Tauranga's "growth pays for growth" philosophy is in tatters after the city council yesterday lumbered ratepayers with additional development debt totalling $32.5 million.
Most of the debt stems from miscalculating development impact fees and failing to sheet home the impacts of previous growth-related decisions.
Rates will potentially need to increase by nearly 1 per cent next year to cover interest costs of $855,000 on the $12.5 million first round of the transfer of debt.
The council's day of reckoning was summed up by deputy mayor David Stewart when he said: "It illustrates the fallacy of growth pays for growth."
Yesterday's decisions were regarded as pivotal to finding a sustainable financial future for the council which has been crippled by the combination of debt and the massive slowdown in development caused by the recession.
The council is in the process of developing its next 10-year plan. Financial controller Paul Davidson said afterwards that there were many other decisions left to be made that could offset the near 1 per cent rates increase arising from yesterday's decisions.
About $26 million of the new rates-funded debt was caused by the the council not collecting enough development fees to fund a significant amount of its growth-related capital spending. Around $6 million will need to be funded next year.
The other $6.5 million was to reduce subdivision impact fees on the Bethlehem West development area which started at $40,000 per lot, reduced to $27,000 last year and will now be lowered to an average of about $22,000 over the next five years in order to try to boost sales.
The council has spent $10 million on infrastructure to service Bethlehem West with nothing to show except development fees from a new service station and a retirement village.
Mayor Stuart Crosby said the work done at Papamoa's Wairakei development showed where the market's resistance pinch point really was. The idea was to stimulate the marketplace.
"If we do nothing, nothing will happen - we must do something."
Cr Larry Baldock said the growth pays for growth philosophy was getting ripped to bits. Cr Terry Molloy said the cost of not lowering the fees would cost the council more in the long run.
Cr Murray Guy likened the lower fees for Bethlehem West to firing a bullet in the dark, saying he did not believe it would breathe life back into a flat market. He wanted the council to complete its work on incentives to promote development city-wide before it considered Bethlehem West.
Cr Rick Curach said it fundamentally compromised the whole development contributions policy.
"This is going too far ... the market is not desperate for new sections."
The scaled fee starting at about $17,000 per section next year will revert to $27,000 after five years. The closest equivalent fee for home buyers would be the $23,000 per section in Wairakei, whereas subdivision impact fees in greenfield sites closer to Bethlehem were $13,000 in neighbouring areas of Bethlehem, $17,000 in Pyes Pa West and $10,000 on the other side of Pyes Pa Rd.
The $26 million historical shortfall in growth funding mostly came about because development contributions and financial contributions had, in hindsight, been set too low. Reasons included unexpected increases in land costs, inflation not being taken into account, and new roading projects emerging at Papamoa East after the fees had been set.
The council also failed to identify a funding source for its decision that growth's share of the interest costs on its infrastructure would not be met from development and financial contributions.
Alternative funding sources were also not identified by the council in earlier decisions to change the funding of some projects.
It was illegal to make up the shortfall by increasing the fees paid by future developers.
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