I’ve tried, really tried, to follow the Hastings Council’s forward budgeting process, conducted this season in the context of formulating largely nonsensical ten-year plans (i.e., LTCCPs).
[I say “nonsensical” because, in HDC’s case, the 7-8 outyears are essentially “business as usual + inflation” as opposed to any serious examination of long term factors or programmatic alternatives that might fundamentally change budget requirements. But I’m already digressing.]
The only numbers really worth looking at in the forthcoming LTCCP are the next budget year (2009/10), with maybe a glance at the following two years just to see what spending might have been deferred so as to make 2009/10 rate increases look more palatable.
But despite my best efforts, I still have some basic questions about HDC’s budget intentions for 2009/10. Here are few …
1. Rate Increase — Though the final rate increase for next year is still a bit of a moving target, one handout puts it at 1.27%, compared to 3.76% for 2008/09 and 3.94% for the following year (2010/11). Somehow, HDC is magically projecting a rate increase for next year that’s roughly only a third of either the preceding or following years. That would suggest heroic efforts to contain costs next year (2009/10), but only for that one year, after which higher rate increases resume. But I can’t figure out which activities won’t be done next year — keeping rates down — and then added back in 2010/11.
I suspect we’ll see basically the same level of activity in all of these years, perhaps just financed differently … which brings up the issue of debt.
2. Debt — another HDC report says the Council external debt (excuse me, your debt if you’re a current or yet unborn Hastings ratepayer) is $32 million as of 30 December 2009, plus another $35 million of “internal” debt (don’t ask!). The external debt is projected to increase to $58 million over the next year (by February 2010); I don’t have the “internal” debt increase. Indeed, HDC’s debt is quite the moving target, changing, sometimes significantly, from Council meeting to meeting.
Suffice it to say, one must question; a) the appropriateness of the overall debt level; and b) the extent to which HDC might be debt-financing activities that should be paid out of current rates. These are questions Councillor Wayne Bradshaw keeps raising, usually getting a “don’t worry, be happy” response.
3. Revenue sensitivity — you might have noticed we’re in an economic downturn. A deteriorating situation could significantly reduce some Council incomes (actually, all area Councils need to be thinking about this) from activities like tourism (Splash Planet and Hastings Holiday Park), refuse user charges, building and resource consents, water by meter charges, trade waste charges, and development contributions (payments made by developers for infrastructure improvements required by their private developments). And what about declining property values … what’s the lag time before these are reflected in lower rates revenue?
Council staff has been revising downwards its revenue from building and resource consents. But sensitivity analyses need to be done on each of these income areas, so that appropriate contingency plans can be made for serious revenue shortfalls. Are these analyses being done? Do we have contingency plans to offset revenue losses with spending cuts, or will we just borrow the money?
4. Staff salaries/reduction — suppose there is a significant revenue shortfall … is there any such thing as a freeze on Council employees’ pay increases? To say nothing about staff reductions? Is it even possible to take either of these actions given labour contracts and associated legal strictures?
5. Ability to pay — rate increases are always presented in relation to inflation and property values. But what about household income? If people are being laid off, or working fewer days/hours, or seeing their retirement nest egg shrink, surely that affects their ability to pay current rates, let alone future higher ones.
So Councils, how will your new rates look as a percent of the average after-tax income of Hawke’s Bay residents, keeping in mind the average HB wage is $22,000 (being generous, assume double that per household)?
Hopefully the HDC will enlighten all of us on these budget questions as it wraps up its budget/LTCCP planning process over the next two weeks.