Borrowing strategy earns ratepayer cash

A short-term borrowing strategy implemented over the past three years will have earned Waipa¯ District Council more than $1 million additional cash for ratepayers by early 2020.

Since 2016, Council has taken advantage of a favourable difference in borrowing and investment interest rates.

The low-risk borrowing has been done through the Local Government Funding Agency (LGFA). The LGFA is owned by 30 New Zealand councils plus the Crown and allows councils to access funds at low interest rates.

In its latest arrangement, Council borrowed and invested $35 million at fixed rates of interest for a period of between three and six months. The money has been invested with three banks — BNZ, ASB and ANZ — in line with Council’s investment policy.

When each investment expires, the $35m will be returned firstly to the Council, then to the LGFA in full.

But the excess interest earned from the investment ($132,759) after payment of interest on the borrowing, will go back to the council to benefit Waipa¯ district ratepayers. It will be reflected in the 2019/2020 annual accounts.

Chief financial officer Ken Morris said Waipa¯ District Council has entered into several similar financial arrangements over the past three years, securing more than $900,000 in additional interest revenue.

“When this latest series of investments mature, the total excess interest earned on behalf of ratepayers from these arrangements will exceed $1 million,” he said.

“That is a substantial amount of money and we are only really able to do this because Waipa¯ has very strong financial management in place and a robust balance sheet.

“The risk on the investments is negligible but the rewards in terms of additional cash are substantial and have secured $1 million that ratepayers don’t have to fund.”

Prudent financial management has meant Waipa¯ District Council end its financial year with a robust balance sheet, an operating surplus of $34 million and an AA- credit rating.

Council has formally adopted its 2018-2019 Annual Report which is available online at www.waipadc.govt.nz. A small number of printed copies will be available by the end of this week.

Chief financial officer Ken Morris said growth continued to have a huge impact on council activities, driving a “step change” in the annual capital works programme.

“Waipa¯ had a 1.9 per cent increase in population, growth in business units of 1.4 per cent and economic growth of 4.7 per cent,” said Ken.

“In response we delivered $55.1 million of capital works and services, mainly in core infrastructure like water, wastewater, stormwater and roads.

“But there is no doubt the capital programme was challenging and capital projects will continue to be testing in the coming year given the very tight contracting market.”

Market conditions forced a delay in some projects, meaning Waipa¯ ended the year with $15 million in external debt, $34 million less than budget.

Over the next decade debt levels are still forecast to rise steadily as investment into core infrastructure continues along with the development of community facilities like Te Ara Wai in Te Awamutu, community playgrounds and the Cambridge pool.

Ken noted rates continued to form less than 50 per cent of council’s total revenue, well within Waipa¯ ’s self-imposed limit of 65 per cent.

“That means we have diverse income streams and are not wholly reliant on ratepayers to meet the costs of running the district which is good,” said Ken.

“We will also continue to uplift contributions from developers to ensure they pay their fair share of growth-related costs.”

In June this year, international credit agency, Fitch, assigned the Council an AA- credit rating, endorsing Waipa¯’s financial strength, stability and financial management.

The only New Zealand council to have a higher Fitch rating is Invercargill City Council.

The rating means Waipa¯ will receive a 15 basis point (0.15 per cent) discount on any new longterm borrowings from the Local Government Funding Agency. This will save ratepayers tens of thousands of dollars in interest costs over coming years.

The Annual Report showed council ended the year with more than $1.7 billion in assets and total liabilities of $38.3 million. There was a cash surplus of $970,000 after allowing for a small number of carry forward and other items.

The cash surplus provides a buffer for unanticipated items in the 2019-2020 year.

But it can also be used to benefit ratepayers in the form of reduced rates in the 2020-2021 year which is the next time the council will set its rates.

‘We will also continue to uplift contributions from developers to ensure they pay their fair share of growth-related costs.’

KEN MORRIS