Council faces 'hard decisions'
GISBORNE District Council chief executive Judy Campbell has told the the Future Tairawhiti committee that infrastructure and projects on a wish list for the council’s long-term plan will have a major effect on the council’s finances and require some hard decisions in the future.
Mrs Campbell said at a finance workshop that if everything in the wish list was included it would require a rates increase of 47 percent, or $74 million.
But she stressed that this was not a proposal and did not presume that the council had decided on these projects and initiatives. It was high-level financial modelling so the council could understand the long-term impact of potential decisions.
She emphasised that the picture she was presenting would probably never happen, that she was showing councillors the potential impact of the kinds of projects that were talked about around the council table.
The council is about to start the three-yearly review of its long-term plan and Mrs Campbell said the amounts in the workshop were for variations to the current plan. The workshop assumed an interest rate of 5.5 percent. The cost of borrowing $1 million was $84,000 a year.
A 1 percent increase in rates would raise $550,000 of revenue and fund borrowing of approximately $6.5m. There were no changes to roading in the modelling and that “is an issue”, she said.
A number of projects were classified as needed in the modelling,
There was $22 million provided for the drainwise programme in the long-term plan but the actual cost was expected to be $38.6 million.
The wetlands project had a budget of $12 million but the best estimate at present was that the cost would rise to $17 million.
A decision to reduce the time for the Waipaoa Flood Control Scheme from 15 to 10 years would have an impact on rates. The library rebuild had been approved and items on the wish list included rebuilding the observatory on Kaiti Hill, the Olympic Pool redevelopment, the Lawson Field Theatre rebuild, the inner harbour redevelopment and CBD parking where the council could lose revenue.
The cumulative rates percentage increase in the already approved 10-Year Plan period of 2015-2025 was already $66 million in rates income per annum by the 2025 year or a cumulative 28 percent increase from the current rates impact of $54 million a year.
47 percent cumulative increaseIf the council went ahead with everything in the model, $74 million would be needed in rates by 2025, a 47 percent cumulative increase over the 10 years.
This amount would be needed to fund substantial borrowings that could peak at $90m in external loans.
The modelling allowed for potential grant funding of $42.2 million and the revenue from the council-owned subsidiary Gisborne Holdings Ltd was estimated at $30.1 million over the 10 years.
There were levers that would have to be pulled to stop this situation from ever arising, including increasing rates and non-rates income, or prioritisng or reducing spending by cutting out some projects, lowering the level of services and reducing general operating costs.
Pat Seymour said because of the environmental benefits of the drainwise project, there was a serious case to be made to the Government for financial assistance.
Mrs Campbell said the fact that gully traps had such an effect on the council’s stormwater system was not its fault. There could be a case for the public to get funding for that.
Upgrading infrastructureIt was not just drainwise, it was the cost of upgrading infrastructure to meet the conditions of the district freshwater plan.
Graeme Thomson said if the forestry dividend were set aside to pay off debt, it would give much more flexibility than borrowing a lot of money for projects. That would leave future generations nowhere to go because of the debt level.
Brian Wilson said this had been a great presentation to show the council the realities of life.
Gisborne was not the only council struggling. Auckland had massive problems with hundreds of overflows and areas that were polluted, and they were talking in billions of dollars.
There were a lot of issues that were not the fault of the council, such as legacy ones. The infrastructure in Kaiti was abysmal.
“We are really challenged in this district,” he said.
Mrs Campbell emphasised that the council had been able to maintain low rates increases for four years in a row so far, while at the same time delivering a large number of projects and improvement initiatives.
“This is because we have emphasised good disciplines and innovations such as Tairawhiti Roads, the transfers to GHL and the bringing in-house of functions”.
She challenged councillors to continue to think this way in the future and not go back to the old days of 7 percent annual rates rises (as in 2009).