The important change in Tauranga's debt is not in the total $310 million amount, even though it is $87.8 million less than expected, but how it's comprised.

There are two kinds of debt that make up the total - ratepayer funded debt which is the bad debt that usually means rates rises, and then there's the debt funded by other means.

Selling Route K doesn't mean the council can spend another $63 million.

'If you have got growth you are going to have debt,” says finance and risk committee chairman John Robson.

'Debt in relation to growth is debt we probably have to take on because of the number of people coming here, like I said fleeing Auckland. A lot of people are coming here, that means we have got to find land, and service that land with infrastructure.”

The way it works is the developer buys land for development, the council then pays for the infrastructure – the pipes for the three waters; drinking water, storm water and wastewater. Then it collects the money back from the developers through development contributions.

'Previously we didn't put cost of capital in that collection, so growth didn't pay for growth, and that's where one of our debts as a city came from,” says John.

If the council borrowed $100 for 100 sections and collected back $1 a section it still wouldn't break even. It would have to collect $1.10 per section because it has to pay for interest costs on the loan. For some reason, not all the sections always get built on.

The council ends up collecting $1.10 from 90 sections, it's still a $1 down and there is no way of getting that money back.

'In the old days we would have to borrow an extra $10 on the way because we didn't get our calculations right,” says John.

'We are getting better. Nowadays, for the past few years to be fair, we put cost of capital in the calculations. We've also gotten better at estimating what things are going to cost. We have better systems in place, people have more experience.

'We have to put roads in the ground, and we know how that works. We are getting better at that,” adds John.

'Though growth doesn't pay for growth, the price of growth is getting smaller because we are getting better at managing it. And that's the kaupapa of our long term plan, is successfully managing a growing city.

'It doesn't mean growth will pay for growth but the cost of growth on the resident community will be as small as one could reasonably expect it to be. That's got to be out target.”

Putting in a new road for a new subdivision is not a concern for the ratepayer in terms of capital expenditure, because it's paid for by the New Zealand Transport Agency and money from development contributions paid by developers.

'Debt that pays for itself through non-ratepayer funding isn't as issue as long as it doesn't get too high,” says John.

'In the past we have had people promoting issues and spending money on stuff that is being funded by the ratepayer and that's why your rates go up.

'What we have got to try and make sure with the debt we take on is that we fund as much of it as possible by a means that's not ratepayer.

'When we do take on debt that is ratepayer funded we have to make sure it is a need and that we have ratepayer support for it.”

For example if the city council builds an art gallery and doesn't have a revenue stream to pay for it, then it is paid for out of rates.

But Route K's $60 million or so debt was costing the city about $100,000 a year because the debt raised the total council debt by only a couple of percentage points says john. And it had an income.

'When we sell Route K it's not like we suddenly have $60 million in the bank, to spend on something else,” says John. 'When Route K left not only did the debt go, but there was a revenue stream associated with it. Those tolls would have eventually addressed the debt.”

The only reason NZTA was comfortable taking the toll road and the debt together, is it's a wash. A zero sum, says John.

'These people that got all excited when we got rid of that debt forgot we also lost the revenue stream. If we replace Route K with a museum, the rates will go up.”

The city's ratepayer funded debt is falling, but the other debt is increasing significantly, and the reason is that Tauranga has been the fastest growing city for the last 80 years. That has a cost

The way the game is designed the council cannot make growth pay for growth. If council gets its sum wrong and undercharges the developers, it cannot go back and ask for more. If the council overcharges, then it has to give it back.

'When the developers come and gamble at the casino of Tauranga City the odds are in their favour,”

The rates rises proposed in the Long Term Plan are 3.5, 3.2 and 3.1 per cent or a total of 9.9 per cent before the plan is reviewed. The total increase over the ten years of the plan is 29.4 per cent, which John says compares favourably with the 80 per cent increase over the ten years from 2003 to 2013.