Tasman council risks breaching $250m debt cap
A higher than forecast cost of borrowing is driving Tasman District Council closer to breaching its self-imposed debt cap of $250 million. Photo: File.
Tasman District Council will likely have to reprioritise its work for the rest of year or risk breaching its debt cap.
As of 31 January, the council’s net debt is currently sitting at $229 million. The council’s self-imposed net debt cap is $250 million.
“We typically haven’t run this close to the cap at this point in time in the financial year,” group manager finance Mike Drummond warned elected members last week.
“We will need to watch the capital works programme, in terms of the borrowing to support capital works. We will need to watch our operational expenditure as well, making sure we do all the things a normal business does to improve and maintain our cash flow.”
Capital works are large projects that typically involve building or renewing long-term infrastructure assets.
He added that staff are working behind the scenes to ensure the council remains under its debt cap.
“Neither the staff nor the [chief executive] want to see a breach of the $250 million.”
The quicker-than-expected approach to the debt cap has been largely driven by increased borrowing costs as interest rates remain high.
The council’s current cost of borrowing is 4.794 per cent of total debt, compared to a budgeted 4.4 per cent.
As interest rates and council’s debt increase, so does the portion of council’s income that must be allocated to service that debt.
However, that higher borrowing cost is a particular concern this year because the council is progressing well on its capital works programme. Capital projects are typically funded by debt.
Finance manager Matt McGlinchey told elected members that, as of the end of January, the council’s capital expenditure this financial year so far is around $40 million, which doesn’t include the costs from Tasman’s joint ventures with Nelson in sewerage and landfill.
“Last year, we actually spent $49 million across the whole 12 months, so we’re certainly a long way ahead. Historically, the last five months are also the biggest months… so we could be looking up to a $75-80 million capital spend.”
Elected members will be presented with forecasted figures for the remainder of the financial year in March with options on how it could avoid breaching its debt cap.
Councillor Christeen Mackenzie suggested that the council could choose to reprioritise some activities to enable high priority projects to be completed within their original budget, rather than scaling all projects back.
“There are always choices to be made.”
Not meeting its capital works programme has been a “perennial” problem for the council, and so such a strong performance in this financial year is good news, thought Mayor Tim King.
“Getting those capital projects completed and spending the budgeted amount is something that will be positive despite the fact that it, in an ironic sort of way, pushes us closer to the debt cap,” he says.
“Both good news and potentially a challenge that comes with it.”
The upcoming consultation on the council’s draft 2024-34 Long Term Plan will include a proposal to lift the council’s net debt cap. Feedback will be able to be given here.
