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Thursday
Nov202014

Development Contribution Policy (2)

This was the main item on yesterday's Council agenda, and CFO Steve Baker made a valiant attempt to reduce what is an extremely complicated subject so that even the most financially averse councillor could understand the financial crisis facing the Council unless immediate steps are taken. This apparently has been the subject of several workshops, so that the message could be rammed home at all levels.

There is absolutely no doubt that our Council is in a fiscal bind as the chickens finally come home to roost resulting from decisions that were made long before the advent of this Council. As I have indicated on several occasions, this is all very well, and the members of previous councils need to put their hands up and accept  some of the criticism that decisions that were taken in regard to the waste-water schemes were unwise, if not downright perilous, remembering at all times that they were taking advice from supposedly experienced senior staff, and growth consultants in particular.

There is no doubt that the current situation is almost entirely the result of having fallen into the "growth" trap, but this fact was well known at the advent of the present Council (with only one councillor change since) in 2010 - it is this Council that agreed to the reckless proposal of our current Mayor to undertake a rate reduction program regardless of the true financial situation that must surely have been obvious at that time.

Remember that CFO Steve Baker has been providing the financial advice to both this and all other councils back to 2006 when critical decisions were taken regarding the scale and size of the waste-water investment. He cannot sit back now and say "I told you so!" - he has subscribed to the current policy as clearly as he subscribed to the previous policy, and the current situation is as much his responsibility as anyone else's.

What emerged during the course of discussion yesterday was the clear intention of this Mayor and Council to  divert the blame for the need to move debt and interest liability from development contributions to rates, onto previous councils. That is the bottom line no matter how it is dressed up. Every effort will therefore be made to transfer blame for this state of affairs to previous councils, regardless of any protestations to the contrary as we heard yesterday.

The new Governance Manager - Angela Jane, was apparently asked some time ago to prepare a comprehensive history of the decision making process that has been followed since the waste-water schemes were first proposed back in 2002. That was when a critical decision was taken at the behest of then Chief Executive - Steve Ruru to move from Area of Benefit to District charging of waste-water (Moved Sharp /Seconded Barriball) - all on the grounds of "un-affordability."

Many will also be aware that it was the unresolved argument over the reversal of this crazy decision in 2010 that brought about the downfall of that Council (myself included!). What an irony that Ruru moved from having overseen this debacle to the even worse situation at Kaipara. And former infrastructure manager John "Economies of Scale" Whittle has moved on to retirement in the town where scale is indeed the problem.

What Steve Baker is now saying is that it is "imprudent" to carry outstanding loans that on current indications cannot be repaid for 60 to 70 years - well outside the design life of the wastewater plants of some 40 years.  The insistently low growth rates may of course mean that these plants will never be used to full capacity - certainly within their design life, but it was not clear that this was factored in in such a way to justify the extension of the design life. Then again, it will always be new technology that will determine when they will become obsolete. There are many plants of various types that continue perfectly adequately beyond their design life.

There were of course the usual claims at the table yesterday of certain "hot-spots" of growth that may result in a partial catch-up at some stage, but the absence of the predicted growth over the last 8 years (the World Financial Crisis of 2008 remains the locked brake) has caused the sudden need to revise planned debt reduction, and more importantly just how projected interest rates will be dealt with in the soon to be finalised Ten Year Plan. 

The other factor that has caused real concern with Steve Baker's projections is the likely shortfall in CAPEX up to 30 June 2015 - the carry-over figure of $10m was mentioned as likely to have a major effect on CAPEX projections of $20-$24m for 20015/16. This will have a cascading effect throughout the TYP. One of the changes he has proposed to have the each plant model updated so that capacity data is entered into the calculation. This change is reflected in 5.3.1 of the draft Policy:

5.3.1 The following information for each combined project and each additional capacity project,
shall be used to fairly attribute AC cost between new and future rating charges:
a) the year in which capacity of the project started or will start to be taken up;
b) the year in which the capacity of the project is expected to be reached.

This is now the document that will go to consultation in March as earlier advised.

The really important aspect of the proposal remains the removal of liability for the A/C component of the three waters from the Development Contribution formula - this will have a lasting and deleterious effect on rates for the immediate and long term future (see previous post on this matter). There is no chance that this Council will be able to retain the rate cuts that it instituted from 2011 onwards - it only remains for the final calculation from the TYP to be revealed - there will of course undoubtedly be an attempt to soften the blow in the first year given thei 2016 electoral jeopardy facing its members.

Such is life in local politics!

 

 

 

 

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Reader Comments (4)

I 'm sure I'm not the only one that continues to be quite frustrated (in reading your otherwise very informative Blog), with your liberal use of acronyms that are not 'spelt out' in full when first used in each post. In relation to my previous comment on this matter, I think you suggested I should use your search engine to ascertain meanings of acronyms I could not decipher. To have to do this while wanting to simply read through your post uninterrupted is, with respect, a real 'put-off'. Please follow what I have seen is the usual practice of authors of technical-type articles, and spell out acronyms when first used, and in turn maintain the interest of this otherwise really appreciative reader! Thanks, Tim.

November 20, 2014 | Unregistered CommenterTim Grove

Tim
My apologies that I fail to meet your "technical-type" requirements, but for the life of me I cannot understand what acronym it is that puzzles you - WFC is World Financial Crisis which I thought was widely understood, and all others that I have used have been previously expanded on several occasions. Can you explain please which it is that you are referring to, and I will do my best to help. Please understand that I do appreciate your continued reading of the blog, and I will do my best in the future to oblige, but I don't wish to accused of patronising the vast majority of my readers by spelling everything out.
Bill

November 20, 2014 | Registered CommenterBill Barclay

I'm sorry that you seem to be reluctant to simply take-on the point I have felt helpful to raise again (including for the success of your blog!). I'm sure most existing readers, and certainly new ones, would find it helpful if acronyms were 'spelt out' when first used, in each new post. I'm surprised that you think full references in past posts, cover the matter. I'm also surprised you consider the 'vast majority' of your readers might feel it patronising for acronyms to be spelt out when first used in each post. If this is so, then clearly they are not considering the reasonable needs of new readers, and those readers not familiar with Council affairs..
Without derogating from the basic issue, in the above post the acronyms I had difficulty with, or simply still don't know what you are referring to, are:
- WFC - thank you for now explaining this. I now know what you are referring to. Most readers would know this as the Global Financial Crisis ('GFC')
- CAPEX
- AC - I realise this is referred to in a Council document which you have quoted from. Presumably, AC cost would have been spelt out when first used in that document. Not being an accountant, I have no idea what AC refers to! It would have been helpful to have a 'footnote' after the quote, covering what AC is.
Lastly, being a person interested in Council affairs, I know that TYP is the Council's Ten Year Plan. However, I respectfully suggest many people would not, unless it was clear from the context.
Please keep up your good work!

November 21, 2014 | Unregistered CommenterTim Grove

Fair enough - point taken!
CAPEX - Capital Expenditure
OPEX - Operating Expenditure
AC - Additional Capacity (Unused!)

November 21, 2014 | Registered CommenterBill Barclay

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