Is local government debt constrained?

Local government owns and operates over one-quarter of New Zealand’s infrastructure assets. It provides local roads, water supplies and wastewater, and public transport networks. It also provides social infrastructure like parks and libraries.

This research examines the tools local government uses to finance infrastructure investment and how these are being used.

Key findings:

• The costs of building, renewing, and maintaining infrastructure are significant. Since 2002, for every $100 invested in infrastructure, about $24 comes from local government, an average of $3.8 billion per year.
• Local government undertook sustained periods of infrastructure investment from 1920 to 1936 and 1950 to 1970. During these periods, their revenues grew in line with debt, which prevented debt-to-revenue ratios from rising and preserved their ability to make future investments.
• Our current investment cycle – from the mid-1990s on – appears to be the first where local government has significantly increased debt to finance investment without increasing revenues at a similar rate. From 2009 to 2022, inflation-adjusted local government debt grew 226%, but inflation-adjusted rate revenues increased only 42%.
• The difference in how councils invest may be due to a change in our mix of investment over time. Between the 1920s and 1970s, local government was building new infrastructure networks from scratch to serve rapidly growing urban populations. Today, a much larger share of investment is directed towards renewal of existing infrastructure than to growth infrastructure. Investment to incrementally improve existing infrastructure networks is unlikely to drive the same level of economic uplift as building those networks in the first place.