It’s welcome news that Kāpiti Coast District Council is set to postpone their borrowing of up to $30 million to punt on the stock exchange, but the question has to be asked - why didn’t common sense prevail earlier?
As a council carrying a large debt, it should have been apparent early on to Council that borrowing $30 million to create the Kāpiti Investment Fund wasn’t a responsible risk to take on behalf of ratepayers. The Auditor-General noted that Kāpiti Coast District Council’s proposal was unusual and it’s apparent from the contents of the Auditor-General’s letter to the Council that they don’t appear to have fully appreciated the risks of the venture they were seriously considering undertaking.
Where these types of funds do exist, they are either created using the proceeds of some sort of windfall (such as an asset sale) or through borrowing undertaken by central government - who have far more scope to weather the downturns that periodically impact these types of investments. A local authority with low debt levels might also feasibly be able to look at something like this, though it’d still be the exception to accepted responsible practice.
None of these situations apply to Kāpiti Coast District Council.
As the council with the second highest level of debt per capita of all councils in New Zealand, we all appreciate that this heavy legacy of debt puts a squeeze on the fiscal options open to council to fund critical infrastructure.
But looking to borrow significantly more to invest in shares when the markets are especially volatile due to an uncertain global outlook, something that’s been apparent for the past couple of years, does not pass the basic test of common sense and shouldn’t have been allowed to progress so far.
The Productivity Commission is currently conducting an inquiry into the funding and financing of local government across New Zealand, as the pressures on council finances aren’t something unique to Kāpiti. We would have been far better served had Kāpiti Coast District Council directed their efforts to working with the Productivity Commission to find a more lasting solution to the wider issue of local government funding instead of creating the situation where ratepayers felt the need to write to the Auditor-General to raise concerns over this.