Finances Revisited
Thursday, February 12, 2015 at 1:04PM
Bill Barclay

TCDC Chief Financial Officer Steve Baker sought a meeting with me yesterday to explain where he considered I had gone wrong in my recent posts on the financial finangling within Council.

Steve brought forward some information of which I had been unaware, and I will endeavour to correct some assumptions herein, but as is so often the case, it was principally the lack of transparency that was my major concern in penning the post. I still believe this to be the case, and in particular, the treatment of the $46.8m liability that is to be transferred from future developers to the ratepayer that I find particularly galling.

Steve drew my attention to pages 53/54 of  the draft consultation document that went to Council on 28 January, and I concede that this is a pretty fair summation of the whole $91m Eastern Waste-water saga that constitutes the ‘elephant in the room’ – everything else is subsidiary to this project and its consequences in the accounts of Council, so that the ‘story’ is important background information. This particularly in drawing attention to the fact that “The proportion of debt that was to come from Development Contributions was approximately two-thirds of the total cost.”

My argument that the reversal of this policy in this LTP is a direct imposition on the pockets of every rate-payer that was never envisaged at the outset remains intact, and the consequences for Thames rate-payers in particular have been both unfair and unanticipated. Steve’s counter argument is that as a result of the decision taken by the previous Council, interest on the $55m internal loan is returned indirectly to rate-payers through the Uniform Annual General Rate; and that is perfectly true, but it is a question of scale, and Thames ratepayers remain severely disadvantaged regardless of the interest treatment, or Thames’s alleged advantage arising from the movement of storm-water to District charging.   

Steve argues that while International Accounting Standards (IAS) do cover depreciation, they do not state whether or not it needs to be funded. They do mandate the capitalisation of interest on that proportion of loans  related to additional capacity (AC) – only permitted during the build, but not after. It was this that the Auditor General permitted, not only for TCDC , but other councils as well.  

Steve further pointed out that the apparently unsupported asset revaluations were simply book entries without any effect on the accounts – in particular the debt reductions, and are  actually based on outside independent valuations mandated by regulation. So I must withdraw any inference in that regard, but the basis of the valuations should be revealed to establish legitimacy. 

I remain unconvinced that the document provides an open and transparent explanation regarding the manner in which the $46.8m is to be applied against rates now and in the future. There is a reluctance for some reason to detail clearly for the average rate-payer to understand. Steve pointed out the explanation in the penultimate paragraph of the explanation as to the effect on the waste-water rate over the first three year, taking into account the use of waste-water ‘retained earnings’ to “transition the impact.” The amounts to $775 in 2014/15, $875 in 2015/16, then $876 and $880in in succeeding years. But this is the limit of the explanation, is really peanuts, and comes nowhere near explaining the disposition of the $46.8m.

What Steve conceded during the course of our discussion is that the entire LTP is presaged on a far tighter, and consequently far lower lower Capex program over the ten-year period – some $202m, and that this mainly explains the ability to be able to hold rates at an average of 1.9%, while reducing external debt to a remarkable, and barely believable $3m. This has been achieved by the adoption of a far more realistic works program – the inability to meet targets has been a scandal for many years culminating in a $15m spending shortfall in the 2013/14 year. 

But the kicker here is that while employing a far tighter budgetary discipline, Council is now embarking on a long overdue review of underground infrastructure – particularly in Thames where the state of the pipes is virtually unknown, and gravely suspect. This will inevitably result in a massive increase in budgetary provision in the next LTP, and a substantial back-track on the debt reduction, with a likely revision upwards of the proposed rate increases. It is therefore totally ingenuous of Leach to brag about his fiscal prudence when he must know that a substantial upward spiral lies ahead.

My thanks to Steve for his explanations – we ended on an amicable note, with the question of transparency left up in the air – Steve thinks that the draft provides an adequate report to ratepayers. I disagree, but concede that it is very difficult to convey some extremely complicated concepts in a few words. Greater effort could be made before the document goes to print – particularly in regard to the question of just how the $46.8m liability is to be handled.

And the intention of CEO Hammond to avoid inconvenient funding of substantial works such as the Thames Swimming Pool (Aquatic Centre!) until "approved" remains to be ruled on by the AG - I suspect that will prove a step too far, and contrary to the requirements of the LGA.




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