Ka¯piti’s ‘unusual’ investment plan

A council with a $149 million debt mountain has been cautioned by the auditor-general over plans to use borrowed cash for an investment kitty.

Ka¯ piti Coast District Council – one of the most indebted councils per capita in the country – would borrow up to $30 million in a plan described as ‘‘unusual’’ by the government watchdog. The council has a debt level limit of $191m.

The proposal – up for approval next year – would aim to make about $350,000 annually per $10m invested, after borrowing costs. This could be used to pay for district growth initiatives, and civil defence.

However, deputy controller and auditor-general Greg Schollum has laid out concerns in a letter urging the council to be careful.

The role of the Auditor’s Office was not to question the council’s policy decisions but it expected due diligence to be carried out given the ‘‘nature and inherent risks involved with the proposals’’.

Interest rates and a potentially risky investment mix were among the concerns.

‘‘The proposals are unusual compared to other funding arrangements we are aware of in the local government sector, in particular that the initial would be funded by borrowing.’’

Other councils in similar situations invested money after asset sales, rather than by borrowing, he said.

While the letter said the council was the country’s second-most indebted council per capita, Ka¯piti Coast District Council manager Janice McDougal said it was the fourth.

‘‘This debt is because we have invested significantly in infrastructure such as our water supply and community assets in recent years.’’

A report would go to councillors next year to ensure they were ‘‘comfortable with the risk’’, she said. ‘‘If it is agreed that the investment funds progress, the council’s net borrowings will be unchanged as the borrowings are offset by the investments made using the funds. ’’

The council’s credit rating was recently revised from stable to positive which reflected the work to put strong financial management policies in place.

The money would be borrowed from the New Zealand Local Government Funding Agency, which offers low interest loans to councils.

Ka¯piti Coast Mayor K Gurunathan said nothing in the letter was any different to what councillors already knew. ‘‘There’s nothing illegal about it, whether it’s prudent or not is a different question.

‘‘What is unusual is that we’re borrowing cheaply from the Local Government Investment Agency to invest and that’s got people’s suspicions up.’’

His personal opinion was not to go ahead with the borrowing – given the timing and global events.

The council’s credit rating was recently revised from stable to positive . . .