Councillor questions Hamilton's $240m loan bid for growth areas

Hamilton City Council is asking the government for $240m to be used to speed up housing developments in the city.
MARK TAYLOR/STUFF

Hamilton City Council is asking the government for $240m to be used to speed up housing developments in the city.

Building new Hamilton suburbs with a $240 million interest-free loan could have catastrophic financial consequences, a senior councillor warns.

Rob Pascoe says council jumped the gun in applying for a Housing Infrastructure Fund loan, but Mayor Andrew King says simple maths shows it's worth doing.

The division comes in the wake of King's shock rates rise proposal and mixed messages about the state of the city's books.

Debt, and interest and depreciation costs could shoot up, so council needs to think again about the loan, Cr Rob Pascoe said.
Christel Yardley

Debt, and interest and depreciation costs could shoot up, so council needs to think again about the loan, Cr Rob Pascoe said.

The government's Housing Infrastructure Fund offers interest-free loans to be repaid within 10 years to councils in areas with high demand for housing.

READ MORE:
Housing Infrastructure Fund may be too costly for Hamilton, Rob Pascoe says
Hamilton City Council seeks $240 million government loan for thousands of new homes
$1 billion housing pitch unveiled by Prime Minister John Key
Hamilton city's $12 million finance hole was rates proposal catalyst

But borrowing $240m could mess with Hamilton's balance sheet, Councillor Rob Pascoe said.

Extra costs are outweighed by the benefit the loan would bring, Mayor Andrew King said.
CHRISTEL YARDLEY/STUFF

Extra costs are outweighed by the benefit the loan would bring, Mayor Andrew King said.

Effects include shooting past the council's cap on the city debt-to-income ratio, a $750,000 increase in yearly interest costs due to a reduced credit rating, and higher depreciation costs from extra bridges, pipes and other assets.

"There's going to be a time period where we're going to have a whole bunch of costs while we wait for those new sections to come on stream, [then] we pick up the DCs (development contributions) ... and then we start getting the rating income on the sections," Pascoe said.

"It could be five years, it could be 10, it could be 30 years... It will come in quite slowly over that time as the sections get developed. I'm just a little bit worried that in the meantime, the existing ratepayers will have to fund those costs," Pascoe said.

Ratepayers wouldn't bear the whole burden of $240m at once because council wouldn't be able to spend it that way, Cr ...
CHRISTEL YARDLEY/FAIRFAX NZ

Ratepayers wouldn't bear the whole burden of $240m at once because council wouldn't be able to spend it that way, Cr Dave Macpherson said.

Council could take a smaller loan for Rotokauri only, he said, or central government could make the load easier on councils - for example, by extending the repayment period.

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But King said there's no doubt that council should go ahead with the loan, but Pascoe is right to raise the issues.

"This is a huge opportunity for our city, where central government is taking us by the hand and helping us to open up this growth cell," he said.

"We would be mad to back away," Cr Geoff Taylor said.
CHRISTEL YARDLEY/FAIRFAX NZ

"We would be mad to back away," Cr Geoff Taylor said.

"We'd be getting quarter of a billion dollars interest-free - which you would normally pay 5 per cent on - and we're losing $750,000 [in added interest costs] to do it. So we're way, way ahead. It's simple maths."

King has asked staffers to look into development contribution changes aimed at boosting the amount collected and speeding up the handover of sections.

That would help with council's financial plan for repaying the loan money, he said.

The government acknowledges the council's financial issues with the loan, growth and infrastructure committee chairman Dave Macpherson said.

Hamilton City Council has suggested alternatives, such as the assets remaining on the government balance sheet until council pays it off, he said.

And while it would be foolish not to consider Pascoe's points, growth is coming and council's job is to work out how to cater for it.

"I firmly believe we should be putting in the application and getting the agreement from government ... We wouldn't be able to spend that all at once, so it's not like the whole burden of that would go on ratepayers even if we did start using it," Macpherson said.

Cr Geoff Taylor labelled Pascoe's call a knee-jerk reaction and said council can't ignore the city's pressing housing need.

"There're not too many interest-free loans going around the place and the HIF (Housing Infrastructure Fund) is one of them. We would be mad to back away," he said.

 - Stuff

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