Debt to Deliver THIS COUNCIL IS LOOKING AT THE LARGEST EVER CAPITAL SPEND ON PROJECTS TO BOTH CATCH UP AND PLAN FOR AUCKLAND’S BURGEONING GROWTH. These projects include significant below the ground infrastructure to cope with housing demand and to improve our water quality; along with public transport investment and local projects identified by local boards. A side effect of this investment is a rise in debt. Whilst this is eye wateringly large – $8.2b now and projected to rise to $14B by 2028 – this has actually lowered as a ratio to asset growth from earlier planning by Auckland Council. Our debt to asset ratio is the lowest it has ever been at 15.9%. PriceWaterhouseCooper were asked to provide an independent opinion on Councils debt raising strategy. I quote from their written opinion presented to our Finance and Performance Committee: “We believe Councils funding strategy and use of off shore debt markets is a consistent, prudent and efficient means of satisfying the above underlying statutory objectives to future proof Councils ability to access long term funding and in ensuring liquidity capacity.”
So, whilst I appreciate that these numbers can be mind boggling initially, they do in fact represent prudent financial practice. Credit rating agency Standard & Poor’s, consistently gives Auckland Council an AA rating. This is very good, second only to central government and higher than any other Council in New Zealand. When calculating the rating, Auckland Council’s ability to service their debt is considered. This means that they focus on the ratio between the revenue that Council receives and the debt level that it has. It’s important to ensure that as some of our big projects signal budget overruns we do not get too close as that would potentially downgrade our AA rating. A downgrade is a lose-lose situation for Council as the interest payments on our debt would increase significantly as a result. Careful management is required.