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Wednesday
Jan262011

Councillor McLean's Vision

There is no doubt that Councillor McLean has a very influential position on the new Council. His past experience gives him the ability to exercise influence over less experienced and financially savvy colleagues. They should be wary, very wary.

The ex-Member of Parliament - never forgiven by hardcore Nats for having lost the safe seat to Jeanette Fitzsimons, has long held the view that borrowing is the way to go to get infrastructure in place and take advantage of what he considers low borrowing rates.

There are some fundamentals that our new Councillor choses to ignore in putting his arguments - most recently in the Whitianga Informer dated 25 January. It is worthy of being quoted in full:

"And talking about money, I'm only one member but I'm hoping that the borrowing policy is changed. Right now we have one of the most conservative policies in the country and while there are benefits to that there are also some drawbacks. We need to take a good look at how we operate in that area so we can take advantage of the current work and finance situation to get things done more inexpensively now that they will be as the economy strengthens".

The TCDC currently stays within a conservative debt level that is related to a multiplier of 150% of  forecast total revenue. Total debt interest shall not exceed 15% of total revenue.  The debt level includes both internal and external borrowing - internal includes borrowing against reserves etc. and amounts to around 50% of total borrowing capacity. Total forecast debt for 30 June 2011 is $125.8m. - precisely within the established 150% revenue debt limit.

Most councils of TCDC's size maintain similar ratios - contrary to Mr McLean's claim ours is by no means the most conservative. Others - (i.e. Tauranga City) choose to ignore internal borrowing in their formula, and as a result often find themselves in dire straits when they try to roll over borrowings. Institutions first query viability, and then raise their interest  rates, even if they are willing to continue as lenders.

Some have suggested the bond market as an alternative. Basically it is impractical for a council the size of TCDC to seek to access this market due to having to be subjected to expensive rating procedures that are beyond a council of the size of TCDC. 

Why anyone would be suggesting that TCDC change its ratios in order to facilitate further borrowing while the Government is intent of reducing borrowing totally escapes me. Simply borrowing to further commit to capital works programs that have been promised during election campaigns is the height of irresponsibility. Truthfully, it is simply a political device to enable councillors to make themselves look good by restricting rate increases, and expanding generational transfer through irresponsible borrowing.

Ratepayers should not be fooled, again. Our current borrowing levels are almost entirely due to the funds required to complete the Eastern seaboard waste-water plants that because of faulty forecasting are capable of meeting demand for at least 40 years. That was not a sensible decision despite protestations to the contrary by those whose names are inextricably tied to the decison, including previous Eastern seaboard councillors. 

Councillor McLean's argument that we should borrow now while interest rates are low, and clearly in order to keep rate increases artificially low, completely overlooks the fact that borrowings have for some time only been available through short term facilities. This is not like mortgage borrowing - TCDC accounts to 31 October (the most recent available) show that 23% of its forecast loan/facilities are on the 1 to 3 year market, 36% on 3 - 5 year, and 41%  on 5 - 10 year.

All recent borrowing has been at the shorter term. Lenders are not stupid, and are not going to loan long on a rising interest market. The crunch comes when the Council fronts to re-finance additional borrowings that have been taken out to meet demand for water schemes, town upgrades and Zoom Zone/Sports facilities. Changing current borrowing ratios to meet short term objectives is not a prudent policy - it is naive in the extreme. 

Any attempt by our Council to raise debt ratios to satisfy the needs of councillors who have over committed themselves during the election campaign should be treated with considerable concern by rate-payers. Fortunately, Council cannot undertake such a change to its Annual Plan and LTCCP without going through the public consultation, and any proposed changes should be subjected to thorough examination at that time. Other Councillors should think very carefully before being rail-roaded by Councillor McLean and those who support him.

 

 

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Reader Comments (2)

Excellent blog Bill.
It seems to me that concerned citizens need to make their views felt. We must begin to live within our means. If going without some flash sports facility or new civic centre, is needed, then so be it. There are a large number of people in New Zealand right now who are going without some very basic things.
To borrow outside TCDCs established limits may well be catrostrophic for our communities in the future. We ought to reduce our overdraft and live within reduced expectations.
Email or write to TCDC councillors and the Mayor with your concerns.
Your letters need not be long, wordy affairs, rather they need to express your opinion, with whatever emotions you feel at the time of writing. If angry, show that anger. If frustrated, then show that frustration.
The days of the calm, almost detached, comments have long since gone. We really do need to let people in power know, clearly, how we feel.
If we don't stand up to the bullies in power, then we simply get what we deserve.

February 1, 2011 | Unregistered CommenterRussell

A very clear and fact-based opinion. Good one Bill. I wonder how many rate-payers care enough to understand what it means. Murray was chairperson of the MBCBd. which was consistently unable to solve the Whitianga boat-ramp problem. It seems that prior to elections, candidates who have made little effort to read and understand the plethora of Council information to the public, make policy statements and intentions that they will be unable to fulfil but they believe that the electorate want to hear this. The electorate knows even less.
We don't need any more borrowing because the interest payments are shouldered by all ratepayers. This is hidden inside the rates. Thus many areas of benefit are subsidised by people outside it. Who are the people who want others to help pay for their advantage?

February 24, 2011 | Unregistered CommenterPETER H. WOOD.

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