Kapiti Coast District Council,
This submission has been prepared by :-
Former Assistant Secretary to the Treasury
Former Controller and Auditor General
||Community member with a background in science
science manager (retired)
We request 10 minutes of speaking time in which we would discuss :-
||the district wide impact of the Plan, with particular reference to :-
- the increase in rating levels implicit in the Plan
- the increase in public debt that will arise from the implementation of the Plan
||alternative courses of action available in respect of :-
- the water issue
- the aqua centre
Finally, we would wish to comment on the item other expenditure and the general approach taken by councilors when dealing with this item.
KAPITI COAST DISTRICT COUNCIL
LONG TERM COUNCIL COMMUNITY PLAN 2009/10 TO 2018/19
Submission by :-
In brief, it is our view that :-
- the prospective increase in rates inherent in the Plan is excessive
- the debt level forecast :-
- unduly and unfairly constrain the flexibility of future councils
- threaten to breach the Councils own, self imposed, debt/equity ratio
- the proposed rate levels exceed and the debt levels forecast will greatly exceed those anticipated by other councils in the Wellington metropolitan area.
Accordingly, we encourage the Council to review the Plan with a view to easing the pressures it imposes on both its ratepayers and its own balance sheet.
We suggest a number of means by which this could be achieved,
To elaborate :-
(A) PROPOSED RATE INCREASES ARE EXCESSIVE
Over its first 6 years, the Plan envisages a compounded increase in rates of 43% before any allowance is made for inflation and 68% after inflation is accounted for.
An analysis of the 10 Year Community Plans of the 6 Councils in the Wellington metropolitan area indicates that, at the beginning of the 10 year period, Kapiti could be described as a moderately rated council with an average rate per ratepayer a little less than 10% below the average.
This made it the second lowest rated council in the metropolitan area.
The position changes dramatically by the end of the 10 year period, by which time its average rate per ratepayer is the highest in the metropolitan area by a significant margin and is more than 20% higher than the metropolitan average.
In our view, the rating increases proposed are well beyond the level of ratepayer affordability and acceptability and well beyond the sort of increases being proposed by others in the area.
(B) BLOW OUT OF PUBLIC DEBT PROJECTED
Again, an analysis of the 10 Year Community Plans of the 6 Councils in the Wellington metropolitan area shows that, as Kapiti goes into its planning decade, its debt per household is already the highest in the area and approximately 2/3 higher than the average.
By the end of the decade, the level of debt has increased enormously. At that time, Kapitis projected debt per household will be more than double that of the next highly indebted council in the Wellington area (Wellington City Council).
These increases, and the resulting levels of indebtedness, are excessive and can fairly be described as irresponsible.
Furthermore, the Council, if it were to adopt the Plan as currently drafted, will be in great danger of breaching its own borrowing limits.
Council has decided, as a matter of policy, that its debt will not exceed 20% of its equity.
The Plan provides for its debt/equity ratio to rise to 19.5% in year 6 just short of its 20% limit.
This limit will be breached if the capital expenditure of $195 million over the first 6 years is exceeded by a mere $8 million or 4%.
In our view, if the Council takes its debt/equity ratio limit seriously, it is being irresponsible in budgeting for its presently proposed level of capital expenditure.
Finally, in this connection, the Council has fully committed its capacity to invest over the next decade.
It is inconceivable that, over that period, there will not be one or more urgent developments that the Council will wish to undertake. It will not be able to do so unless it is prepared to exceed its own, self imposed, debt/equity ratio limit.
In brief, on the grounds of both ratepayer capacity to pay and public debt levels, the develonments proposed in the Plan are too ambitious.
They are unaffordable desirable though they may be.
It is the classic clash between needs and wants.
There is an urgent need for the Council to review its expenditure priorities.
(D) POTENTIAL AREAS FOR EXPENDITURE REDUCTION
There are 2 major development projects and one omnibus category, all of which should be reviewed and, desirably, excluded or reduced. They are :-
- water storage
- the aquatic centre
- Other expenditure
(E) WATER THE CASE FOR WATER METERS
We are very strongly of the view that the water storage option is too expensive, is unnecessary and does not represent value for money.
It should be replaced by the water meter alternative.
The merits of both solutions have been widely canvassed and we do not intend to cover them again.
We wish, however, to make 5 points in this regard :-
The water meter option represents a huge saving for ratepayers.
The difference in the Annual Rates Impact (interest, depreciation and operating costs) over the 10 years of the Plan is $12.3 million in favour of the water meters.
Equally important, there is a saving of $2.4 million each year from year 11 onwards.
These figures represent very large savings indeed for the ratepayers of the district.
The difference in the capital cost of the 2 options ($13 million in favour of the water meter option) would give the Council valuable additional borrowing capacity for it to meet the further (currently unforeseen) capital expenditure requirements that are bound to rise over the coming decade and which, if it adopts the water storage option, it will be precluded from undertaking if it is not to break its debt/equity constraint and increase its already excessive forecast public debt levels.
In addition, consideration could be given to deferring the investment of $4 million in year 10 to secure land for a future water storage system.
With additional storage not being required for 2030 years, the deferral of the purchase of this land would not represent a significant risk.
Such a deferral would reduce the pressures on the Councils borrowing capacity and would increase the annual savings beyond year 10 from $2.4 million to approximately $2.6 million until such time as the purchase was effected.
Large households pay more than small households under the water meter option.
However, the more than 4 person households represent only 7% (1674 out of about 23000) of those in the district.
There are numerous means by which the pressure on this group could be relieved.
It has been suggested that metering and charging for actual use may lead to a position where the water supply may be privatised, (KCDC Water Issues paper).
This is a concern that has been widely expressed in the community.
It is misplaced.
In fact, the opposite is likely to be true.
If we reached a position in N.Z. where water supply systems were up for sale, a potential purchaser would be greatly attracted to one that had an enhanced water storage system already in place.
The absence of water meters would be no deterrent they could be installed inside 6 months.
And the cost of installing them (only $6 million in the case of Kapiti) would simply be reflected in a reduction in the purchase price offered.
In brief, we are of the opinion that the water meter option should be adopted on environmental, economic and social equity grounds.
(F) AQUATIC CENTRE IS IT AFFORDABLE?
We are somewhat ambivalent as to the priority that should be accorded the aquatic centre.
There is no doubt that the centre would be a wonderful community asset and, if the Kapiti Aquatic Trust were successful in raising its $13.9 million (out of a total of $23.9 million) it would be an indication of considerable public suppor for the concept.
In those terms, the expenditure of $10 million of ratepayers money could be said to represent good value.
On the other hand, however, we believe that the Plan Pushes the Council beyond the bounds of fiscal prudence bearing in mind that the construction of the aquatic centre would not only commit the council to an up front capital outlay of $10 million but also to an ongoing operating loss of $800,000 a year.
Regrettable though it may be, the Centre, in our view, falls into the category of unaffordable at this time.
Accordingly, in light of the pressure on the ratepaying capacity of the community if the Plan were adopted as currently drafted and the pressures on its own balance sheet we are of the view that the centre should be deleted from the Councils 10 year planning horizon or a lower cost design developed.
(G) RATES IMPACT OF OTHER EXPENDITURE
Spread throughout the Plan there is a multitude (some small, some not so small) of other expenditures.
In total, they represent 65% of the rating impact of the Key Projects included in the Plan.
Some of these expenditures would reflect the operating costs of key projects, some would represent new initiatives and some would reflect the replacement of already existing assets.
In the aggregate, they represent an increase of more than 15% on present rating levels.
In view of the multiplicity of projects included in this category, it was not possible to unpick the individual components and come to a view as to the relative merits of the various items included. It was obvious to one of the signatories of this submission who attended a number of the councillor working sessions relating to the Plan, that councillors were not operating within any rigorous fiscal envelope or cap.
Proposals, desirable in themselves, but, arguably, not necessary or affordable, would be supported by a majority (the composition of which changed from issue to issue) of councillors.
As a result, individual proposals, perhaps small in themselves, were accepted even though, in the aggregate, they put increased, and undue, pressure on ratepayers. The Councils balance sheet and on its long term flexibility.
It is our view that increased rigour needs to be introduced into Councillors consideration of expenditure proposals.