Tauranga residents have been warned of hundreds of dollars in rates rises, asset sales, and project cuts which could be on the table the city faces a financial reckoning.
The fastest-growing city in New Zealand is struggling to fund new infrastructure and nearing its debt to revenue ratio limit, the city's leaders confirmed today.
And if that 250 per cent limit was breached, the fallout could include an additional $1.7m on rates bills to cover higher interest rates - about another $30 per ratepaying household - the Bay of Plenty Times has learned.
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Tauranga's new mayor Tenby Powell blamed a decade of under-rating, too-low growth estimates and a "broken" system of funding high-growth councils for the situation.
"We can no longer kick the can down a road full of potholes. We cannot rate our way out of this, we must also look at other financial options.
"Tauranga is not broke. We just recognise with the forecasts we have that we need to do something different to that which has been done before."
Powell and his deputy Larry Baldock briefed media today ahead of a Wednesday council meeting to discuss issues with the city's budget for the next financial year - the Annual Plan - and options to avoid a breach.
Powell said the council had not been able to maintain the revenue levels it budgeted in its last 10-year plan in 2018, and was also taking on debt faster than expected to fund skyrocketing costs to build infrastructure such as roads and pipes.
"We have got to look at a new funding model in some form but more to the point we have got to create more revenue for the city."
The council was "opening the hood" on its financial issues with the goal of having an honest and transparent conversation with the community, he said.
Rates rises, selling or leveraging off the council's assets, and delaying or reprioritising capital spending, were raised as options that could be on the table.
Powell said he was "not a fan of selling the Crown jewels" but there were mechanisms for the council to better leverage off its $4.6b worth of assets.
"Nothing is being ruled out, everything is in the melting pot."
He was in "good" talks with the Government about partnerships and other ways to take infrastructure costs off the council's books.
Powell said the council needed to balance the needs of older people on fixed incomes with younger families "desperate for progress".
Rates rises should have happened "a long time ago".
The push for new amenities could not be ignored, he said, giving the examples of a stadium, 50m swimming pool and museum.
The council was looking at ways to alleviate financial pain from low-income earners.
Asked about older people with expensive homes and fixed incomes who might struggle with rates increases, Baldock said those people had seen a 40 per cent increase in their equity in recent years.
He said the council will "do what we can".
"But they also need to take responsibility with that equity. They can downsize, they can sell and move on to housing that is more affordable for them.
"We can't hold the city back just because of those situations."
He said it was a difficult situation for people to face in their older lives, but their families could help.
"We are talking about a rates rise of several hundred dollars, perhaps, as opposed to someone who has had $200,000 to $300,000 worth of equity created."
Baldock said community feedback on the council's plans would be vital.
"It's your city and we desperately need you to tell us which way you want us to go with this."
In recent years a majority of councillors has voted to cap rates increases at 2 per cent plus the Consumer Price Index rise.
One such councillor, Steve Morris, said Tauranga was already among the highest-rated metropolitan councils in New Zealand, and did not even provide kerbside rubbish pick-up.
Contrary to the claim the city had been under-rated: "The evidence shows we have been very enthusiastic to pull the rates lever."
"It will be interesting to see whether councillors actually try and rate their way out of this or whether the council will stand up to central Government about this broken revenue model."
Going into Wednesday's meeting, he said he would keep an open mind but would prefer to do what he said he would do in the campaign and argue to keep rates increases low.
What happens next
- The council will meet on Wednesday to discuss the draft Annual Plan and the options for gaining more financial stability.
- Once the council signs off the draft Annual Plan, it will go out for public consultation. This is expected to happen in late March or early April.
- The council will receive and review the public feedback, then deliberate.
- The Annual Plan 2020-21 is expected to have a final sign-off in June.
Prospect of commissioners discussed behind closed doors
Behind closed doors, the council discussed the prospect of commissioners being called in over the city's challenges, the Bay of Plenty Times has learned.
Councillor Andrew Hollis said that in a confidential council meeting last week to brief councillors on the Annual Plan issues, the mayor hinted at the prospect that "commissioners might be sent in".
Hollis understood that meant that: "If we don't do something relatively dramatic it could mean commissioners could be called in."
Powell responded that his words were: "If we aren't brave, or I think I said bold, if we don't bring solutions to the party we cannot expect central government to bail us out.
"We do not want someone else to be running this city."
He confirmed he was talking about commissioners.
Powell said he viewed the risk of commissioners being bought in as low.
"It's low because of what we are doing today and what we are going to do in the future. We have got to do better than what we have been doing."
Options on the table
Tauranga City Council staff have prepared four options for the council to consider in a meeting on Wednesday. Each keeps the council's debt to revenue ratio at 225 per cent and includes a base $36m cut to the capital programme.
Option one: December resolution
-Reduced capital programme and cut lower priority projects by $33m
-$4.3m drop in operations spending
-$661m debt at year end
-5.1 per cent rates increase
Option two: Constrained capital investment
-Reduced capital programme and cut lower priority projects by $24m
-No drop in operations spending
-$671m debt at year end
-7.6 per cent rates increase
Option three: Prioritised capital investment plus limited debt management
-Some prioritisation of capital programme
-Option to add back $6m of deferred capital projects
-$691m debt at year end
-12.6 per cent rates increase, including 5 per cent debt management
Option four: Prioritised capital investment plus debt management
-A larger capital programme than other options
-Option to add back $32m of deferred capital projects
-$709m debt at year end
-17.6 per cent rates increase, including 10 per cent debt management.
Source: Tauranga City Council
Full details of the options to be discussed in Wednesday's meeting can be found in the agenda.