Waikanae resident, Aldous MacIvor. Dip VFM, BA. is a retired consultant and lecturer in farm management.
Limitations on sources of income
The Kapiti Coast District Council (KCDC) came in existence in 1989 as an amalgamation of all or parts of several local authorities.
The new council found itself with the challenge of creating the infrastructure for a future city.
From the outset it was disadvantaged with few assets, reliance on income from rates, and funding capital work through borrowing.
Today this is still the case. With no investment income KCDC is reliant on ratepayers (76.6%) for income.
Poor financial management in the past is being turned around ….
Council has now reached a policy crossroads. The trigger appears to have been the poor financial management between 2013 and 2016, when borrowings increased to $160 million and operating expenses grew four times faster than revenue, culminating in a deficit of $3 million in 2016.
(The figures below are in ‘000s)
2012/13 2013/14 2014/15 2015/16 % Av ann. inc.
Total Revenue $66,853 $70,412 $68,090 $70,011 1.6%
Total operating Exp. $61,624 $69,182 $69,540 $73,053 6.18%
Surplus(deficit) $ 5,229 $ 1,230 ($1,450) ($3,042)
It is evident this year that financial management is firmly back in control, with tight constraint on all expenditure.
However, it is becoming apparent that income at the present level of rates is still insufficient to cover debt servicing and will result in a probable deficit of nearly $1.5 million this year.
…. but the large problem of accumulated debt repayment remains
It is disturbing that after 28 years KCDC still has no effective debt repayment policy. Council must decide where and how it will fund debt repayment, and what the priorities are for further capital work.
An increase in rates of 5.9% ($3.4 million) has been proposed by Council to cover increased cost of depreciation and consenting.
However, given even modest increases in staff expenses and operating expenses, depreciation and interest will probably simply contribute to a fourth consecutive deficit.
KCDC is the seventh largest debtor with the Local Government Funding Agency (LGFA) at $195 million.
Local authorities avoid debt by using the flow of rates as security for long-term debt, transferring the liability to ratepayers. The only source of income in Kapiti for debt servicing is from ratepayers, and the present level of rates is insufficient.
A very basic projection of Council accounts for the next three years suggest that a 10% increase in rates will be required to provide sufficient surplus to fund an annual repayment of $4 million, or a fiftieth of the long term debt.
Policy issues, realities and priorities
The Kapiti Council, in consultation with its community, must now address a number of serious policy issues relating to funding and the use of funds.
- KCDC has serious financial difficulties and must formulate policies to address the continuing budget deficits, debt repayment and future capital expenditure.
- It has experienced three consecutive years of deficits and has no available income for either debt repayment or additional capital work. The trend needs to be reversed.
- After 28 years of inter-generational debt there still appears to be no debt repayment policy. Some form of debt reduction needs to be formulated to provide a more robust annual financial budget and resolve the moral issue of honouring the concept of inter-generational debt.
- KCDC needs to resolve the moral issues of inequality within the community and the impact of an exceptionally high rate increase on low-income households. The effect of such a rate increase is a relatively greater penalty for the economically disadvantaged ratepayers, who may be forced to leave their friends and move to a lower cost district with lower living costs. Such an outcome would be a silent and unfair migration.
- The only source of free finance to KCDC is from its ratepayers, and this will require Council to formulate a workable new social contract with the community to work together to achieve a more harmonious and prosperous district.
Perhaps it is also time for a rethink of sections of the Local Government Act 2006 at the national level, to bring the governance of local authorities into line with the Companies Act.
This could give councillors the same powers, responsibilities and liabilities of directors and Trustees.
So where to from here for Kapiti?