Debt burden a difficult balancing act for council

By Allan Anderson


It has been said that debt is like body fat - easy to accumulate and damned hard to get rid of.

One could add that the reason for the latter is that we are all reluctant to take the action necessary to achieve any reduction.

There can be no doubt council debt dominates many ratepayers' thoughts, if letters to the editor are anything to go by. Come election time, every candidate will commit to making debt retirement his or her priority while promising minimal rate levels. Yet nothing seems to change - budgets promise debt will peak in year Y and we will come into surplus in year Z. Forgive my scepticism, but I've heard all that before, and the elusive rainbow remains just that.

So how do we accumulate debt? Simple. We spend more than we earn. Or, as one astute observer put it, "If our outgoings exceed our income then our upkeep is our downfall".

Wanganui's debt is, in the minds of many, unacceptably high. As it is currently at $95 million with a predicted peak of $119 million in 2016, this is perfectly understandable.

How did we get there, what does it mean for the "average ratepayer" (if there is such a being), and what is necessary to address the problem? Of course, there is no quick fix and, more importantly no painless solution.

What is fundamental, though, is that we do not confuse fact with finger-pointing and blame.

Council has no money of its own. It has only what it takes from ratepayers and, in the case of roading, subsidies from NZTA. While borrowings make up any shortfall, these can only be repaid out of rates. And since councillors are elected by residents, they are really acting on behalf of us all.

But expectations are high, costs continue to rise and council is faced with a choice between the "nice to have" and the "need to have". And perhaps Wanganui has failed to adequately identify the difference.

I have no problem with a community having the former - as long as it accepts that these do cost and is prepared to pay for them. Let's look at a few: the Splash Centre, the riverfront development/boardwalk, the i-Site - and toss in the port purchase. No-one would deny these are wonderful assets and enhance our image and overall community pride. Just one small catch: they are not paid for! In fact, we owe in the vicinity of $9.65 million on these assets alone with an annual interest bill of around $700,000. Let's convert that into what it means for the average ratepayer. Actually it's about 2 per cent of our rate bill. If we extrapolate that to encompass all of our debt, we find that, with an interest bill of about $7 million, we are on average paying over $400 of that in our rates. Over 20 years that means a Wanganui family will have spent $8000 on interest alone, which has bought nothing, achieved no reduction in debt and is ongoing. A sobering thought.

How can council rein in this debt and its twin partner in crime, interest? It has only two options - reduce expenditure and/or increase income.

OPTIONS FOR COUNCIL TO DEAL WITH DEBT

Reduce expenditure:

This can be done in two ways. Defer maintenance on the district's assets and reduce support for community assets.

Since most council expenditure is on infrastructure - water, street lighting, roads and footpaths - it might appeal to some pundits to defer maintenance in these areas. One slight catch: there is no difference between debt at the bank and deferred maintenance, because both eventually have to be paid for.

When footpath repairs or wastewater treatment upkeep can no longer be delayed, there's a fair chance they will cost even more, since depreciation will be cumulatively greater.

More importantly, what level of deferment will residents tolerate? My experience of residents' reaction to broken footpaths is that they want them maintained in a safe condition, not allowed to deteriorate further in the interest of lower rates.

Expenditure can also be reduced by reducing the level of service. Once again, what reduction would residents tolerate? Remove our hanging baskets? Mow our parks and sports fields only monthly? Abolish the animal control service so menacing dogs roam the streets at will?

Councillors work hard at balancing the necessities of maintenance and service with what they believe is an acceptable level of rating.

Increase income:

This can be achieved by selling surplus assets/property or rating at a level that will fund council activities.

Selling property is a one-off income. It will temporarily reduce debt, but unless council balances its budget, we will soon return to the status quo. But don't discount it. That leaves us to consider a level of rating that will fund our district.

No one likes paying rates. In fact, we don't like paying tax, petrol and electricity prices, milk prices - you name it. But rates really get people fired up, and it is good politics to demonise rates. So a few years ago, when Wanganui elected a council with the promise of a nil rate increase, it did not realise it would be exchanging the "lowest rate increase in NZ" for one of the highest debt levels.

It was a cruel hoax to tell people they could have all the amenities they wanted and, by some magical formula, never have to pay for them. It was never said that the sweeties of low rates would be offset by the bitter pill of debt - debt that incurs interest and still has to be paid.

Council has a policy of modest debt repayment, and there would not be a councillor who is not fully aware of the burden of rates on some people. As such, they approach the annual task of rating seriously and responsibly. But there is a harsh reality concerning borrowing and debt: When we borrow, we will have more now but less later. And for Wanganui, later has arrived.

This is election year and voters will scrutinise the policies and promises of candidates. It is important that whatever mandate voters deliver will enable the new council to govern responsibly and with their consent.

- Wanganui Chronicle

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