Auckland is desperately short of the infrastructure it needs to cope with current growth let alone investment for the future. When we look at options for delivering the substantial investment needed, we are hamstrung by our debt to revenue ratio.
In looking at our finances, I found we currently had $130 million invested in liquid stocks and bonds. Independent advice from Cameron Partners, noted it was unusual for an organization with the purposes of Auckland Council to hold such an asset. They also noted that the rationale for holding the investment was weak.
Councils Treasurer and General Manager of Financial Services agreed with the external advice and suggested to the Finance and Performance committee that the Diversified Financial Asset Portfolio ( DFAP) be fully divested.
Doing so would allow the repayment of debt to reduce the risk of downgrading our Councils credit rating. Under the LTP the net debt to revenue ratio reaches 265% meaning little available capacity to undertake further capital investment (other than what’s already there) without breaching this ratio
A one notch downgrade is estimated to cost the Council .15%percent in higher interest costs, a bigger downgrade even more. With Councils current debt portfolio of $8 billion, this would result in an additional $12 million of expense per annum once existing debt is refinanced, more than offsetting the positive return from the fund.
The fund was also costing ratepayers $1.5 million per year to administer – and that wasn’t including staff time or costs.
With our population growing far greater than past predictions what is needed is a huge amount of further substantial infrastructure investment. Today at our Finance and Performance Meeting, we resolved to approve the full divestment of the fund, no later than 30th June 2018. This will enable us to reduce debt and accelerate infrastructure investment, particularly in the areas of transport and stormwater.
I was happy to move the recommendations as I saw them clearly as a positive step to reduce debt and create the opportunity to deliver more core council investment in the areas of transport and stormwater, we all so desperately need.