enough is being done in this area.

"It's a model that's almost mandatory in Canada now, but it's used pretty much everywhere in the world and we are well behind world trends in this regard."

EMA chief executive Kim Campbell.

Kim Campbell prefers public-private partnerships for funding. Photo: RNZ / Todd Niall

Poorer regions are also feeling the strain, but for different reasons.

Kaipara District Council is still reeling after suffering an $80 million debt blowout and rates revolt in 2012.

The chair of the Mangawhai Ratepayers Association and mayoral hopeful, Bruce Rogan, said there were a lot of roads, water and sewerage that need replacing.

"The Kaipara is one of the least affluent districts in the country. It has communities, for example, that have annual average per capita incomes of under $20,000. So there's not a lot of spare money to go around."

Mr Eaqub says some councils with shrinking and aging populations may be forced to make hard decisions about whether it can supply services to all.

"Ultimately it's about moving back to the way you used to do things, where it's a lot about individual provisioning of infrastructure. Of course, with it would come a lower rates burden."

"But it is about saying local government cannot be present in every community in the way as it is at the moment," Mr Eaqub.

Mr Eaqub said many of the answers were in the government's hands, and it needed to start planning now to help councils deal financially with the challenges ahead.