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Tuesday
Dec232014

Initial Rates Analysis 2015/16

The 5.5% average rate increase for 2015/16 announced last week, and given such compliant treatment in our MSM backing Mayor Leach's claim that is was entirely the fault of the previous Council(s) is worthy of some analysis before we end the year.

Our Council spent a two day 'workshop' "wrestling" with the its financial problems, that were said to be "horrendous" as a result of the past failure to recognise the consequences of low growth rates that have apparently gone unnoticed for the entire 4 years of the present Council. And surprise surprise, these mean that the development contributions that were predicted to bring the Council's books back into balance simply never eventuated. Principal, interest and depreciation have thus been under-provided for, and now the Council can no longer put off the evil day - the Auditor-General will surely look askance at any further delay.

Somehow this inescapable fact of life was over-looked by our tyro Mayor and councillors when they came into office, and blithely set about lowering Council rates in order to enable Leach to claim widely and loudly what a clever bunch of financial whizz-kids they all were. The first thing he did in order to achieve instant gratification was to postpone or simply eliminate 'renewals' – AKA - replacement of existing assets, including storm-water in particular, thus achieving savings of some $10m in the first couple of years.

The total failure of the Whitianga Sports Facility project was largely able to laid at the door of the engineer who paradoxically had been responsible for storm-water – Francois Pienaar. He was laid off in short order, but subsequently re-employed on contract to work for Greg Hampton in the Thames office. It was a deeply cynical action redolent of the business practices that had been introduced by the Hammond/Day regime. 

But nothing they did was able to hide the insidious effect of the interest/depreciation creep and even the most sanguine report from the Auditor-General was unable to hide this fact - let alone the continuing neglect of renewals. As outlined in an earlier post, this has recently become the specific concern of the Auditor-General in regard to councils all over the country seeking short-term advantage between election cycles with long-term asset deterioration - an effect well recognised in all accounting regimes.

So what can we make of the 5.5% announced without any detail accompanying it - an opening shot before the problem has to be fully telegraphed through the Ten Year Plan due in February. At that point, the proposed rate increases will have to be disclosed together with the rationale. There is no hiding from consequences at that stage, but you may be sure that every effort will be made to cushion the effects for the electoral advantage of incumbents - they are after all such willing little servants of the Mayor, and will no doubt all have their hands up when the time comes for whatever subterfuge is devised.  

Having trumpeted the 5.5%, there are already indications of a plan to drive it down – to be able to announce that his ‘frugal’ Council had driven the increase down to say 3.9% would then become a wonderful feather in Leach’s hat. There are several subterfuges available to any smart Chief Financial Officer in order to achieve acceptable pre-election increases, and postpone the inevitable.  

2016/17 will almost certainly see the first of the 7% plus increases that will be required to keep the most important of the ‘pet’ projects afloat, and at the same time to satisfy the requirements of the Auditor-General. Further borrowing, even within the current self-imposed limit, appears to be out of the question.

The need to factor in the new interest/principle/depreciation requirements, together with downward adjustment of expected development contributions is paramount. Finding a scapegoat by way of blaming the previous Council(s) is the first priority. The first meeting set down for 28 January to discuss the Long Term Plan should be the day of reckoning as our Council comes face to face with the future. The draft should be finalised on 25 March, and hard questions need to be asked during hearings on 28-30 April before the final document is adopted on 24 June.

 

 

 

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Reader Comments (3)

Somehow you have missed the reports that SP Steve [The CFO] made to council which clearly identified a fall off in Development Contributions. He made these reports when you were on Council,[The Bariball Years] and continued to make them when the Leach Council was elected. That's when BERL was rubbished, but the [false] predictions remained in the algorithm that predicts rates, keeping them artificially low. There were mechanisms which could have moderated the huge effect the Development Contribution forecast had on the rate calculation but no one on any council in living memory had the wit or the will to do something about it. There is only one elected person in the region capable of wrangling the finances, and unfortunately he is not on Council. Staff need instructions from Councilors and elected members don't always understand how to get stuff done. That has always been the problem in TCDC. Not too bright Elected Representatives or any that might be told to sit down and shut up. SP Steve also indicated problems in Mercury Bay long before the light dawned on the leader, and they all sit at the table but no one seems to listen. Unfortunately the things he says are not accurately recorded, and what goes in the minutes are the spreadsheets showing the current financial position. The solution is to elect some councilors who do listen and have the intelligence to do something to manage the money better. When the Leach council was elected they asked every department to present plans for cost savings, which they did. Ongoing costs could be pruned by a large amount. There were a number of 'big ticket' items which individually might save $20,000 a year here and there, and collectively could take $2m or so a year out of the OPEX. You don't need to take your jandals off to count how many have been implemented, and the staff that knew where the savings might be made don't seem to be around much any more.

December 24, 2014 | Unregistered CommenterThe Elephant

Somehow you have missed the reports that SP Steve [The CFO] made to council which clearly identified a fall off in Development Contributions. He made these reports when you were on Council,[The Bariball Years] and continued to make them when the Leach Council was elected. That's when BERL was rubbished, but the [false] predictions remained in the algorithm that predicts rates, keeping them artificially low. There were mechanisms which could have moderated the huge effect the Development Contribution forecast had on the rate calculation but no one on any council in living memory had the wit or the will to do something about it. There is only one elected person in the region capable of wrangling the finances, and unfortunately he is not on Council. Staff need instructions from Councilors and elected members don't always understand how to get stuff done. That has always been the problem in TCDC. Not too bright Elected Representatives or any that might be told to sit down and shut up. SP Steve also indicated problems in Mercury Bay long before the light dawned on the leader, and they all sit at the table but no one seems to listen. Unfortunately the things he says are not accurately recorded, and what goes in the minutes are the spreadsheets showing the current financial position. The solution is to elect some councilors who do listen and have the intelligence to do something to manage the money better. When the Leach council was elected they asked every department to present plans for cost savings, which they did. Ongoing costs could be pruned by a large amount. There were a number of 'big ticket' items which individually might save $20,000 a year here and there, and collectively could take $2m or so a year out of the OPEX. You don't need to take your jandals off to count how many have been implemented, and the staff that knew where the savings might be made don't seem to be around much any more.

December 24, 2014 | Unregistered CommenterThe Elephant

Some the many points you make Elephant are indeed valid, but some of your claims are complete rubbish, not to put too fine a point on it. You appear to assume inside knowledge of what went on inside the Barriball Council - quite wrong in most cases. You have also mis-characterised much of the advice provided by staff - principally the CFO. And the record shows that I was the first to provide a warning of the impending downturn at my first Council meeting in February 2008 (I was the US for the first meeting of Council in November), and suggested, amidst general scepticism on the part of both elected members and staff that they should adjust their projections accordingly. Nothing happened, the crash came and went, and our Council remained in a perilous state. The incoming Council in 2010, under the influence of McLean at its first meeting simply raised the borrowing limits - great stuff!! And meanwhile, Leach wiped renewals and lowered rates, hence the difficulty that they now find themselves in.
The interesting thing is that aside from all the theatrics displayed at critical decision ponts, Baker has never managed to convince this or the previous Council of seriousness of the situation. And as for him providing guidance on growth rates and DC's - absolute rubbish - I can provide you with Order Paper evidence that in the entire three years 2007/10, and beyond into 2011/12, he failed even once to provide an accurate projection of Development Contributions in his financial statements - they were always grossly overstated when compared with actual collections - a blatant defect in his statements that I raised on every single occasion, but which seemed to escape the notice of others. It was the failure to come to grips with this DC reality that is at the very core of the current troubles, but Steve has sailed through again unscathed.

December 24, 2014 | Unregistered Commenterbillbarc

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