[As published in May/June BayBuzz magazine.]

Let the final act begin! 

With official public consultation virtually over for our region’s five councils’ 3-Year Plans (3YPs), councillors now need to cut to the chase and make some extremely difficult budget decisions. 

Of course the lobbying isn’t over, as various interest groups mount campaigns to protect their funding, while average citizens beseech their councillors at every opportunity to back off the steep rate increases involved. If you have a view, it’s not too late to express it … contact your councillors, it’s your democratic birthright. I’ll come back to this point. 

Making the task especially difficult this time for councillors are these factors: 

• Paying for the unprecedented costs of cyclone recovery; 

• Catching up on severe past under-spending on local infrastructure; 

• Cost inflation, particularly in materials and services required by local government; 

• High interest rates on current and future borrowing and insurance costs; 

• A soft economy leaving most ratepayers especially queasy and tight-fisted; and, 

• Uncertainty as to the quantum of funding assistance, if any, from government. 

Compounding these challenges is the nature of the council bureaucracy that’s expected to serve up any offsetting spending reductions. Face it, apart from the handful of financial specialists, these staff have been trained to evaluate consent applications, maintain parks and reserves, plan stormwater systems, protect waterways and biodiversity, spend money … not evaluate profit and loss statements, meet efficiency targets or fire people. A certain forward momentum to be ingrained in council budgets. 

Councils’ 3YPs strove to identify reductions in operating costs (HBRC $4.8 million, Hastings $2.7 million and CHBDC $1.5 million), but these still are peanuts in the overall scale of expenditure required – driven by the factors listed above – and they come with painful cuts in day-to-day services. 

How special are these 3YPs? 

CHB Mayor Alex Walker puts its bluntly in the CHB 3YP: 

“We’ve had to take a ruthless approach to prioritising our existing and new expenditure for the next three years … We’re in a time where we are recovering from Cyclone Gabrielle, community expectations are high and legislative obligations require more from us than ever before. It’s also costing more than it ever has before … There are still many costs that we don’t fully know how we will pay for either. 

“Beyond this, we have greatly reduced or deferred most existing spending … This still hasn’t been enough to offset the rates increases required. Even shutting every library and reducing investment across every community service still isn’t enough to offset the costs we face.” 

The following graphic illustrates her dilemma. 

Proposed rates: How will CHB rates be spent over the next three years? 

Where, on average, every $100 of rates will be spent over the Three Year Plan 2024-2027 

BB76 Tom LTP Graph 1 CHBDC ProposedRatesGraph 780w

Fully 72% of CHB Council’s rates goes towards roads, water infrastructure and rubbish disposal. What most ratepayers would consider the basics. 

Hastings District Council faces a $312 million in capital spend for Cyclone recovery only, apart from its other borrowing needs, while its total further cost to ‘reinstate’ roads and bridges will be $795 million. Mayor Sandra Hazlehurst calls HDC’s an infrastructure delivery budget. “We are a district in recovery from Cyclone Gabrielle, rebuilding a resilient transport network as well as maintaining and investing in quality water infrastructure now and for the future.”

Napier’s Mayor Kirsten Wise would agree. “There are unexpected costs from Cyclone Gabrielle, with parts of our community still recovering from this event. We need to stay focused on cyclone recovery while still providing the core services and infrastructure the community needs and expects of us.” Napier will invest $345 million in infrastructure over the next three years.

And HBRC faces the task of delivering a $250 million flood resilience programme to build flood infrastructure to move properties in Category 2 areas to Category 1 to enable people to move on with their lives. 

The special requirements of recovery aside, each of the territorial authorities faces the need to make up for past under-spending in infrastructure – water systems in particular. 

CHBDC’s 3YP candidly explains the shell game that all councils have played to keep current rates artificially low, hitherto considered a political imperative to mollify ratepayers:

“One of Council’s operating costs is depreciation. This is the accounting method used for spreading the replacement costs of assets over their useful life. In an ideal world, Council would rate to fund depreciation so that when the asset needs replacing, we are holding cash reserves (from years of rating for depreciation) equal to the cost of the replacement asset. However, in practice, because the money is not needed until later years, the easiest way for councils to keep rates artificially low is to not fully rate for asset replacements. As most Council infrastructure assets have a life expectancy of 30 to 100 years, the cash shortfall does not become apparent for many years. Unfortunately, this is the case we find ourselves in, historically, rates increases have been artificially held below the cost of inflation.” 

Mayor Walker puts it bluntly: “As a community we can’t repeat the mistakes of the past and choose not to fund our critical infrastructure for the future.” The pigeons have come home to roost.

So let’s turn to rates.

Rate hikes a certainty

According to data collected by Local Government NZ, the average rates rise across the country is about 15% for the up-coming 2024/25 council year. Across Hawke’s Bay, ours will be higher.

As Mayor Kirsten Wise has commented, rates get virtually all the public attention (and vitriol), while they represent only a part of councils’ funding plans – other sources being accumulated reserves, targeted ‘user pay’ charges, investment returns and external borrowing.

A fair point, but rates are where the rubber meets the road for most voters. These are the rate increases proposed across our councils.

And here is their contribution.

Even the smaller of our councils are big businesses. For the four reported above, their combined rate take for next year would be $331 million, rising to $418 million in three years. Their combined operating budgets for next year would be $619 million, rising to $655 million in three years. 

Public debt (current + non-current public debt)

The relative stability of operating budgets masks the surge in capital spending for these councils, paid for predominantly by borrowings, as the chart above indicates, with higher interest rates expected. Total council debt is projected at $1.16 billion in FY26-27. In ten years, HDC’s debt alone will peak at $701 million.

HBRC is the least rates-dependent of our councils currently, and also the one promising the most substantial internal cost reductions. But that’s not without controversy of its own.

Public response

Frankly, all the submissions in the world are not going to move the needle materially on any of these rate increases. 

And indeed, no council is asking ratepayers, ‘Would you like to see a budget with rates adjusted only for inflation?’ as some Facebook punters insist. Or, ‘How about if we cut staff 20% across the board?’ … another favourite on social media. But these would be fantasyland propositions.

Each council has offered up hypothetical savings that illustrate just how hard it is to scrape off a $2-3 million here or there. It means less hall maintenance, reducing library or pool hours, less attention to parks and reserves, less support for cultural enrichment, alternative funding for council-run activities and enterprises.

NCC, for example, poses these choices. Should we focus on supporting retirement housing only, and sell our social housing villages? Should we continue our special ‘Disaster Recovery rate’, converting it into a ‘build resilience’ rate? Should we place management of our investment portfolio in a Council-Controlled Trading Organisation on the premise that more commercially-oriented managers would yield great returns? Should fee increases for some Council-supplied facilities and activities reflect higher costs or be held to the general CPI increase? How should we fund the deficits of NCC-operated tourism facilities? And more.

HDC poses these choices. Should we impose a special ‘Cyclone Recovery Targeted Rate’ to pay for a ring-fenced $230 million recovery budget? Defer development infrastructure financing to existing commitments only – hit the pause button on growth? Defer $50 million in several itemised ‘nice to have’ community amenity projects (e.g., Splash Planet, Tōmoana Showgrounds, Civic Square)? Borrow more to do more sooner? 

Note that many of our ‘amenities’ are no less ‘baked in’ than our roads, bridges and stopbanks. No doubt there are many, maybe a majority, of ratepayers who have never used or enjoyed Splash Planet or a public swimming pool, the Aquarium, Toitoi, the Faraday Centre, MTG, the Municipal Theatre, or a library, but there they sit with operating and maintenance costs … and each with a band of ardent vocal supporters.

Although formal consultation is over by mid-May, if you feel strongly about council spending, don’t hesitate to sound off with an email or text to your councillors – all their contact info is on councils’ websites – or accost them on sight! They’re paid to listen. But if your concern is too high rates, to be helpful and not just noisy, remember to tell them what you would cut.

Because, on the other hand, the interest groups lobbying for spending are generally well-organised, very focused on their specific ‘most urgent’ programme, tactically smart, and generally well-connected to the ruling class (i.e. councillors and their friends).

HBRC’s plan to cut off funding for Hawke’s Bay Tourism is the most visible case in point. 

Here is an ‘industry’ whose advocates say is worth $1.3 billion to the region, but that cannot seem to generate a self-funded marketing budget of $1.52 million … about a tenth of a percentage point. So HB Tourism has lobbied the region’s mayors to fund an alternative scheme … it’s just a shell game as to who sends ratepayers the bill. But either the funding is deserved and affordable or it is not. An interesting test of political wills to watch play out. [Editor’s disclosure: as a previous HBRC councillor, I voted to phase out HBRC tourism funding in the past.]

More broadly, there is no fiscally conservative HB Ratepayer Association to offset or challenge the spending lobbyists, or to advocate well-crafted, alternative budgets.

That said, if there’s any set of public decisions that should not be made in total deference to public opinion, it would have to be rate setting. Has anyone ever seen an opinion survey at any level of government, in any nation, where a majority wanted the government to take more of their money?

At this particular political-economic juncture in Hawke’s Bay, these 3YP consultations are much more about educating ratepayers as to their predicament and fiscal reality than it is about searching for cost reductions, programme deferrals or borrowing options that councils haven’t been smart or brave enough to identify.

So, high rates look to be locked in for three years. But hopefully that’s not the end of the story.

Government assistance?

There’s a remote chance that the Government will have provided some relief in its May budget (watch for our BayBuzz online reports on that), but if these happen, they are likely to fall into the band-aid category … not massive local funding.

As Mayor Kirsten Wise said, “We must plan to pay our own way … any government assistance will be welcome gravy.” And just as likely to prevent some recovery projects from being deferred as opposed to reducing rates.

As I reported in Feb/Mar BayBuzz, there has been discussion of a bigger paradigm shift involving ‘Regional Deals’ involving long-term realignment of central versus local government responsibilities, with local councils being given more operating discretion to formulate programmes in areas like housing and employment together with sustained government funding.

An intelligent course, but not one likely to ease the strain on your rate wallet soon.

Similarly, as we also reported in Feb/Mar, a Labour Government report called The Future for Local Government has also broached an array of reforms designed to better address the fiscal impact of responsibilities that have fallen on local councils, including more central government funding (e.g. for climate adaptation), direct payment (e.g., agencies paying rates for properties they own locally), and adding more potential funding tools for local bodies (e.g., community bonds).

Again, ideas with much support within the local government sector, but not likely to produce near-term rates relief.

This report also recommended ‘consolidation’ of local bodies. What BayBuzz fondly calls ‘amalgamation’. Strange, I didn’t notice that massive cost-saving option floated in any of our councils’ 3YPs. Was that my oversight or theirs? 


Leave a comment

Your email address will not be published. Required fields are marked *