City slides further into the red
Hamilton’s projected deficit has worsened, while development is on a “downward trajectory” not seen since the Global Financial Crisis.
Those findings were in a report to yesterday’s finance and monitoring committee hui, as the cash-strapped council battles a range of issues and is consulting on a 19.9% rates rise for 2024-25.
The report said the 2023-24 operating deficit was now set to be nearly $41 million. That compares to a $36m forecast in February and a target of $16.4m in the annual plan.
An overall 2023-24 accounting surplus forecast of just under $90m was now nearly $30m less than a plan target.
There was also a particular warning sign over future city growth.
The report noted expected development contributions revenue was forecast to be down $7.5m on an earlier forecast.
“Consenting pipeline and volume of completion from developments, especially in the greenfield, is on a downward trajectory that has not been seen since the Global Financial Crisis, against a backdrop of soft demand, high borrowing costs, high capital/materials costs, and noting that New Zealand is now in a recession.”
Modelling indicated revenue from development contributions – which are set to rise – could well increase in later years, although the higher charges might dampen development if a “tipping point” was reached, the meeting heard.
However, extra interest was set to be “the largest single contributor” to the projected $41m operating deficit.
As reported in February, net debt is due to hit more than $1 billion for the first time this financial year and climb thereafter.
Potential for important debt to revenue ratios to be breached was also signalled from next year.
Before the meeting, economic development committee chairperson Ewan Wilson revealed staff had identified $180m worth of possible capital expenditure savings for the 2024-34 long term plan period. This could help ensure those debt to revenue ratios aren’t breached. “It’s good news and we’ve now got to find more opportunities to save on [operating expenditure].”
Finance director Tracey Musty suggested at the hui that those capex savings were due in the middle of the long term plan period.
Wilson asked Musty how locked in the council was to higher floating interest rates.
She explained the council had previously avoided too much fixed rate borrowing due to three waters assets previously being due to come off the books.
Even with those three waters reforms being dropped, the council was being advised not to fix too much at present, Musty said.
Finance committee chairperson Maxine van Oosten asked whether fixed rate three waters loans could be transferred to any new waters entity that emerged in the region or whether break fees would be paid.
Musty said it would depend on future developments. But business services general manager David Bryant didn’t think the council would be forced to break out of such loans.
Wilson was concerned at development contributions revenue slowing when the long-term plan envisaged significant outlay on capital expenditure to enable growth “that we know is slowing up”.
“I think we’re going to to get to the point where this council has to make a significant change in our direction, our scale and our appetite for funding capital growth, in light of some market indications that says our likely [development contributions] revenue is slowing down.”
Wilson worried whether all councillors understood “the seriousness of our predicament”, especially with economists saying the next few years would be difficult.
Van Oosten noted positives such as extra interest revenue but said the likes of interest costs and depreciation issues were particularly concerning.
“These issues make us worry about our financial viability” – forecasts on debt and opex “paint a sobering picture”, she said.