By Geoff Kreegher (Hamilton Ratepayer)
In preparation of the 2024-34 Long Term Plan the Mayor Paula Southgate would have us believe that over the last two years, Council finances have been significantly impacted by factors outside its control; namely, the international effects of record inflation; high interest rate levels; and the national challenges of increased compliance demands imposed by central government.
The implication that these factors are the cause of a balancing the books deficit of $17 million, compared to the Annual Plan forecast deficit of $12 million.
When, in fact, the very same Council in the previous Annual Plan (2022/23, see page 5) factored in:
- “an unforeseen rise in inflation which has forced us to budget for cost increases in almost every part of our business”,
- “the long recovery period from the COVID-19 pandemic”,
- “ongoing conflict in Ukraine and supply chain constraints which are being keenly felt all over the world”.
It begs the question, which is it? It can’t be both. Whilst they contribute, the main driver is that Council(s) spends more than it earns and has done so for some considerable time, at least since 2007. Previous Mayor Julie Hardaker stated “In the past five years the Council has spent more than it has earned, resulting in it running at a loss”
(Hamilton City Council’s 10-Year Plan 2012-22,Page 4)
In 2017 Council reported that it had borrowed $4 million (per year) including the previous two years to fund the day to day running of the city, creating a $12.1 million budget deficit, requiring a 11.7-12% rate rise to stem the ‘bleeding’. This was confirmed by PricewaterhouseCooper’s Financial Strategy Assessment Report.
Council debated a variety of rate rises but all were voted against. The annual 3.8% rate rise introduced in 2012 remained, failing to address how to fund the shortfall, this exacerbated the issue to the extent the ‘the hole in the budget’ would increase to $16 million the following year (2018/19).
To achieve strong Financial management the Council’s Revenue and Financing Policy principals are:
- “a prudent Financial Strategy, which supports our current credit rating”.
- “everyday costs of running the city will be met from everyday revenues”.
- “main source of everyday revenue will be general rates”.
(See page 164 of Hamilton City Council’s 2021-31 Long-Term Plan)
Paying for the City’s Everyday Costs
Everyday costs should be paid for from everyday revenues, failure to do this results in these costs being funded by increasing debt. This means existing ratepayers are not paying for some of the services and amenities. Using debt to fund everyday costs also means future ratepayers will pay for this cost plus the extra interest. This is neither prudent nor sustainable.
A submission to the NZ Productivity Commission in 2019 was extremely concerned about the decision of the Hamilton City Council to increase net debt to $780m and total liabilities to $892m, as outlined in the 2018-2028 10-Year Plan. This is an enormous debt for Hamilton, and the submitters likened it to that faced by the Mangawhai ratepayers who became liable for huge rate increases because of the failure of the Kaipara District Council to control large increases in debt.
“Our Concerns:
- Lack of Consultation
- Questionable viability of the 10 Year Plan
- Failure to Meet Financial benchmarks
- Failure to Comply with the LGA and LGRA
- Excessive “Non-Core” Spending
- Debt to Revenue Ratios
- High Staff Costs
Lack of Consultation
There has been no opportunity for the public to vote on decisions to increase debt. There was no place in the Consultation Document for the 2018-28 10-Year Plan to vote for doubling of debt and $2b infrastructure spending on expansion. In fact responses to the Consultation on the 10 year Plan for 2018-2028 were overwhelmingly in favour of cutting unnecessary spending, reducing debt and limiting rate increases.
https://haveyoursay.hamilton.govt.nz/strategy-research/10yp-2018-2028/
The Mayor and councillors had all campaigned for election on reduction of debt.
There has been no opportunity for the public to vote on decisions to increase debt. “
Quoted from a submission to the NZ Productivity Commission in 2019.
Public feedback appeared to cause the Council to limit rates increases. However they kept spending, running deficits, and increasing Council debt.
“After hearing the communities [sic] views we agreed that balancing everyday revenue and costs immediately with a 15% or 16% rates increase was too much, too fast.”
Page 68, Hamilton City Council’s 10-Year Plan 2018-28
What makes Council think that the response to the proposed 19.9% rates increase will be any different?
“In 2017/18, everyday revenue was not enough to cover the everyday costs of running the city which meant the balance is being paid for by debt. A key initiative of this 2018-28 10-Year Plan was to ensure everyday costs pay for everyday revenues by July 2020. For the next two years the average rates increase to existing ratepayers will be an average of 9.5% before reverting to 3.8% thereafter.”
It should be noted that rate rises of 9.7% in 2019 and 8.9% in 2022 were introduced to rectify this very issue.
2024/34 Long Term Plan – Agenda 28 November 2023
The 2024/34 Long Term Plan Council meeting- Agenda (28 November 2023) is a lengthy document at 244 pages, it is doubtful that ‘Joe Public’ has the time to read it, let alone comprehend it.
Currently ratepayers have two targeted rates: UAG at $643 it is to increase by 19.9% to $771; and the Government Compliance rate. The rate-in-the-dollar is currently 0.00013590 of the capital value of property. It will also increase by 19.9%, then the rate-in-the-dollar will become 0.00016294.
(See page 4 & 5 of Hamilton City Council’s Draft Rating Policy 2024-34)
Neither was clearly identified in the consultation document.
Now Council is proposing a further two targeted rates in the Long-Term Plan.
- Community infrastructure targeted rate,
- Community resilience and extreme weather targeted rate,
This means the rate per dollar of capital value would be:
- 40 cents per week = 0.00002506
- 80 cents per week = 0.00005012
A motion to achieve a saving of $510,000 over 10 years in the Council’s catering budget was voted on and also lost- consequently no reduction – no savings in Council catering.
The Extraordinary Council Meeting of 28 November 2023 clearly identified a right and a left block (political/ideological) which was reflected in the voting 8-7 in favour of the left.
“Council is also investing more than $100m to help a city where people love to be alongside developer contributions and developer investment”.
https://hamilton.govt.nz/strategies-plans-and-projects/projects/central-city/
This could have been a cost saving in the proposed budget; however, the left voting block was most reluctant to make any savings and, in some cases, increased the funding of some items.
Debate on the 2024/25 Development Contributions Policy went into public excluded – Why? Yet the consultation asked for submissions on the Draft Development Contributions Policy but it is not known what was debated.
The continued failure of successive Councils despite several approaches/warnings, to address their borrowing and spending, including a considerable amount on nice to have (pet) projects has resulted in the current position of:
- $29.8 million annual deficit (Page 5 of the 2022-2023 Annual Report) with about $16-17 million annual deficit predicted for 2023-2024.
- $947,890 million in “borrowings” debt,
- A proposed 19.9% rates increase
- Several proposed targeted rates
Council have also failed to address the loss-making ventures that they tout as major visitor attractions, stating “Claudelands, Waikato Stadium and Seddon Park are important contributors to our city’s economy as major generators of business and event tourism that comes to Hamilton. The events we host bring visitors from outside the Hamilton, which has an economic benefit for the city. Many stay in the city and buy other services while they are here, which has a flow on effect for businesses”. (See page 62 of Hamilton’s 10-YearPlan-2015-25)
All make considerable losses, contribute to annual deficit and add cumulatively to the debt.
LGOIMA 365329 – Council Activity Costs to FY2023
They may attract visitors that support local business opportunities and stimulate the Hamilton economy, effectively subsidising local businesses but on the other hand cost the city enormous amounts of money that contributes to continual rates rises on the long suffering ratepayer.
Why have an I-SITE Visitor Information Centre? All information is online, available on mobile phone. Council would have us believe that they have the best staff available. If that is the case, why do we spend over $15 million on professional costs, mainly consultants?
Instead of raising rates to cover their spending, Council must curb their spending and produce cost/benefit analyses to prove the benefit to the city and to the ratepayer.
The current approach will place a considerable burden on single/fixed income households and is unsustainable.
The Mayor is incorrect stating that over the last two years, Council finances have been significantly impacted by factors outside its control, namely the international effects of record inflation, high interest rate levels, and the national challenges of increased compliance demands imposed by central government.
When, in fact, the very same council in the previous Annual Plan (2022/23) factored in:
- “an unforeseen rise in inflation which has forced us to budget for cost increases in almost every part of our business”,
- “the long recovery period from the COVID-19 pandemic”,
- “ongoing conflict in Ukraine”,
- “supply chain constraints which are being keenly felt all over the world”.
The current financial situation did not sneak up on Council and is not the result of factors outside its control it is the continued failure of successive Councils to address their borrowing and spending, including a considerable amount on nice to have (pet) projects, despite several approaches and warnings from members of the public, accountants who gave these warnings.
“Just last year, our 2023 Ratepayers Report revealed the Council had spent over $315m on contractors and consultants – more than three times that of Auckland Council – and pays nearly a quarter of its staff salaries over $100,000. It’s that there is still plenty of fat the Council could trim to allow investment in vital infrastructure while protecting ratepayers from eye-watering rate hikes”
Quote from Hamilton City Council’s Never-Ending Rate Hikes Are Unjustifiable, Taxpayers’ Union, 08 February 2024
It is believed that Council is technically insolvent. Currently, 47% of general rates are paid in wages, up from 42% 3 years ago. If HCC reduced staff to the 2017 level, it would result in a saving of $40m. Rates could then be held at an increase in inflation only.
Council is big business. There needs to be more honesty and transparency, together with cost/benefit analyses to address Council spending and to provide proof of the benefit to the city and the ratepayer.
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Consultation finishes on 21 April 2024 for the Hamilton City Council Long-term Plan 2024-2034
