Auckland Council's net debt rises 6.5 per cent to $7.97 billion

Auckland City has $1.36 billion of NZDX-listed bonds in its own name.

Auckland Council's debt rose 6.5 per cent to $7.97 billion as the city invested in transport and water infrastructure, while net assets climbed 6.3 per cent to $35.8b, according to its preliminary unaudited accounts.

New Zealand's biggest city recorded an operating surplus before gains and losses of $340m in the 12 months ended June 30, from $250m a year earlier. Revenue from ordinary activities climbed 11 per cent to $4.1b.

Acting chief financial officer Matthew Walker says the city was keeping its finances within the parameters of its AA credit rating with Standard & Poor's while making the investments "required to address the growth challenges Auckland faces."

Net tangible assets per $1,000 of listed bonds was $26,026 as at June 30, down from $28,233 a year earlier.

"As a successful and increasingly global city, Auckland's population is growing rapidly," Walker said in a statement. "This continually adds to the demands on our transport, three waters, and community infrastructure such as libraries and parks."

A joint report, released this month, from central government and Auckland Council into the city's transport needs identified a $5.9 billion funding shortfall over the next decade.

Total funding required for the decade was estimated to be $25.9b, of which $20b has already been committed to by central government ($13b) and Auckland Council ($7b). The report, which updated work undertaken as part of the Auckland Transport Alignment Project, was done after Statistics New Zealand raised its estimate for the city's population growth.

An NZIER report on Auckland's congestion costs published this month found congestion probably wipes about $2b from annual Auckland gross domestic product and that decongestion could create a $1.3b annual economic benefit for the city. Auckland City's net surplus was $640m in the latest year compared to a deficit of $231m a year earlier. Included in the results was a $72m return from the city's 22.4 per cent stake in Auckland International Airport. The city also recognised a revaluation gain of $1.47b on property, plant and equipment compared with a gain of $1.6b a year earlier.

It unaudited accounts show revenue included $1.64b from rates in the year, up from $1.56 billion in 2016, while fees and user charges rose to $1.19b from $1.08b. Expenditure climbed to $3.79b from $3.46b including a 6.2 per cent increase in employee costs to $853m.

These long-term assets are primarily funded by debt, in-line with our strategy to spread costs over the generations which benefit from them.

The city said the main drivers of increased spending were higher employee benefits "resulting from growth in services, recognition of gross costs incurred on transport operation contracts as a result of the new Public Transport Operating Model, an increase in weathertightness costs driven by updated assumptions on multi-unit dwelling claims and full recognition of Eden Park Trust Board financial guarantee to support their borrowings from ASB Bank".

The full audited accounts for 2017 are to be published in September. Included in a media release today were capital expenditure highlights which included $310m spent on water and waste water infrastructure, $200m on parks, sports and community facilities, $430m of roading and $288m on public transport.

"We continue to deliver core infrastructure, including roads, footpaths, public transport and water and waste water infrastructure," Walker said. "These long-term assets are primarily funded by debt, in-line with our strategy to spread costs over the generations which benefit from them."

The city is projecting group debt to rise to $11.6b by 2025 while its asset base is forecast to grow to $60b from $45b, meaning debt "will remain at a prudent level relative to our income," Walker said.

As well as raising debt funding via the Local Government Funding Authority, Auckland City has $1.36b of NZDX-listed bonds in its own name. Its $250m of September 2020 bonds, which carry a coupon of 4.017 per cent, were last quoted at a yield of 2.75 per cent on the NZDX website. They are trading at $105.445 per $100 face value.