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Friday
Feb162018

New Finance Policy

Next Tuesday's Council meeting will be considering the proposed new finance policy - published this afternoon in the agenda .

The first thing that jumped out from the paper presented by Governance & Strategy Group Manager - Angela Jane in her covering Paper was a momentous announcement that will affect every aspect of our Council's future  capital expenditure.

Readers will be aware that I have drawn attention on numerous occasions to the utterly immoral, and outrageous habit that has been adopted over the period of firstly the Leach, and now this Council of funding new assets from depreciation reserves.

This is the new wording:

"Depreciation Reserves

We have removed the ability to fund new assets from the depreciation reserves to ensure the depreciation reserves can recover and build up for the renewals that are forecast into the future."

This method of financing capital works unrelated to the assets originally depreciated (including the $700k allocated to fund the shortfall n the new Jack McLean Gym) is indefensible, and I suspect is one of the reasons for the obvious breakdown in the relationship between the new CEO and the now departed CFO - Steve Baker.  

Steve stubbornly maintained that that it was perfectly acceptable even though logic told anyone with any knowledge of Council finances that this was not the case. If depreciation reserves cannot be preserved for the purpose of replacing the assets for which depreciation had been deducted, it defies the very purpose of depreciation, and perpetually postpones liability, while cushioning councillors from electoral disapproval having to substitute real rate increases in order to satisfy their desire for extravagent pet projects.  

It is also notable that the recent Resource Management Act change phasing out financial contributions as a funding source has been taken into account in the new Policy, and the totally arbitrary targeted rate that funded economic activity has also been removed along with a number of other inconsistencies that have crept into the Policy over recent years. B & B owners will be relieved to see that their targeted rate has disappeared. There was something very strange about this rate introduced by Leach for what appeared less that pure motives.

Note that new targeted capital based roading rates to cover roading and footpaths will be introduced in each area following on the need to take account of the 1877 Roading Agreement.

There is much to cheer about in regard to the return to common sense over the use of depreciation reserves, but councillors had better be aware that fancy new pet projects will as a result need to be met fully funded  from mainly targeted (too bad about the 'three waters'!) rates, and new clearly identified borrowing. Current rate-payers will notice a negative effect, but it should bring some of the outrageous and unjustified new expenditure recently financed from depreciation reserves under much better control. 

On the other hand, it appears that my comment about borrowing for operational expenditure as outlined in my 12 February post has been picked up - the wording in the actual Policy document has been changed to the following:

"Council only uses borrowing to fund operational expenditure for smoothing the rating impact when it is appropriate to do so."

I should certainly hope so - it should be so infrequent as to be non-existent - otherwise it can become habitual.  

 

 

 

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