Wednesday, April 22, 2015

Frank Newman: Speak out to avoid massive rates increase

I have been asked for guidance on making submissions on the Whangarei District Council's Long Term Plan. The process will be similar for other councils around New Zealand.  

The long term plan lays out, among others things, Council’s intentions regarding rates and spending. It is proposing to increase its rate take from $65m today to $119m in 10 years. To the average householder paying $1,500 in rates, that means they will be paying close to $3,000 in 10 years time -  and a  renter about $30 a week more in rent. The increases average out at an annual rate of 6.3%, or about three times the rate of inflation.

The proposed rate increase has nothing to do with repaying council’s high debt, which will  remain at $160m. It's all about spending more.

To put the council’s current predicament into content, the Peter’s council of 2004-07 lost control of their finances (it did not even have a Finance Committee!) and went on a reckless debt-funded spending binge to the point of breaching it’s own debt policy limits. Since 2007, successive councils have contained debt by selling investment assets to fund capital spending and by operating deficits. The new council does not have spare ?debt nor does it have a large number of investment properties to sell so is turning to ratepayers to pick up the bill.

There are volumes of detailed financial costs and policies that sit behind the fancy words, smiley faces and trite references to low-cost grocery items in the Long Term Plan. These reports are available from the Council's website but you need to go digging to find them and have a lot of free time to read them.

Here are some of the more important figures from the financial reports:
  • Rate income (excluding water) is expected to rise 83% from $65m this year to $119m in 10 years.
  • Total operating expenses will increase 36% from $122m to $165m.
  • That means rates will rise at more than twice the rate of council’s operating expenses (83% vs 36%), so less than half of the proposed rate increase is to fund increases in operating costs.
  • The current year operating deficit is $2.9m. In 10 years time it will be a surplus of $22.5m.
  • Spending on capital projects over the next 10 years is expected to total $560m. About $120m will be funded from the proposed rate increases.
Most of the 80 or so items on the capital projects list are core infrastructure, $216m on roading, $124m on waste water, which few would have an issue with. Other items include:
  • $28m on council support services including $10m on new council premises, $4m on council vehicles, and $6m on a new council computer system.
  • $12m on a new theatre and $2m on the Northland Events Centre.
  • $57m on parks, including $20m on sports fields and $12m for a "sense of place".
  • $4.5m on pensioner housing.
  • $4.7m on cycleways.
There are a number of ways the Council could balance the budget. They could increase rates as they propose, scale back capital spending, cut operating expenses, or use a combo of all three. For example, it could:
  • Limit annual rate increases to no more than 3% (not 6.3%), and
  •  Cut $5m a year from its $122m operating budget (something it could do without great difficulty in my view), and
  • Cut back capital spending by $30m (out of $560m) over the ten years (cutting out the new council offices and the theatre alone would save $22m!).
That's a realistic option for the Council but they will only consider it if residents and ratepayers demand it to be considered. At the moment, councillors are taking the easy way out,  by expecting ratepayers to swallow it. 

If you don't speak up now, you will have no say at all and only yourself to blame when your rates bill is double what it is today or your rent is $30 more a week than it is now.

Submissions must be in writing but do not need to be in any set format - just include your contact details and make it clear you are making a submission to the Long Term Plan. If you want to speak to councillors about your submission then state that also. Submissions can be emailed to or dropped  in to the Council at Forum North. 

Remember, submissions must be in no later than this Friday!


Brian said...
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Massive Rate Increases.......A great and legal way out for Local Government councillors; but morally reprehensible.
After reading Frank’s blog, I just wonder whether we have any local bodies in New Zealand who are actually debt free? If the answer is in the negative, then it is ABOUT TIME that the whole structure of Local Government be placed financially on the same footing as private companies.
Only today on the National news, Transpower admitted they had completed the transmission line to Auckland and that it came in over budget by millions. The question and investigation and blame should be exposed, and the CEO and those answerable stand up and defend themselves.
But never mind, they appeal for a bail out on hardship grounds, and on inflation or whatever. In the final analysis the poor taxpayers will foot the bill, and Transpower plus any other debt laded Government backed organisation comes away scot free.
Just what is wrong these days with financial responsibility in costing out projects? Is the laziness, incompetence so great within our government and local government that it now goes almost unnoticed? It is so easy to load debt onto our ratepayers and taxpayers for the implementation of impossible grandiose schemes; which are comparable with other countries. But with the state and size of our economy a case of “Ultra Vires”.!
.So Privatise Local Government! Oh horror upon horror, one can feel the socialists cringe and search for their red flags. Yet they themselves have no answer to debt funding in local government, except perhaps their blind faith that a Capital gains tax will solve the problem. Or which is more likely, more its back on the roundabout again with the spectre of local government amalgamation looming over us all.

Mike Elliott said...
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What a great article. Where is the media asking these questions? Oh no, JK pulled a pony tail in a light hearted moment.

Anonymous said...
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Maybe you should write an article on the unmeasured and unincluded costs of sprawl, which are leading to high capex and opex needs in order to meet the demands of residents, and thus rate hikes.

Anonymous said...
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What I would really like to know is this. If the concept of rates charges is that the residents/home owners in any given area, pay an amount of money to their council, relative to improved or unimproved value of their homes or commercial premises, are there any exemptions? Are there any sectors of the community that do not pay rates? And if there are such sectors, why are they exempt? And if there are exemptions, Why does the rest of the community have to pay for council services, but they don't? And is there a case for a good look at the concept of rates? Should rates on private housing be charged according to the numbers of occupants of the house, rather than the value of the house? After all, if there are ten occupants of a house, why should they pay the same rates as a house occupied by one or two people, given that council services such as libraries, recreation areas, footpaths and roads can be used by all residents, so perhaps rates should be charged on a pro-rata basis. And then we need to assess what rates can be used for. Should councils be tasked purely with the provision of facilities for the residents? Should councils be required to use ratepayer money in a transparent way, so that cash resources are not used for purposes that are outside their responsibilities? Should there be an independent government authority to supervise local body activities? Is it now time to examine the structures and responsibilities of local government? I ask these questions, because it seems obvious that many local bodies are increasing rates at a level above the level of inflation, without appearing to have to justify such increases. And if there are any bodies exempted from paying rates, it's time to review the rating system and charge rates evenly throughout the community, including rating government facilities.

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