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Oh Dear - The Cupboard is Bare!

There comes a time following local government elections when the chickens come home to roost. More so when our Mayor was so determined to curry favour with electors that he would say almost anything, and more importantly ensure that information provided to ratepayers was skewed in such a way as to ensure not only his own return to office, but that his support base remained intact.

I happen to believe that Mayor Leach did a pretty good job during his first term – in particular in bringing about a long overdue upheaval within the Castle, where some real hindrances to progress were removed. This was often accomplished with maximum prejudice, but with substantial hidden costs resulting from some huge redundancy settlements – firings being ruled out on legal grounds.

But Leach’s achievements have to be seen through the frame of his failure in common with virtually every other councillor to come to terms with the numbers. Financial illiteracy is alive and well around our Council table, but there is almost no self-recognition of the depth of this blank space. This is by no means the first or only council to suffer from self-delusion, but one could be forgiven for believing that this may have been avoided through the presence of at least two CA’s (Chartered Accountants) amongst the board chairs who attended meetings, with full speaking rights.

This provided a fertile field, particularly when the Chief Executive himself has demonstrated limited financial understanding on several occasions – particularly as to the extent of the fiscal trap brought about by past borrowing. And this is exacerbated by the current refusal to acknowledge the effect of so called ‘internal borrowing’ ($50m) that has decimated depreciation and other reserves.   

Readers will be aware of the number of occasions that I have drawn attention to this in the past with neither response nor acknowledgement from within the Castle. It was inevitable that this would be factored into the situation when lenders were invited to further finance funding shortfalls through increased debt. They are not fools, and just because an ‘Emperor’s clothes’ situation pertains within the Castle; lender bean-counters are unlikely to be similarly impressed.  

Having produced a Pre-Election Report that failed to draw attention to risks in this regard as required under the relevant legislation, Council is now re-examining its situation, and appears to have arrived at the conclusion that its finances are indeed in a parlous state – revenues are down, development contributions are as elusive as ever, and urgent action is now required to avoid default – yes, default! There is no other way to describe it. I suspect that faced with demand for new borrowing ($20m roughly over the next two years), and roll-over of existing debt, that lenders will taking a much closer look at the Council’s policies and budgets.

While patience has been the order of the day since the advent of the present Council, there is a sudden realisation that previous levels of fiscal probity have been destroyed by reducing rates at the same time that revenues have dropped. This is almost unique amongst councils, and given rise to questions concerning its position as an A1 borrower. It has never been subject to the oversight of a ratings agency, and lenders therefore have to undertake their own due diligence. The changed situation should surprise no-one.

My prediction is that borrowed funds will now cost a great deal more than was previously the case, based on risk alone, and regardless of any anticipated increases in the NBR. It seems likely that additional revenues will be required to fill the gap if our Council is to avoid defaulting. This is an extremely serious situation, and I do not make this prediction lightly. The only way this situation may be rectified without cancelling virtually all capital works for the foreseeable future, with conceivably a substantial staff fall-out, is with a ‘special’ rate – perhaps as high as 5%, thus removing the entire rate reduction that our Mayor has been so keen to promote during his entire period in office.

There always has to be a scapegoat in this kind of situation, and guess what – surprise, surprise, it is the previous councils’ commitment to the building of the grossly expensive wastewater plants that is being labelled the cause. Undoubtedly, this decision to proceed with these plants, - in 2001 in principle, and 2006 as to scale, is indeed the prime cause of the situation in which the Council now finds itself, but prudence demanded that planned rate increases be preserved in order to prevent the totally predicable fiscal hole in which it now finds itself. Instead, Leach’s ego driven bulldozer tactics to gain office, and then kick rate increases to touch, prevailed. Oh dear!      

What I would like to see happen if a default avoidance 'special' rate is called for is a full and independent enquiry into both this situation, and just why this Council’s PR department have produced document after document – not least the Pre-election Report that completely, and on the face of it, deliberately ignored the true financial situation. The false picture painted in that Report is indeed exactly what Nick Smith was endeavouring to prevent when he proposed the enabling legislation in November 2011.  

Then the Auditor General should be held to account, and required to explain just how this situation has managed to evolve under its watch. Staff, including the Chief Executive and Chief Financial Officer, together with the Communications Manager should perhaps be asked to explain their respective roles, and just what influence the Mayor has had in determining just how this deception has evolved, particularly with the deliberate blurring of governance and executive roles - was it perhaps for electoral advantage? If I am not mistaken, this Report alone may well have been sufficient to ensure the return to office of a totally compliant, conveniently ignorant support group.

Finally, the question must be asked, and answered as to how mayors and councils can be re-elected with such blatantly faulty information provided about their performance. Nick Smith in his speech to Parliament at the introduction of the Legislation stated categorically that one of the main purposes of the Pre-election Report was to warn incoming councillors of any pitfalls or dangers inherent in council infrastructure or finances. That is why it was to be prepared by staff absent of any interference by existing councillors. That transparency was not evident in the case of our Council.  




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Reader Comments (2)

With all due respect Bill the previous Councils had little choice but to build the 3 Eastern seaboard plants. Having been a ratepayer on the eastern side for a number of years now I can clearly remember those bad ol days of sewerage spills in the Tairua harbour [remember the then Enviroment Waikatio council took Council to court and won about the breach of conditions in Tairua]. Those with longer connections to the area will know how Surf Break in Whangamata told of stories about surfers getting sores on their bodies as a result of sewerage leaking from the outdated ponds at the harbours head. Then there was the white knight who charged into Whitianga in the shape of Hopper Brothers who wanted/demanded that the Council provide upgraded sewerage system for some 1000 proposed sections - called the Whitianga Waterways.
With the cards stacked againist them Council staff/elected members had little choice but to build the new plants- with the thought that 3 would a good deal price wise - something about economy of scale arguement!
The Councillors were at fault in not shafting the costs to the the users of these plants and, the developement contribution scheme was a Central Government initative which to all and sundry seemed the fairest method of recouping capital costs -- developers unfortuneatly got caught up in the global downturn and various large subdivisions projects were shelved, including the 300 lot proposed subdivision of the kiwifruit block at Pauanui, the balance of the Whitianga waterways is still to be developed and various subdivisions proposed around Tairua and Whangamata shelved.There is one little ray of hope- I believe the water these plants produce is of potable quality [ with exception of nitrogen content - easily removed] which could be used to offset the costs of future water treatment plants!! All in all a bleak outlook with the financial problems exasparated by bad governance from the recent crop of elected members. I agree with you Bill- how much longer can Council ignore the cost of internal borrowing ?? The next two years will be the make or break financially for this Council and I am pleased I am in my twilight years so if all goes belly up it will not cause me too much concern but Heaven help the younger ratepayers and generations to come.

November 21, 2013 | Unregistered CommenterFlushed

This news will not fill potential collaborators outside of the TCDC area that an Eastern Waikato Unitary Council has any chance of flying, let alone a standalone TCDC UA. TCDC are joining Taupo and Waitomo as the red headed step children of the Waikato LG family that is humored but really unloved.

November 21, 2013 | Unregistered CommenterPeter

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