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Friday
Jul262019

That Ballooning Debt - What A Nuisance!

Readers will aware that following the 28 June meeting I drew attention to the CEO's warning after the adoption of the Annual Plan that the new proposed borrowing would take our Council to its mandated external borrowing limit, which is supposed to be 150% of rate revenue, contrary to the statement elsewhere in the document that the limit is 150% of total revenue.

For the record - I was present in the Chamber in 2011 when Clr McLean moved the relevant motion regarding the limit increase. I can say with some clarity that the only reason it passed was because the wording was changed to 150% of rate revenue. This reduced the actual 2011 increase limit to $30m, from what would have been $50m - too much even for the profligate incoming Council to stomach.  Perhaps  the CEO should thoroughly check the records as there was considerable confusion at the time.

In any case, he was not wrong in regard to his admonition to the Council to be aware of the hard choices lying ahead. Take a close look at the figures provided in the Council's Election Report - required to be produced under the LG Act prior to each election - often the only time that rate-payers are able to see our councils financial position (Balance Sheet) in a clear concise manner:

Just look at the highlighted line of borrowings in the Statement below and work out just how Mr Williams proposes to pay for all the capital works listed in the LTP. Yes - you are correct - the only possible source is further borrowing, or rates increases.

The problem is that rate revenue for 2020/21 is set at $71m, and 'Borrowings' at $57m, but we know form long experience that 'Internal Borrowings' are not included in this figure - that is where depreciation and other reserves are 'raided' for the purposes of 'balancing the books' - a practice long looked upon askance by auditors, but equally long tolerated in local government.

We only know the level of this form of 'borrowing' by following the level of reserves disclosed in the Annual Report. The reduction during Leach/Hammond's tenure was from around $100m to some $8m - far short of what will be required in due course to fund the replacement of major capital items including wastewater and water infrastructure. The only action subsequently proposed was to "rebuild the reserves," and henceforth cease futher 'raids' on reserves for purposes other than for which they were intended.

Leach and Hammond had changed this Councils fiscal position from positive to negative in six years flat and the upshot is that Williams is now left to 'carry the can' left over from the Leach/Hammond era. Perhaps he proposes to have moved on by the time rate-payers become aware of the inevitable effect on rates. but nevertheless, he has been at the helm right through this further round of LTP capital  expenditure expansion.

Some councillors (and I strongly suspect some senior staff) do not appear to understand the precise relationship between expenditure and rates. We are not the US Government - witness Trumps current plans to increease the National Debt by billions at the drop of a hat. I predict intense audit  interest in the coming year as our accounts are further  'massaged' to disguise the true extent of likely debt distress.
                      
Enough  background - just look at the figures below, and contemplate just who you think may be best able to halt this mad increase in borrowing over the next three years - Goudie, Fox and McLean have already put their names forward - same old, same old!

 

Statement of financialposition - For the year ending30 June 

The Statementof FinancialPositionis also knownas the balancesheet.It showswhat the Councilowns (assets)andwhat it owes (liabilities)at the end of each financialyear. The total sum of assetsand liabilitiesis referredto as ‘netassets’– this is the net worth of the Council– providing a snapshotof the Council’s financialpositionat that particularpoint in time.

            2916/17     2017/18     2018/19    2019/20      2020/21     2021/22      2022/23

                        AP              AP             LDP            LTP           LTP            LTP              LTP

                          $000               $000                 $000          $000              $000              $000              $000

Current financial assets

8,911

17,809

9,169

9,599

9,845

10,080

10,313

Other current assets

102

108

102

102

102

102

102

Total current assets

9,013

17,917

9,271

9,701

9,947

10,182

10,415

Investments in other entities

1,348

1,549

1,514

1,933

3,193

4,492

5,661

Other non-current assets

1,440,754

1,489,540

1,543,850

1,586,280

1,632,999

1,674,033

1,719,119

Total non-current assets

1,442,102

1,491,089

1,545,364

1,588,214

1,636,192

1,678,526

1,724,781

Total assets 

1,451,115 

1,509,006 

1,554,635 

1,597,915

1,646,140

1,688,707

1,735,195

Borrowings

0

0

0

0

8,000

0

0

Other current liabilities

33,105

34,816

19,597

20,473

20,779

21,377

21,883

Total current liabilities

33,105

34,816

19,597

20,473

28,779

21,377

21,883

Borrowings

23,000

30,000

48,429

55,795

57,436

66,358

66,327

Other non-current liabilities

8,717

8,730

6,956

5,680

5,668

5,656

5,644

Total non current liabilities

31,717

38,730

55,385

61,475

63,105

72,014

71,971

 

64,822

73,546

74,982

81,948

91,884

93,391

93,854


1,386,293

1,435,460

1,479,653

1,515,966

1,554,256

1,595,316

1,641,341

 


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