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Tuesday
Feb112014

The Developer's Lament

Whaleoil published a hard-hitting, if self serving lament from a developer today called "Why Do Property Developers Hate Development Contributions."

It comprises mostly inaccurate and outdated gripes that have been well answered in the past. They are mostly based on assumptions that are fairly easily disposed of, and completely miss the point that everything has changed following the Neill Construction Ltd. v North Shore case that has required Councils throughout the country to defend their DCs on the basis that they fully comply with the LGA. No Council would risk being taken on following this case that clearly defined what, and what is not permissible for inclusion in the charge. The proposed changes to the LGA will have a dramatic effect of the ability to collect for certain community activities (librarys, toilets etc.), but will have little effect on the areas raised by Whaleoil's correspondent.

But in one respect, I totally agree with the developer:

"Replacing assets is supposed to occur from a built sinking fund that is generated over the life span of an infrastructure asset. Council receive money over the lifespan in cash as depreciation as part of rates. Over time, and subject to annual revaluation each asset builds up a depreciation sinking fund that should be sufficient to replace it. Developers are concerned that Councils spend that money through internal loans to OPEX and other creative accounting and then hope to use ‘growth’ as a mechanism for replacing the assets. A psuedo ponzi scheme with rate payers the duped investors." 

In this respect, he/she is 'spot-on', and perfectly pin-points the exact situation that pertains in our Council which has so blatantly exploited the ability to hide borrowing in this manner. The question as to whether it uses 'growth' as a mechanism for replacing the assets is is debateable. The borrowing aspect is far more important from the point of view of rate-payers who have been constantly 'conned' by our Mayor and Council into believing that their borrowing in 'mid-range' when it is precisely the opposite.

This position may or may not have changed in December when I detected a sudden new willingness to recognise 'internal' borrowing as true borrowing. We will shortly be able to see if this change of heart is followed through, but regardless, it remains  quite disgraceful that our so-called watch-dogs - both in the Office of the Auditor General, and our own Audit Committee have permitted this situation as long as they have. It is my contention that both have been poorly advised.

 

 


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