The financial impacts of the earthquakes, and, more recently, the COVID-19 pandemic, have reinforced the need for us to be in a financial position where we can respond to unexpected events.
To achieve financial resilience, we need to retain the ability to borrow funds at short notice to soften the impact of any fiscal emergency. This will ensure we can continue to deliver appropriate services without a big impact on rates.
In the short term, this gives us the ability to borrow close to $400 million to deal with any unexpected events.
To help us reach long-term financial resilience, we’re planning to achieve a balanced budget and to manage debt prudently.
In the past, we haven’t always had a balanced budget due to our rating for asset renewals being historically too low. We’ve been addressing this progressively since 2015 and will have a balanced budget again in all years except 2024/25.
We normally use debt to finance new long-term assets that benefit future generations of residents. This ensures the upfront cost is shared fairly across the generations who’ll be using them. We’ve also had to do some short-term borrowing to cover reduced revenue that resulted from COVID-19.
While we can service our current and forecast debt comfortably, carrying a relatively high level of debt means we need to restrain the increase in debt to ensure we have financial resilience.
The Council’s net debt (our total debt minus our cash holdings and debt that’s owed to us) is forecast to be $1.6 billion at 30 June 2022 – $250 million lower than predicted in 2018. Our total assets amount to about $15.6 billion, which gives us a debt-to-asset ratio of around 10 per cent. As an analogy, first home buyers generally borrow 80 to 90 per cent of house value to purchase properties.
Our net debt to revenue ratio is forecast to peak in 2028 before reducing over time.
By 2027, we’re planning to have repaid all the debt we took on to meet the shortfall caused by COVID-19.