Southland council’s investment fund move spurs strong debate

The Southland District Council has voted to invest millions of borrowed dollars in a balanced fund that includes shares, but not without vigorous debate.

At a council meeting yesterday, 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 (LGFA) to refinance past infrastructure work.

The previous elected council had put up the option in a bid to get greater returns for ratepayers.

At that time, the LGFA interest rate borrowings were 2.2% and the fund was expected to reap annual gross returns of 5.5%.

The market had since turned and Robson said the returns would initially be ‘‘negatives’’, but the assumption was that they would return 5.5% on average over the next decade.

Elected members yesterday 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 were confusing, he said. ‘‘I suggest we don’t touch it with a barge pole,’’ he said before the vote.

Also voting against were councillors Derek Chamberlain, Jaspreet Boparai and Matt Wilson.

Councillor Paul Duffy said it was a strategy that over time would give benefits to 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 . . . 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 with the assumption that the next decade would bring similar returns to the previous decade.

Councillor Tom O’Brien, who voted in favour, said he supported a mixed investment to spread risk. Councillor Sarah Greaney also voted in favour, saying it was important the decision made was for the long term.

Deputy mayor Christine Menzies was comfortable investing in instalments, but only subject to reviewing the decision each time.

‘‘I suggest we don’t touch it with a barge pole.’’ Don Byars Southland District councillor