NPDC Debt in 2004 - Wow - What a difference 20 years makes.

One of the comments made this week about the current debt at the NPDC suggested it would be interesting to compare the level of Debt in 2004 – when the PIF fund was created – with the level of debt now in 2024.

The comment suggested it would be good to compare Apples with Apples.

Standard and Poor’s rated the NPDC in 2006 – only 2 years after the PIF fund was created -and this also has the history of the rating back to November 2004.

This is the link to that report. (It’s very long and lots of accounting type words).

https://www.npdc.govt.nz/media/ejwd3ovp/reports-standard-and-poors-report-on-npdc-2006.pdf

(Numbers people may be interested to compare some of the figures back then and the charts and graphs. The NPDC was in a very different position financially than it is today).

The short version of the Standard and Poor’s report is:

Strengths:

• Negative net debt position
• High liquidity
• Limited capital expenditure pressure

Weaknesses:

• Small and relatively narrow economic structure

Lots of finance type words - which are explained a little more below:

Negative net debt

The negative net debt position means the NPDC had a value of more cash and liquid assets than debt – giving a negative debt position. (They had more money they could cash up than the amount borrowed).

In 2004 – $12.2 Million was owed

In 2024 – $364 Million is owed

The money from the sale of Powerco shares was in an independently managed diversified portfolio of investments and Standard and Poor’s felt “that the portfolio strengthened the council's credit quality”

High liquidity

At June 30, 2006, cash and security holdings of NZ$210 million and NZ$1.6 million in an undrawn committed bank line more than offset short-term debt obligations of NZ$12.2 million.

Limited capital expenditure requirements

New Plymouth enjoyed limited infrastructure replacement needs and no renewal pressures (being behind getting the work done), nor did it have the growth pressures experienced by centres such as Auckland City Council and Tauranga City Council.

Economy

Diversity within the Taranaki regional economy had increased with the growth of oil and gas, tourism, and service sectors. However, there was still a strong reliance on the milk and milk products industry. The size of the economy, relative to its New Zealand peers, was also a credit weakness.

Comparative Analysis

New Plymouth was the highest-rated local government in New Zealand. Its strengths relative to its domestic and international peers included its strong accrual operating position and negative net debt. Offsetting these strengths was its overall cash balance deficit. New Plymouth also benefited from extremely strong liquidity (Cash they could access).

International peers

Internationally, New Plymouth's low net debt levels were comparable with its 'AAA' rated peers such as the Canadian Municipality of Durham, the Australian City of Melbourne, and the Swedish City of Taby. New Plymouth's capital expenditure program as a percentage of total expenditure was larger than its peers and as a consequence this was reflected in its lower overall cash balance. New Plymouth's strong credit quality was further supported by its high degree of financial flexibility. Similar to Melbourne, New Plymouth had taxes (rates) that were low relative to those of neighbouring local governments.

• In 2006 the Census had the population at 68,900
• In 2023 the Census had the population at 87,000
• A 26% increase in population size – a little over 1,000 people a year (over all age groups, so around 250 new houses needed per year).
• Data for 2006 is not accessible for how many ratepayers and dwellings there were in New Plymouth.

So, in 2006

• We had low rates by comparison – nationally and internationally.
• Our infrastructure replacement was up to date and not under pressure to be renewed.
• We had a very strong cash position as a Council even after we had kept up with all the infrastructure needs.
• There was $12.2 Million in debt – with infrastructure replacement up to date. There was a AAA/Stable/A-1+ rating
• In 2024 – we have $364 Million in Debt and we need to borrow many millions to replace infrastructure as it is behind schedule to be replaced. There is an AA+/A-1+ Negative Outlook rating

Does that answer the apples versus apples scenario ?

20 years ago this city was a shining beacon of how to run a city with the money available and concentrating on the infrastructure and services that council is in place to provide.

There are certainly projects which have enhanced the city both as a place to live and as a place to visit. But at what cost to the current ratepayers, who have a huge backlog of infrastructure and maintenance work that has not been kept up to date, and as such will have a huge burden of even more debt to pay for it going forward.

Does this comparison of 2006 to 2024 raise questions like:

• Where has our rates money been going since 2006 ?
• What exactly are the projects/operating costs we are borrowing money for ?
• How much of what is spent is actually itemised clearly in the Long Term Plan that we get to have a say about (or in the LTP’s at all) ?

Did anyone know by saying it would be nice to have a few extra things in a Long Term Plan that the debt levels would balloon from $12.2 Million to $364 million ? And that successive Mayor’s would ignore infrastructure and divert that budget into nice to have projects ?

This is why we mention transparency – there was no indication in any Long Term Plans that such an enormous amount of debt would be needed to build all the nice to have projects and so much infrastructure would be ignored to make those nice to have projects happen.

Going forward from the next election we want a competent group of councillors, and executive management staff, who clearly outline what it is we are actually voting for in an LTP and what it will actually cost us.

We want to be able to make a fully informed decision about the consequences we may face over the next 20 years from what is presented to us in a Long Term Plan.