THERE has been considerable debate about the financial situation the Rotorua District Council finds itself in over servicing progressive loans to develop Rotorua airport.
Capital borrowing related to this infrastructural development is about $48 million, but this was spread across a number of years and the level of increased debt has
been signalled since the 2007 Ten Year Plan.
We need to be clear about the nature of this debt. It has nothing to do with the Rotorua Regional Airport Company. It also has nothing to do with the transtasman service and any marketing relationship with Air New Zealand.
There a clear commitment by the Rotorua District Council to fund infrastructural airport development - buildings, runway and the surrounding land. This is the same as the council's borrowing money to pay for other infrastructural projects such as roading, sewerage, the Energy Events Centre and the museum.
Such assets are intergenerational, long-term investments, mostly funded by borrowing.
I understand we cannot lay the burden of this loan on preparing the airport for transtasman flights, as the larger portion of borrowing was applied to develop facilities to maintain domestic air services.
The Rotorua Chamber of Commerce supports infrastructural developments that aid the growth of our city.
But I am surprised at the public announcement that this was an issue that had occurred suddenly. Both the 2007 and 2010 Ten Year Plans predicted an increase in council borrowing.
The 2010 annual report indicates total borrowings increased to $115 million - less than the projected figures in the last two Ten Year Plans. I have provided these figures to show Rotorua District Council is aware of its level of borrowing and on the cost of servicing that borrowing.
Pressure to meet the cost of servicing the loan appears to be due to a number of factors, undoubtedly including the recession and the protracted delay in starting the airport project.
However, some of the borrowing, and hence the cost of servicing, would also have followed the same delayed timing pattern. These factors were known when the annual plans were prepared and would have been incorporated into the ongoing discussions.
The variation of lease revenue from the airport company to the council would have been known and accounted for in the annual budgets. The signs would have been there for the last couple of years, indicating a requirement to meet a shortfall between the interest on the capital and the projected income from the asset lease.
I find it difficult to accept that both the council chief executive and Rotorua district councillors were not aware this was an impending problem. It is certainly an identified risk that should have been considered through an ongoing, effective governance process.
It raises the question: if it were known around the council table two years ago that meeting projected capital servicing costs was going to be an issue, was it appropriate that other capital projects and asset purchases were approved?
However much we feel the back of theatre project and purchase of the grand piano were good for the community, should they have been approved if we couldn't meet our commitments to previous projects?
- Roger Gordon is chief executive of the Rotorua Chamber of Commerce
