Joel Cayford: Prudent councils shouldn't bank on growth to pay bills

This year Auckland Council adopted its first long-term plan. Among other things it provides for an $800 million loan for Watercare sewer project. Photo / Supplied

Opinion

It is of concern that while individual home owners and property investors are being encouraged to reduce debt and increase personal savings, councils throughout the country are building fiscal cliffs that put ratepayers at financial risk.

An extraordinary example of this threatens Mangawhai ratepayers today. Kaipara District Council (KDC) borrowed $60 million to build a large community wastewater system that would be funded by an assumed high rate of growth that would occur uninterrupted for the next 30 years. With the global financial crisis well under way KDC had ample warning to downsize the project - or even to stage it - but for reasons that still remain shrouded in secrecy, in 2009 the council decided to build the whole thing at once. As growth and development dried up the council went into panic mode to service the debt. Rates rocketed, ratepayers rebelled, and many are now engaged in a rates strike.

A Government-appointed review team reported that the debt incurred to fund the Mangawhai scheme make it "one of the most indebted councils in New Zealand", with a debt per capita of $4436. The report advised that there had been a "failure of governance" within KDC and recommended that commissioners be appointed "as soon as possible".

The Government has intervened, sacked the council, and appointed four commissioners to clean up the mess. An investigation by the Office of the Auditor General is expected next month.

This year Auckland Council adopted its first long-term plan. Among other things it provides for an $800 million loan so that Watercare can build the Central Interceptor sewage project. Overall council borrowings will almost double to $8.8 billion in the next five years - without even providing for the proposed City Central Rail Link project - resulting in a debt per capita across Auckland of almost $6000.

In the 2017-18 year, the Auckland Council plan reveals that its cost of finance - interest in other words - will be equivalent to more than 30 per cent of its rates revenue.

The Auckland Council Plan - like the Kaipara District Council Plan - assumes a very high rate of growth. It assumes that developer levy revenues for example will increase by a factor of four over the next five years, to$221 million in 2017. It also assumes that Watercare's revenues will increase by over 35 per cent in the same period. But what happens if that high rate of development and growth does not eventuate?

The global financial crisis has not gone away. But what happened in Mangawhai is a canary in the local government coalmine. A prudent council should not be betting on growth today.

Sewage management and wastewater treatment is a core responsibility of local government. Many small communities are under pressure to switch from local onsite systems to council controlled community schemes.

Large centralised sewage systems are expensive to build and - as environmental expectations increase - alarmingly expensive to maintain. North Shore City Council discovered this when community pressure obliged it to fix its network and prevent wet weather overflows from sewer pipes which were closing local beaches.

The council investigated sewer augmentation options not unlike Watercare's proposed Central Interceptor Tunnel, but rejected them on the basis of cost.

Instead it adopted a dual programme to reduce stormwater infiltration into its sewer network, and to build underground storage tanks which collected the most damaging and frequent overflows. When the storm has passed and the sewer network has drained sufficiently, the collected wastewater can be pumped to the treatment plant.

The benefits of this approach were many. It was not capital intensive and could be funded from rates revenue. It was an approach that could be staged - environmental benefits were immediate when the first overflow storage tank was constructed. It allowed for a de-centralised approach to network management - which lent itself to computer control in response to concentrated weather events.

Watercare would do well to study North Shore's experience.

My assessment suggests savings of over $500 million for the whole project, but it may be that through staging the project over time, the benefits might be even greater.

Joel Cayford is an urban planner and a former city and regional councillor.