About 200 students from 15 schools, including one from Lower Hutt, performed a waiata in Irongate School's hall. Te huripari o Kapariera was written by Ōmāhu School principal Te Kewena White about Cyclone Gabrielle. Video / Paul Taylor
One Hawke’s Bay council is on track to reach almost $400 million of debt by mid-2024 as cyclone recovery costs continue to compound.
Hastings District Council (HDC) reached $353m in debt in December, all of which is external debt and was borrowed from the Local Government Funding Agency(LGFA).
That means the council’s interest payments now sit around $18m per year, with an average interest rate of just over 5 per cent.
HDC is forecasting it will need to borrow more money by the end of its financial year in June, including to help cover Category 3 home buyouts following Cyclone Gabrielle.
“If we deliver a reasonable part of our capital programme that is budgeted this financial year and get through a fair chunk of the Category 3 buyouts, we could be hitting around that $400m,” HDC deputy chief executive Bruce Allan said.
“It will probably be a bit less than that, but we will be starting to get up around that level.”
If that is the case, the council’s debt will have doubled in less than three years.
Comparatively, as of December, Napier City Council had $10m of external debt (and $106m of gross debt), Wairoa District Council had $19 million of external debt (and $36m of gross debt), Central Hawke’s Bay District Council had $43m of external debt (and about $52m of gross debt), and Hawke’s Bay Regional Council had almost $100m of external debt (and $120m of gross debt).
Napier City Council has previously revealed plans to borrow more aggressively in the coming years with a need to replace ageing water infrastructure, which could see it borrow hundreds of millions of dollars.
Allan said “unfortunately, there are going to be rates increases higher than previously forecasted” for the Hastings district, given the council’s rising costs and higher debt repayments.
Those rates figures are yet to be compiled and released for the 2024/25 council year.
Despite having less debt, all other councils in Hawke’s Bay are also expected to pass on high rates increases in the coming years as they grapple with ongoing cyclone recovery costs, combined with the likes of inflation and higher insurance costs.
Allan said despite the council nearing $400m of debt, its current debt position was still within the borrowing cap set by the LGFA - which is 280 per cent of a council’s annual revenue.
That cap stops councils from getting into trouble due to borrowing too much money.
Hastings District Council’s annual revenue sits around $170m per year, not including large subsidies such as Government support for the cyclone recovery.
A scene of the aftermath of Cyclone Gabrielle in Pākōwhai, near Hastings. Hastings District Council is currently in the process of Category 3 house buyouts, including in that suburb. Photo / Paul Taylor
That means the council still has some wriggle room before it hits the 280 per cent borrowing cap.
Allan said every council tries to keep headroom for borrowing capacity so they can fund recovery efforts from unexpected events such as natural disasters.
In the past few years, HDC has responded to several unexpected events in a row, which has forced them to borrow large sums.
“What we have had to respond to is the Havelock North water event [in 2016] and a transition from an untreated water network to a treated network with more resilience in it - that has cost $100m [over several years].
“We have had two Category 1 heritage buildings that were deemed earthquake-prone and had to be strengthened.”
That project cost around $40m - for the redevelopment of the Opera House and neighbouring Municipal Building.
“There has also been more growth that has occurred in Hastings than we had anticipated that we have had to respond to [with new infrastructure], and now there is Cyclone Gabrielle.”
Hastings District Council deputy chief executive Bruce Allan during the redevelopment of the Municipal Building, which has since re-opened. Photo / Warren Buckland
HDC was the hardest hit of any council in Hawke’s Bay during the cyclone and is facing a bill of around $50m for Category 3 house buyouts, as well as a big bill for fixing the road network.
Allan said, unfortunately, they were having to borrow at a time when interest rates were high.
“It is a bit of a double whammy at the moment - we are getting hit with our debt being higher than it has been as we respond to what we have needed to respond to, and interest rates have been on a steady climb over the last few years as well.”
The new Government said in December it plans to repeal Three Waters legislation in early 2024, which comes as bad news for HDC, as that reform would have wiped about $160m of debt from the council’s books.
Gross debt includes both external debt (money borrowed from outside the organisation) and internal debt.
Internal debt generally involves councils shuffling around funds to borrow from themselves, such as borrowing money put aside for future projects.
Gary Hamilton-Irvine is a Hawke’s Bay-based reporter who covers a range of news topics including business, councils, breaking news and cyclone recovery. He formerly worked at News Corp Australia.
