Tauranga City Council elected members have today decided to use the Council’s traditional, value-for-money debt-funding approach to finance the Te Manawataki o Te Papa civic precinct redevelopment project.
Te Manawataki o Te Papa – the heartbeat of Te Papa – is a $306 million project designed to revitalise the city centre, which will see the construction of a new Library and Community Hub, a Civic Whare meeting space and a Museum and Exhibition facility in the civic precinct bounded by Wharf, Durham, Harington and Willow Streets. Also included are landscaping and streetscape features, which will link through Masonic Park to the upgraded waterfront reserve. The ratepayer-funded portion of the project cost is capped at $151.5 million, with the balance to come from grants, philanthropic contributions and asset realisations.
Mayor Mahé Drysdale says the original plan for funding the $151.5 million ratepayer portion of the project was to utilise the government’s Infrastructure Funding and Financing (IFF) Act to raise the necessary funds, with repayments to be covered by a levy on all eligible ratepayers.
“The decision to use IFF was forced upon the Commissioners because the Council had limited debt headroom under the Local Government Funding Agency’s (LGFA) debt-to-revenue limits. With the announcement that the Government looks likely to raise these limits, it will give us more capacity to borrow at cheaper rates, meaning we don’t need to use the more expensive IFF option,” Mahé says. “In an environment where interest rates are reducing, we don’t think it’s prudent right now to lock ratepayers into long-term debt at a fixed rate.
“The new Council has today confirmed the importance of this significant project for the future of our City. Council members are committed to injecting new life and economic activity into the city centre, but we believe the Government’s decision earlier this month to explore raising the debt-to-revenue limits for fast-growth cities like Tauranga offers a better way forward, principally through lower borrowing costs,” Mahé continues.
“Essentially, this will allow us to finance vital infrastructure projects through LGFA, our traditional borrowing source, without breaching our debt limit. Under the Government’s new initiative, Tauranga’s debt-to-revenue limit is set to rise from 285% to 350%. That will provide the debt headroom we need to prudently proceed on a number of projects, knowing that we will not be risking a breach of our debt covenant, with the negative consequences that would have on our borrowing capacity and interest rates.”
Mahé adds that it’s important that the Council is prudent with any borrowing, and gets “bang for our buck” with its investment decisions. “Ultimately, debt does need to be repaid and we have to be aware of the impact that has on our ratepayers. However, debt is an important tool to spread the cost of new infrastructure over the life of the assets involved, so those that get the benefit are contributing and current ratepayers aren’t paying the full cost upfront.”
The IFF application for funding the Te Manawataki o Te Papa programme made to the Government earlier this year, following formal community consultation, will not proceed at this time and the Council will work with LGFA and the Government to have its higher borrowing capacity confirmed.
“Our expectation is that the higher limit should be in place by the end of November, but if that is not the case, we’ll look at other financing and funding options then,” Mahé adds. “We also need to confirm the implications of these higher limits on our credit rating and future borrowing rates.”
In the meantime, the Mayor and Councillors approved funding and financing arrangements at today’s Council meeting to allow the new Library and Community Hub facility, the first of the major Te Manawataki o Te Papa projects, to proceed to completion.
“While this increases the debt on Council’s balance sheet, overall debt doesn’t change because we will just be using LGFA rather than IFF as the borrowing source, meaning the cost to the ratepayer will be less than it would have been had we proceeded with an IFF levy,” Mahé explains.
“Amongst the key decisions made today, the Council has also authorised the Chief Executive to enter into a contract with our construction partner, LT McGuinness, for the Library and Community Hub.
“This is a project we have inherited from the Commissioners. We are working through each of these to ensure we are delivering the best outcomes for our people. There would be a very real loss to ratepayers if this project was cancelled or paused, so continuing it offers the best value for money and means we can continue to revitalise the CBD.
“From our investigations so far, we have confidence that this project is on-track to be delivered on time and on budget,” Mahé concludes. “We also anticipate receiving a further report on a proposed Civic Whare and Exhibition and Museum contract for consideration later this year.”