Government funding of Auckland rail link eases council's funding pressures, LGFA says

Wednesday 14th September 2016

The government's agreement to pay for half of Auckland city's proposed 3.4 kilometre inner city rail link will help ease the city's funding pressures, the Local Government Funding Agency says.

Central government and the council today signed a heads of agreement that the Crown will pay 50 percent of the rail project estimated to cost between $2.8 billion and $3.4 billion, releasing the money in tranches, associate Finance Minister Steven Joyce and Transport Minister Simon Bridges said in a statement. That funding will become available once a separate sponsors agreement is signed detailing the project's budget, governance, delivery and how to respond to cost overruns.

When Prime Minister John Key indicated central government would support the project in January, the cost was thought to be about $2.5 billion.

The council had borrowings of about $7.61 billion as at June 30, up from $7.33 billion a year earlier, and estimates debt will rise to $11.6 billion by 2025 to pay for a series of infrastructure projects including the transport plan.

Auckland accounts for about a third of the Local Government Funding Agency's $6.6 billion in loans, below the 40 percent limit. The city can also raise debt internationally and has a retail bond programme on the NZX debt market.

The city rail link deal with central government "will take some pressure off Auckland Council's balance sheet," chairman Craig Stobo told a Local Government New Zealand briefing in Wellington. "We think we've got some capacity for them."

LGFA's lending to 51 councils was 24 percent higher than in August 2015, though the amount of debt local bodies had taken on was smaller than projected in their long-term plans with some capital expenditure projects deferred for a year.

Stobo said the agency was focused on the fastest growing councils and didn't have any concerns about LGFA's ability to fund capital expenditure programmes.

LGNZ president and Hastings district mayor Lawrence Yule said capital spending intentions were typically scaled back from those projected in the long-term plans as councils contend with tensions over rates increases and spending priorities.

"There's an argument that some councils aren't spending enough on capex to repair infrastructure - I think that's a strong argument," Yule said. "That same view is shared by the Office of the Auditor General - it's not just worrying about councils that borrow too much, it's actually (that) some councils aren't borrowing enough to fund infrastructure planning."

Last December, the Auditor General's report on 2015-25 local authority long-term plans found common weaknesses undermining infrastructure strategies were unclear on the effects of an aging society, lacked analysis to show the financial sustainability and affordability of projects, didn't make clear the long-term impacts of projects, and didn't take a deep enough view of long-term economic activities.

BusinessDesk.co.nz

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