PAULA'S BLOG

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Dollars and Sense? The Finances behind the Long Term Plan

The big rates rise of 18%, proposed in Mayor King’s Long Term Plan budget, has certainly alarmed ratepayers. Quite rightly, Ratepayers are demanding answers as to how we got into this mess – myself included!  The public are confused with so many different points of view floating around. Are we in surplus or are is there a financial "black hole"? The unfortunate truth is we have big challenges ahead no matter how you present the numbers, AND the final rate increase will depend on what gets approved in the final plan. Some key points:

1. We have been told we are living off debt and are not collecting enough for everyday business.

That is some debt, on top of the rates we collect, is being used to pay for the costs to look after and maintain current assets such as for example; the gardens, the museum, operating libraries, processing building consents, managing waste and water services.

2. This debt we are told  was "masked" by the money developers pay us to help put water and roads into new development areas. Council pays the costs of new infrastructure in advance of the houses going in. The Development contributions then pay back the developers' share of that. In plain speak, because we had lots of DC's in our accounts it looked liked we were better off than we were. How does this happen?" Also vested assets" such as Roads given over to us by the Developers are in the books with a value but of course, they are not cash to spend.

 3. Depreciation is also accounted for in the books. This must be used to fund the replacement of assets when they reach the end of their useful life. So this money should also not be spent on other things.

3. Debt (which is now less than it was 6 years ago ) was partly controlled by the deferral or maintenance and renewals of City assets and this budget must be reinstated have aging city assets which have not been kept up (such as Waterworld with 45 year old pipes and parts of our water network). 

4. The level of investment going forward is constrained by how much we can borrow. If we go ahead with the big growth cell at Peacocke, our debt capacity will be taken up by the Government loan and the subsequent need to repay that.Other large Capital projects (such as potential the $15m+ spend in the CBD for Central park and Garden Place) will be debt funded  Rates will be needed to pay back a portion of debt over time and to pay for what we are doing today. For example;(keeping Hamilton Gardens in good shape, Dog Control, operating the Cemetery, our share of Civil Defense And Emergency work to name a few).

5. Earthquake proofing and water compliance costs have added to the burden.


Previous Council did a good job and brought debt down, but I can also see that this was at the expense of key strategic infrastructure investment  and new community facilities. Repairs and maintenance to existing facilities were also delayed too far. 

Some great  things were achieved, in part with generous funding partnerships, such as destination playgrounds and the Hamilton Gardens. More partnerships will be vital because now more than ever we can't progress alone.

I am now faced with the question; can we afford growth infrastructure at the rate now proposed?  Certainly we must grow and get new subdivisions underway. There are not enough new homes for buyers or renters. What I want to know is how we do this at the lowest cost. 

Hamilton alone is not the silver bullet for New Zealand’s housing problems, and our ratepayers alone cannot shoulder the burden. How do we get Central Government to understand the financial pressures we are all facing? Remembering that loans must be repaid and there is a limit to the debt levels.

Community infrastructure and transport is adds to the liveability of city and simply cannot be treated as always discretionary. 

It appears that some city leaders want to reinvent the future in grand ways. New ideas such as $12m Central Park may have vision and appeal but what happened to the original River Plan? Where is money for the Zoo Plan? The Museum Plan? Libraries? Parks? 

The Regional Theatre will cost us $20M if we get $10M from other district Councils. Debate about location aside, we must have a theatre. A stitch in time may have saved Founders, but this did not happen, leaving us between a rock and a hard place.

At the end of the day growth and a few chosen projects may be the winners while other aspirations will be "unaffordable". What can we afford to do now? What can wait? What are the priorities of our communities?

Yes, Hamilton's rates are lower than other centres – but it is hard to make direct comparisons without asking why.

Some questions to ponder: Why are our rates lower? What did those Council's with higher rates invest in? In some cases, they have had to put in compliant water treatment. In some cases, they are funding pools and tourism related assets (esplanades, museums etc). 

Why were incremental rates increases, above the 3.8% movement to capital value, not considered in years gone by? Surely that would have delivered better rates certainty than the big hike we are now staring down the barrel of?

At this time we are facing a 9.5% average rates increase (depending on your Capital Value) for 2 years. Also rather that being phased in over 7 more years Council proposes to go to 100% Capital Value next year. Is there a kinder way to phase changes in? We need to allow the community to understand and adapt.

Am I happy, not at all. But I won't see the City go backwards. Not impose unaffordable solutions on todays' ratepayer. I look forward to your submissions to the Long Term Plan. They are vital. You must look at your priorities for our city as this will determine the size of the final rates increase.




 

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