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Ratepayers across New Zealand - including those in Dunedin - could be left to foot the bill as local government reforms drive up the cost of borrowing for councils, it has been claimed.
The warning came as Dunedin city councillors prepared to complete their response to the Better Local Government reforms at a Dunedin City Council finance, strategy and development committee meeting today.
The reforms - unveiled in March - included plans to introduce new benchmarks to assess the financial performance of councils, as part of a push to control local government debt levels and limit rates increases.
However, Dunedin Mayor Dave Cull said the reforms "run the risk of doing exactly the opposite" by forcing up the council's debt-servicing costs by $1 million a year.
The extra bill would have to be covered by increasing rates or cutting costs within the council, he said.
"It is a risk. Basically, it's an example of perverse outcomes from these proposals.
"Even if you mitigate them some other way, costs have risen as a result of these [reform] proposals."
The DCC's draft submission warned the reforms would limit councils' previously "unfettered" ability to generate revenue by increasing rates.
It was that unrestricted ability to raise rates that made councils an attractive option for investors to lend money to, at reduced interest rates, the submission argued.
Any change would be seen as a cap by investors and credit rating agencies alike, and interpreted as an increased lending risk.
The result would be higher interest rates that drove up debt-servicing costs for councils. The estimated increase was put at 0.25% to 0.5%, the submission warned.
Finance, strategy and development committee chairman Cr Syd Brown told the Otago Daily Times that could mean an extra $1 million a year in the first year alone in debt-servicing costs for any council with a new loan of $200 million on its books.
The DCC's debt - excluding its companies - stood at $217 million, following the transfer of stadium debt to Dunedin Venues Ltd.
Cr Brown warned the reforms would leave councils like the DCC with a difficult choice.
"You either drop your levels of service, some of your priority spending gets trimmed, [or] you increase your rates.
"Those are about your only options."
Local Government Minister David Carter rejected the claims last night, saying "the exact opposite" could happen if new rules inspired greater confidence in council financial decision-making.
"I'm not sure that it's been examined in any detail, but I think logic would tell you that if a lender had more confidence around the ability of any council to run amok, then that would lower risk.
"You would expect interest rates and borrowing costs to equally be reduced."
The DCC "may well" be seen as attractive by lenders, "but I can assure you it's not necessarily applicable to every council in New Zealand", Mr Carter said.
"Some councils now have very, very high and dangerous levels of debt," Mr Carter said.
The local government reforms remained before a select committee and councils across the country, as well as Local Government New Zealand, were preparing submissions on the proposed changes.
A LGNZ spokeswoman declined to comment when contacted yesterday, but councils at last week's LGNZ conference in Queenstown joined together to lobby against the reforms.
They signed a unanimous statement calling for the "four wellbeings" - environmental, social, cultural and economic - to remain part of the Local Government Act 2002, rather than a new focus on infrastructure, public services and regulatory functions.
The Otago Regional Council will consider its position at a meeting of the finance and corporate committee this morning.
Cr Brown believed recent comments by Deputy Prime Minister and Finance Minister Bill English - who described council debt levels as "relatively low", albeit rising - also showed the Government had launched the reforms "without doing their homework".
Mr Cull agreed, saying debt-funded investment in roading, other infrastructure and compliance costs for government-driven regulation were the main drivers behind council debt.
"They haven't done their homework, so you've got to conclude it's driven ideologically."
Mr Carter agreed overall council debt was "not high", but said that did not apply to every council in New Zealand.
He also rejected suggestions the Government had failed to do its homework.
"Government has listened to many complaints from ratepayers right around the [country]."