By Andrew Bydder, Hamilton City Councillor
Numbers have been rounded for simplification.
Hamilton’s population is approx. 192,000 (2025).
Hamilton’s population was 173,000 (2019).
Average rates per household is $3,000.
Number of households is 60,000 (3.2 people per household).
Ideal static model
Operating revenue (council rates) must cover general* operating expenses. This is the legal requirement set by the Local Government Act.
Ideal growth model
New ratepayers consume some city services such as water and rubbish (increase operating expenses) at the same rate as existing ratepayers, and require new infrastructure, such as new roads and pipes. Therefore, infrastructure investment is required. This is debt-funded to allow an inter-generational spread of costs to actual users over the lifetime of the asset. The cost of debt is interest. Rates from the new population must cover the operating expenses plus the interest cost. This is ‘growth pays for growth’.
New ratepayers also benefit from some existing infrastructure (libraries, parks, old roads) and greater economies of scale for some services (water treatment plant). The cost of operating and maintaining the existing infrastructure is spread over a larger number of ratepayers, therefore average operating expenses goes down. We can measure the net surplus per additional ratepayer.
This surplus can either be used to reduce average rates, or be used to fund new services. Inter-generational borrowing can be used for new services where the surplus covers the interest cost. Growth benefits existing ratepayers, and should be encouraged.
Current model
Operating income does not cover operating expenses. This means there is no surplus per ratepayer. Council borrows to cover the deficit. This has been the case since at least 2002.
Rates are legally required to be increased to ‘balance the books’ but this has not been done for political reasons. The required increase is now so large that a significant proportion of the population would suffer financial hardship if it was applied.
Council is trying to grow its way out of the problem. Debt is used to fund infrastructure to grow the population, in order to increase rates revenue. Since 2019 (Paula Southgate’s mayoralty), debt has tripled from $400m to $1.2 billion, an increase of $800m, which has primarily been used for growth.
Since 2019, annual interest cost (at an average of 5%) has tripled from $20m to $60m, an increase of $40m. This requires the entire rates income from 13,333 households to pay every year. That is 42,000 people, which is twice the actual population growth of 21,000 over this time!
Not only is that new population failing to cover the interest cost for the new infrastructure, it doesn’t leave anything to cover the increased operating expenses created by that growth.
New ratepayers are not generating a surplus. They are a net cost. Growth is not paying for growth. We are simply digging ourselves into a bigger hole.
Fixing the problem
Mathematically, rates need to increase to cover operating expenses. This is a problem if people cannot afford higher rates. However, council has committed to a series of increases that generate a surplus (assuming nothing changes) from 2027. History suggests the balancing of the books will continue to be pushed out and the surplus will be spent. A change in council governance is needed.
Philosophically, we should stop growing. Council has limited control over this because government policy is to grow the region. 11% of the Hamilton workforce is employed in construction which requires growth.
The cost of growth must be reduced. This is the only practical answer. We know NZ’s infrastructure cost is 4 x the OECD average. The way infrastructure is delivered needs to be changed. Private Developer Agreements (PDAs which allow developers to use their own contractors and project managers) in Rotokauri and Rototuna have delivered infrastructure at half council’s budgeted cost. It is achievable, and it must be done.
Council has operated without a business case, and is simply providing the infrastructure to its own specification to meet the demand without a cost-benefit analysis, and without consideration of affordable alternatives to different specifications. It is like a family that wants a new car so buys the latest model from a dealer on hire-purchase instead of a second-hand car that meets their needs.
Debt repayment
The operating surplus is what repays debt. Individual loans may be repaid, but it is done by rolling over the debt with another loan. Instead of setting aside money for depreciation of assets, we fund renewals. This means we will need more borrowing to replace existing infrastructure at the end of its life, so intergenerational borrowing never ends.
Even with surpluses from 2027, the LTP projects principal debt growing at a faster rate than the surplus. Debt is currently $20,000 per household. While intergenerational debt is OK, the accumulated debt from excess operating expenses should be repaid, and there is currently no ability to do so.
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Further reading on this issue
OPINION: Analysis of Hamilton City Council’s financial position
OPINION: The 2025/26 HCC Budget – More of the Same and No “Fresh Thinking” (Yet) for Election Year
