Tauranga City Councillors start their year today by being told to either save more money or face a 17 per cent rates rise.
They will discuss the re-emerging financial issues at an annual plan workshop meeting.
The city's current draft annual plan exceeds the council's adopted treasury policy limits, says city financial controller Paul Davidson.
It is to do with the debt to revenue ratio. It is currently exceeding 258 per cent. Short term it can be 235-250 per cent, but the desirable long term ratio is less than 235 per cent.
Before Christmas, councillors reduced the ratio from 264 per cent to 258 per cent by cutting spending across the capital expenditure programme.
To achieve the 258 per cent ratio the new council reworked the 2011/12 annual plan budget in a series of pre Christmas workshops, trimming hundreds of thousands of dollars from what the council expected to spend on the city this year.
Their efforts reduced the expected rates demand for the coming year to $99,212 million, which is an increase of 11.4 per cent over last year. Debt would be $410,173,000.
Now they are being asked to do it again.
If the debt to operating ratio is more than 260 per cent, council staff are warning that Standard and Poors could downgrade the council's credit rating, which will result in higher borrowing costs.
'The Standard and Poors stuff, there is nothing they have said directly that 260 per cent is the drop dead thing,” says Paul.
'There's a whole lot of other factors that they look at as well, so this is just one thing in the mix – so those points summarise the main reasons.”
Staff want councillors to keep on cutting into the capital plan because only a small movement in interest rates can put the city back behind the 260 per cent mark.
'If interest rates go up, the higher interest exposure that we have got, the more exposed we are,” says Paul, 'so it's just a more prudent level.”
The current 11.4 per cent rates increase is six per cent below the original forecast in the council's long term plan.
The council needs $6 million to bring the debt down to 248 per cent, but the 17 per cent rates rise required for that is not considered viable.
Raising council fees is also ruled out for the same reason.
Reducing operating spending also won't work because it will worsen the treasury ratio by lowering the revenue base.
10 comments
THE OBVIOUS FROM YEARS AGO
Posted on 29-01-2011 11:08 | By The Master
Bill is still hoping and dreaming that Route K will be off-loaded to NZTA, but that will only happen if Council keeps the debt of what is getting closer to $60m, the debt is rising because not even the interest is being paid, that is indeed "PROVEN LEADERSHIP"!
REDUCE OPERATING COSTS
Posted on 29-01-2011 11:12 | By The Master
Will work because that means less costs to operate Council so means more of the rates available to pay off debt. In truth Council staff dont want to reduce staff numbers so they just want to keep things as they are all nice, warm comfortable and happy happy joy joy .....
MWAN WHILE IN THE REAL WORLD
Posted on 29-01-2011 11:17 | By The Master
Less income like development fees and building fees means less work for Council staff to do, but what we actually have is increasing staff numbers (like 17 more staff ex CGAF Ltd - building inspectors) have they figured that less work means you need "LESS" staff to do it ? that is what happens in the real world anyway. But of course Council staff live in an idyllic world of being paid huge money without having to make any harsh decisions cos that would just not be PC now would it.
FAILED ELECTION PROMISES
Posted on 29-01-2011 11:23 | By The Master
They said on the day that the ballot papers came out that "staff are reworking the annual plan for next year because 17.8%+ rates increase is not sustainable ..." That it will be 6-8%, staff will report back in December. What is missing here is that Council has so much debt and interest to pay every year that the only option left is reduce staff.
About to go broke, bankrupt and more
Posted on 29-01-2011 15:57 | By THE RING MASTER
Ok well maybe now is a good time to talk about that?
Spendups first order of business
Posted on 29-01-2011 15:58 | By THE RING MASTER
Perhaps a good idea to look at the finances first then have a spendup!
It is all about relativity
Posted on 01-02-2011 21:42 | By Lostzone
The more the staff get the more their managers get. The more the managers get the more the CEO gets.Admin recommend to council. Why the hell would the CEO recommend significant staff cuts to council? Why is the CEO & managers not on a basic retainer with very clear bonus criteria in place? And before 'they' say "ooo we will not get any body of the right calibre" let me say that is RUBBISH. I have had a number of years in senior management roles with Local Authorities. I challenge you MR Mayor & Mr CEO to meet with me. Why do I ask through the media? Because I practice what I preach.... that is "lets bet out in the open!!" I have nothing to hide! Sunlive have my contact details. Well ?? "Citizens Monitoring Council"
Staff recommend staff cuts
Posted on 10-02-2011 15:01 | By THE RING MASTER
You got it Lostzone, NEVER will staff recommend a pay cut for themselves that is a consequence of less staff
Reducing costs will work
Posted on 12-02-2011 15:47 | By THE RING MASTER
Because collecting rates has nothing to do with cutting staff numbers
THE LEVEL OF DEBT
Posted on 14-02-2011 08:52 | By The Master
There is a mess, and Standard & Poors will certainly review and very likely drop the credit rating. that si because the amount borrowed for years has always hovered just under the ratio maximum and as more and more hair-brain schemes are created upon which to throw money at, creating losses and more debt the problem multiplied and spiralled out of control. The only thing that has stopped all this carrying on is that the income from building fees has dropped while debt has continued to increase. So when that is called "PROVEN LEADERSHIP" we are in serious trouble here. Even if for some amazing reason debt did not increase anymore (but it is going to for sure) rates will have to increase to cover the higher interest cost and to try and pay something off it some day soon.
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