Tauranga City Council's financial position is being challenged by accountant Ian Stevenson who says it is in a worse position than Kaipara Council – under administration by a government appointed minister.

At the council's annual plan submissions yesterday Ian compared Kaipara's debt to income ratio of 180 per cent with Tauranga's of 274 per cent. In comparison each Kaipara ratepayer owes $5757 compared to Tauranga debt per ratepayer of $14,580.

Tauranga accountant Ian Stevenson challenged council's reported debt at the annual plan submissions.

The audited annual report for June 30, 2012 shows debt of $460 million, while council claims it is $400million.

Ian says the $102million southern pipeline sewerage scheme currently under construction is a major factor in council debt.

He says the debt can be paid off with a 209 per cent rates increase.

Ian told council the proposed rates increase in the draft plan doesn't comply with council's own rating policy of CPI plus growth of up to 2 per cent. The annual plan figures show 0.6 per cent for growth and 0.6 per cent increase for inflation, which gives an overall increase of 1.2 per cent, lifting rates revenue from $102.8million to $104million.

The draft rate should be reducing by at least 4.52 per cent, by taking account of the benefit of $2.7million in redundancies or a 2.62 per cent saving in rates, plus the surplus of $3.2million or 3.1 per cent rates saving.

A $500,000 increase in late payment penalties in 2012 compared with 2011 shows ratepayers are struggling to pay their current rates, says Ian. The late payments means $5million more in rates was paid late compared to the previous year, says Ian.

'That is not a good look.”

Councillors were questioned over understanding derivatives, the financial instruments through which the council acquired $17million in debt last year.

The city's audited annual report signed off by Mayor Stuart Crosby lists $135million in derivative assets and $334.5million of derivative liabilities. The gap has increased by $17million over one year from $182million to $199million.

'We still don't know what they are,” says Ian.

'Do you have to pay them one day, I don't know.”

At June 30, 2012 the balance owing is $22.531million, the interest cost to TCC is $4.109million, the loss in value over the year is $11.630million and the balance owing as at June 30 is $38.849million.

'The results this year make it clear that the net position is deteriorating quickly,” says Ian. 'This looks to be a dabble in the interest rates swap futures market, and or exchange rates. I believe this is a risk prone scheme and will expose public monies, assets, ratepayers and rates to further financial harm.”

He says the $400million debt reported to councillors in treasury reports is a ‘net debt' figure that does not include derivatives. Ian says this is incorrect reporting and the true debt is $70 million higher.

Mayor Stuart Crosby told Ian local authorities have different financial requirements they have to work under, imposed by central government. He suggested Ian meet with council staff and arrange a workshop.

In a statement released afterwards Tauranga City Council communications manager Frank Begley says full disclosure of debt has occurred in TCC accounts, including debt owing to external parties in the form of loans and the valuation of derivative financial instruments.

The derivative financial instruments discussed are used to manage interest rates risk. The disclosure at June 30 does not reflect any cash flow owed by TCC but the value at a point in time.