Councillor predicts rates will go towards paying interest
One third of rates will go towards paying interest, predicts Councillor
Auckland Councillor Cameron Brewer today raised concerns in the Finance & Performance Committee about the increasing amount of rates revenue going towards servicing interest costs on ballooning council debt.
Today, ‘net interest as a percentage of rates income’ was reported at 19% as at 30 June 2013, with finance staff confirming it was just 9% at 30 June 2011. Council treasury policy allows for a maximum 25%.
“Given it has more than doubled in just two financial years, I think we’ll sail past the 25% limit by the end of the decade. In fact given council’s borrowings are set to more than double, and with rising interest rates, I think council’s interest costs will easily double again by the end of this 2012-2022 Long Term Plan period.
“It’s well established that Auckland Council is now paying $1m a day in interest, and it’s only going to get worse. What it means now is that if the average annual Auckland household rates bill is around $2,500, the first $500 is effectively going solely towards covering interest payments, not on providing council services. Or if you like, for the first 10 weeks of every calendar year ratepayers are paying all their rates just to service council’s interest bill!
“While the Mayor claims the council’s got plenty of capacity to borrow more, the reality is on the current track soaring interest costs will seriously limit future generations options, as interest payments chew up more and more council budget.
“The Mayor and councillors have already lifted the ‘net debt as a percentage of revenue’ ceiling from 175% to 275% and I suspect we’ll be forced to lift the interest ceiling as well. Let’s not forget council’s forecast 10-year borrowing plan was increased late last year, not to mention that we’re coming off a 50-year interest rate low.
“The Mayor continues to promise everything to everyone. The reality is however, if he wants to avoid putting crippling interest costs on Aucklanders, he needs to start seriously prioritising all his big political promises and ‘game-changing’ projects. Amazingly he still wonders why people don’t like his plan to fast-track the City Rail Link without any funding plan in place.” says Cameron Brewer.