Hamilton’s net debt to top $1 billion
Hamilton’s net debt is due to burst through the $1 billion barrier for the first time this financial year.
It’s also projected that debt to revenue ratios – a kind of borrowing limit – could be breached in coming years, which could have a “serious” impact on Hamilton City Council’s creditworthiness.
Those figures don’t take account of suggested high rate rises for the 2024-34 longterm plan, including 19.9% next year and 15.5% for each of the following four years.
Regardless, the forecasts in a report to the city’s finance committee underscore a tight situation at a time of high growth.
It’s a “scary” prospect for the finance chairperson, though the mayor isn’t surprised.
The $1b net debt projected figure – a broad measure of total debt minus assets – for this year is $180 million higher than the $843m forecast in the 2023-24 annual plan.
The extra primarily relates to a bump in the balancing the books operating deficit of nearly $20m (impacted by higher interest rates and other costs), and quicker progress on capital projects, with fewer pushed back to future years.
The projected $1b-plus net debt figure was “scary,” finance and monitoring committee chairperson Maxine van Oosten acknowledged ahead of today’s meeting.
And mayor Paula Southgate said: “I understand that people are alarmed by the huge amount of money that the debt looks like.”
Besides net debt breaching $1b at the financial year’s end, the updated forecasts confirm predictions of $1b-plus figures continuing to 2030-31 – but with extra debt added each year.
The updated debt to revenue forecasts show upper limits being breached in the three years from 2024-25 and in 2028-29 and 2029-39.
The council will look at how to avoid that happening during the 2024-34 longterm plan process.
Van Oosten said: “What we are is a product of our own success – we’re a city that is growing.”
Noting recent news of Hamilton having the country’s highest growth rate, she said: “I think [the rise of net debt is] a real consequence of that.”
The situation highlighted the “real problem” of relying on ratepayers to meet much of the city’s costs.
“That model is well and truly broken,” van Oosten said, adding a familiar refrain on local government needing additional funding sources, although she said central government was looking to save, not spend.
Having water services coming back on to the council’s books in later years of the long-term plan meant some “huge costs” for Hamilton, especially for the southern wastewater treatment plant, which has a price tag of around $300m.
On the potential for debt to revenue ratios to be breached, van Oosten said: “Those impacts are serious, and if we didn’t have a long-term plan to help us realign, then we’d have some real problems.”
While acknowledging that the public would be concerned about high debt levels, Southgate said that “not all debt is bad, and the amount of debt we’re facing does not surprise me”.
Hamilton was in a high growth phase, she said. “You’ve got to crack forward and do things, and that’s going to require an intergenerational approach. And what debt actually does is allow people today not to pay the full burden.”
Project debt was used to build the city and be paid back by the likes of developers.
Southgate said huge amounts of money were going to be needed to maintain and renew assets – including waters infrastructure – in the years ahead.
“We’ve already forecast double-digit rates for 10 years because of the water going back into our books.”
She wants new funding partnerships and increased government assistance for local government. “We need Government to walk with us down this journey, because ratepayers can’t bear the full cost.”