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Tuesday
Apr092013

Annual Plan - Borrowing

This is a direct quote from page 10 of the Draft Annual Plan, soon to be consulted:

What’s Happening with the Rates

We have set ourselves a financial limit that the district average rates will cumulatively increase no more than the Consumer price Index (CPI) plus rating unit growth.

The national forecasts for CPI have dropped since we prepared our 2012-2022 Ten Year Plan . The current forecast CPI figure for 2013/2014 is 1.7% (NB: it was 2.4% in the Ten Year Plan).

Whilst we are within our cumulative targets, the year-on-year view paints a different picture. Our limit of CPI + rating unit growth for the 13/14 year is 2.26% (1.7% plus rating unit growth of 0.56%), compared to the district average rates increase for 13/14 year is 2.93%.

What this clearly shows is that our Council has created a bind on itself by imposing limitation on rate increases of the CPI plus rating unit growth. This comes out at 2.26% as against an actual increase of 2.93% - +.67% - not a great deal, but significant nevertheless as a deviation from the TYP when the only other source is borrowing.

What is remarkable is that our Mayor in his opening statement is claiming an average rate reduction of 1.3% over the term of the current Council. This boast is clearly aimed at an election year audience, and the statement totally avoids any mention of the substantial increase in borrowing over thesame period - some $22m between 2012-2014 ($9.758m in the 2012/13 year alone). This level of borrowing, while undertaking rate decreases is inexcusable, and only posible because of the Cr McLean led motion to change borrowing limits from 100% of total revenue to 150% of rate revenue - a sneaky device that has all the hallmarks of political chicanery.

As a result, our Council is still within $19m of its upper borrowing limit, but is this limit based on sound financial fundamentals? I doubt it. I have been reliably informed by a top five accounting financial advisor - long experienced with local government, that lowering rates while undertaking additional borrowing of this magnitude is tantamount to financial sleight-of-hand, and that every council in his experience that has indulged in this level of manipulation has ended up in financial difficulty.

Regardless of any indications in the TYP of a return to normality at some time in the future, the fact remains that demand for additional services and unforeseen capital expenditure inevitably alters the situation - particularly during the next TYP round in 2015. We already know that certain projects were deliberately slipped out of the current TYP in order to reduce the outlying borrowing burden - the Thames swimming pool is the obvious example, but there are many others.

As the result of the outrageously expensive and unnecessary expenditure on the wastewater plants, and more recently the Whitianga Sports-complex, together with the politically driven and imprudent rate reduction, our Council has slipped from a position of one of the most financial sound councils to one of the worst - regardless of Mr Larry Mitchell's prognostications. His calculations are plain wrong, inasmuch as they fail to acknowledge the maximum internal borrowing of some $50m that brings our average up to some $3,600 per rating unit.     

The simple question that must be asked over and over during the forthcoming AP hearings is just why Council has failed to mention, let alone analyse its borrowing situation - the figures are buried in the Financial Statements, and unless you in a position to analyse the data, it remains a mystery - not good enough.

 

 

 

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Reader Comments (1)

The increase in borrowing of $22m is listed clearly in the draft Annual Plan. What is not clearly listed are the interest payments needing to be paid to the Aussie-owned commercial banks for these loans, When the loans are taken out to build capital works, or whatever , ratepayers may not realise that they will be giving to the banks , over a 20/30 year term, the same amount as they spent on the works. In effect paying twice the amount that the project is worth. Lucky bank profits. How do we get around this if we can find people to elect who won't want to borrow all the time using ratepayers money at distance? Well the most obvious way is to limit (horrors) borrowing to the internal amount available. Noted above as $50m. Could we live as a district within this limit?? Have we learnt that more borrowing has to be paid back, usually from the increasing rates?

May 4, 2013 | Unregistered CommenterPeter H Wood,

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