The Southland District Council is moving into uncharted territory.
It has never entered into long-term borrowing in its history but was now planning to borrow $197million in the next 10 years.
Planned spending on ageing infrastructure items in the Southland District Council’s long-term and annual plans has pushed the council towards long-term borrowing .
Under its LTP for the next 10 years it expects its Local Government Funding Agency loans to reach $197million at a 3% interest rate for a maximum of 17 years.
The council originally based its LTP on a 2% interest rate but revised that to 3%.
In March 2021, the council applied for membership to the LGFA which allowed access to low-interest loans.
SDC Finance and Assurance committee chairman Bruce Robertson said refinancing the council’s loans had lowered the cost to the ratepayer and increased returns on investments, saving millions in the process.
The old system was costing the ratepayer.
"We are better to keep our [interest] rates up on a conservative basis because that gives us a bit of headroom for what might be spikes in individual components or supply chain issues."
The SDC Finance and Assurance committee met on Friday to discuss funding options to secure the funds it needed to upgrade infrastructure such as bridges, roads, water services, buildings, public toilets and reserves. SDC chief financial officer Anne Robson said many of the council’s assets were more than 70 years old.
"A lot of those assets are requiring that first lot replacement to happen ... and we haven’t got lots of money sitting there to do that," the CFO said.
Until now, the council had used cash reserves and short-term loans to achieve its operational needs but the borrowing was not at the lower interest rates it could get from LGFA, she said.
While it was proposed to borrow $197million over the next 10 years, it was expected some of that cost would be offset by $52million collected annually via rates, leaving a net debt of $145million to be repaid at the end of 17 years.
Council would use money collected from rates to meet the annual interest payments.
SDC investments were spread across multiple platforms including property, tourism operations, forestry, loans, externally managed funds, Emissions Trading Scheme units, term deposits and shares.
The council was looking for an investment fund manager to manage its external investment portfolio.
The long term plan forecast the council would need to borrow $67million for the 2021-22 financial period.
The finance report explained it was a normal practice for councils undertaking large capital projects to borrow money to ensure cash flow was properly managed.
By Toni McDonald
