Council debt cap increase means community investment, not cutbacks
03 Jul 2020
Councils can now borrow money equivalent to 300% of annual revenue, and the Public Service Association says this will allow them to maintain operational expenditure, invest in important community services and proceed with long-overdue infrastructure upgrades.
The Local Government Funding Agency is a collective borrowing vehicle through which New Zealand councils pool resources, guarantee each other’s debts and access lower interest rates than they could individually.
LGFA shareholders voted to raise the debt cap imposed on member councils from 250% of annual revenue to 300%.
"Our councils, the best in the world, maintain financial ratings other countries could only dream of and earn overwhelming public satisfaction with services. The backbone of all this is an army of skilled, dedicated public servants devoted to the communities they live in," says PSA National Secretary Glenn Barclay.
"Covid-19 wiped millions of dollars from council budgets, and in response some have called for cuts to community services and the workers who provide them. A smarter approach is for councils to take advantage of plummeting interest rates, borrow now to get us through tough times and pay off debt when the economy improves."
In February 2020, Standard & Poor’s issued AA ratings for councils across New Zealand, noting their debt ratings were improving faster than in any other country. The AA rating is also held by New Zealand’s central government.
Statistics released this week show public approval ratings of 78% for the services provided by council staff in community facilities like swimming pools and parks.
New Zealanders were even more satisfied with the service they received using public libraries and art galleries, giving both an approval rating of 85%.
Noting the overwhelming public satisfaction with other council services such as rubbish collection and rates enquiries, the PSA argues now is the right time for councils to consider borrowing options to maintain and grow their investment in the communities they serve.
"Now is not the time to slash budgets or reduce staff or their pay and conditions attack staff. Austerity does not work, cutbacks are counterproductive and borrowing is not a dirty word. Businesses routinely borrow money with far less favourable interest rates than what the LGFA has access to," says Mr Barclay.
"In many corners of our country, residents desperately need their council to maintain services and invest in infrastructure like safer roads or adequate stormwater systems. Councils now have an opportunity to support local jobs, kick-start local economies and invest in New Zealand."