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A Southland District Council decision to invest millions of dollars of borrowed money into balanced funds has been debated strongly at a meeting on May 31.
The Southland District Council has voted to invest millions of dollars of borrowed money into a balanced fund which includes shares, but not without vigorous debate.
At a council meeting on Wednesday, eight councillors voted in favour of the motion and four against, including Don Byars who argued the council was risking ratepayers’ money.
Before the vote was taken, council chief finance officer Anne Robson asked elected members to consider whether they wanted council reserves invested in a balanced fund, made up of property, cash and shares.
This would mean the council would be borrowing $33 million from the Local Government Funding Agency to refinance past infrastructure work.
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The previous elected council had put up the option of investing the reserves in a balanced fund in a bid to get greater returns for ratepayers. At that time, the Local Government Funding Agency interest rate borrowings were 2.2% and the fund was expected to reap annual gross returns of 5.5%, Robson said.
“The market conditions were such that they were brilliant.”
The market had since turned and Robson said the returns would initially be “negatives”, but the assumption was they would return 5.5% on average over the next decade.
Elected members on Wednesday voted 8-4 in favour of investing the borrowed money into the Milford and Westpac balanced funds in quarterly instalments of $4m each time over two years, but not before reviewing market conditions before each instalment.
Byars said he didn’t think it was a good look for any council to be borrowing on behalf of ratepayers and investing the money in the sharemarket.
The numbers being presented at the council were confusing, he said.
“I suggest we don’t touch it with a barge pole,” he said before the vote.
He believed that by putting the money into the sharemarket there was a high chance it would risk the council’s ability to fund roads and bridges.
“We are really depending on the sharemarket increasing in a time of increased volatility and that’s not a risk we should be taking with ratepayer funds.”
Also voting against were councillors Derek Chamberlain, Jaspreet Boparai and Matt Wilson.
However, Cr Paul Duffy said it was a strategy that over time would give benefits to the ratepayers.
“I think it’s misleading to say it’s borrowing to invest in the sharemarket, it’s a strategy to manage funds well,” Duffy said.
“We have seen in the past our reserves sitting and not gaining anything over a long period of time, and while it’s good to think we can delay work and save money, we have seen what happens to our roads and bridges … we fall behind.”
Boparai believed the investment was too much of a risk, while Wilson was uncomfortable the assumption was being made that the next decade would bring similar returns to the previous decade.
Cr Tom O’Brien, who voted in favour of the proposal, said he supported a mixed investment over various portfolios to spread risk.
Cr Sarah Greaney also voted in favour, saying it was important the decision made was for the long term, and not to be chopped and changed each year.
Deputy mayor Christine Menzies said she was comfortable investing the money in instalments, but only subject to reviewing the decision before each instalment. This was the decision that was made.
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