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									      Larry. N. Mitchell
      Finance & Policy Analyst (Local Government)

                           ‘A bankrupt long term plan’
A submission by Larry Mitchell, resident and ratepayer of Puhoi to the RDC’s
draft 2006-2016 LTCCP (long te rm plan) ...

Talk about déjà vu … two years ago I presented to the 2004 Rodney District Council’s
financial plan.

Now, ‘The pigeons this year have come home to roost’, as will be seen from many of
my following comments. As for this Council reacting to the earlier warnings of
impending crisis it seems just a case of ‘there are none so blind as those who will not
see’, because effectively, nothing has changed in the intervening two year period.

The presentation I made in 2004 is still on my web site, there is no reason to repeat it or
for that matter to alter one single word that it contains. For this Council, elected in 2004
has continued blindly down the road of high rates increases and mounting unsustainable
debt levels.

In spite of three Eastern Ward Councilors refusing to support this plan and in spite of a
small number of others rashly stating that they would follow a nil rates increase policy
… and then recanting, this 2006 financial plan has been produced.

It is a bankrupt plan, it is devoid of sensible and prudent strategies, its debt projections
are both dangerous and imprudent and will make our Council the most indebted in New
Zealand by any recognized relative debt measurement test.

For example, the Wellington City has this year faced a very hostile reaction to its plans
to raise $400 million of debt, a total not greatly different from that planned by Rodney.
Their debt however is sustainable, Rodney’s is not. Wellington has over 30,000 extra
ratepayers (around 70,000), they have a portfolio of $1 billion of commercial assets and
$5.7 billion in total assets.

Rodney has much lower ratepayer numbers, Rodney has no commercial assets and the
Rodney total assets will by 2014 be a mere $2 billion … and yet our debt will be about
the same as Wellington’s. Go figure.

There was a lot of ‘hot air’ talked at the 2004 election about Council debt. Most of this
‘hot air’ came from one candidate to the effect that he considered that he was, … quote

     ‘not worried about debt, that debt did not matter and that he would seek out
     additional funding to reduce the RDC’s debt requirements by $100 million’.

Well he got one thing right, for a non-debt- funded source of $100 million would go a
long way to fund the essential, largely infrastructural asset developments that the
District needs and would keep debt at more manageable, albeit still very high levels.

To date though, we have seen neither hide nor hair of the promised added $100 million
dollars, instead this Council is sleep walking towards a deepening financial crisis, This
Council has brought in rates increases which will amount to over 8% per annum and

                                         Larry. N. Mitchell
                               Finance & Policy Analyst (Local Government)                 1
       Larry. N. Mitchell
       Finance & Policy Analyst (Local Government)

over 25% increases in total over the next three years. And Council debt will soon reach
nearly $400 million.

The Council has reacted in its long-term plan to the financial crisis in a manner
approaching panic; it has taken a cut and slash of capital spending approach, in short a
knee jerk reaction. It has done nothing to economise upon Council expenditures nor to
enhance its revenues.

The Council’s long-term plan ‘Summary’ document refers to a year of ‘Consolidation’,
Wrong … 2006/07 is in fact more correctly a year of stagnation not consolidation. The
‘Summary’ also refers to ‘a Rationalising of service levels’ … Wrong again … these are
just weasel words for reducing, not merely rationalising service levels.

Take these examples as further evidence of a Council bankrupt of sensible and prudent
financial strategies …

       I invite you to look through the 2006/07 lists of capital expenditure, for instance
        two categories of these expenditures, principally Community Assets and Public
        Open Space, the 2007 numbers are just columns filled with zeroes. Next to
        nothing will be spent on the community next year.
       The 2007 capital expenditures total $96 million, this is some $18 million less
        than the average total of the next five years, clear evidence of the Council’s knee
        jerk cutting and slashing of 2007 capital expenditures.

        Debt interest in 2006/07 will treble from last year and will redouble again to
        around $25 million pa by 2013. At present day figures, every Rodney ratepayer
        is now paying about $300 of interest per year or 16% of the ir rates bill. By 2013
        interest and the interest content of rates bills will double again.

Whilst following these bankrupt policies the Council has also allowed Council’s
operating expenditures to rise unchecked, they are up 22%, Yes! 22% this year, from
$95 million last year to $116 million this year.

It appears to be ‘OK’ to cut and slash community based project spending as already
mentioned, but the Council itself I notice has planned to go ahead with an added
$9.9 million of 2007 capital expenditure scheduled for its own Orewa Office facilities.

And ‘News’ came out last Thursday of this Council approving a further $9 million for
the purchase of the Orewa ‘Mad Butchers’ commercial property. This is an expenditure
not, repeat not contained or approved within any existing Council budget or plan,
including this years long term plan. Its funding can only come from more debt again, on
top of what is in the plan.

Ratepayers in these circumstances are entitled to ask ‘What on earth is going on?’, the
matter of the Orewa property purchase deserves a full public debate and an independent
enquiry to say nothing of an amendment to this plan.

I will not say any more on these matters, the evidence of Council’s actions within this
long term plan stand as an indictment. An indictment in addition to others, for example

                                          Larry. N. Mitchell
                                Finance & Policy Analyst (Local Government)               2
       Larry. N. Mitchell
       Finance & Policy Analyst (Local Government)

the withering recent remarks from the totally independent and informed Environment
Court Judge as to this Council’s lamentable standards of process, performance and

There is a deep concern that this Council does not represent the ordinary ratepayer and
that it favours sectional interests often referred to as ‘the developers’. What is the
evidence in support of these views? … views that are often heard from those in the
community least able to weather the increased rates and charges currently being made.
The views are held by, for instance the single income earners on a pension who do not
benefit from the growth of the District and yet are still being asked and are paying for it.

Well here is some solid financial evidence in support of their case.

Last financial year, 2005, developers were budgeted to pay, in cash ‘financial
developers contributions’ to the Council totaling $19.9 million, in fact only $7.2 million
of this was collected, (source 2005 audited June 2005 financial statements).

This year again, the unrealistic total of $18 million is budgeted. If, as is confidently
expected, another $12 or $13 million shortfall of developers contributions occurs, then
the fixed income pensioner ratepayers (and all other ratepayers for that matter) will have
made up in just two years a shortfall of developers financial contributions within their
rates bills of over $25 million or around $600 per ratepayer.

There is absolutely no doubt to my mind, in reviewing this and other evidence, that
ordinary ratepayers are paying for these contributions shortfalls when the developers
who should be paying them are not.

What is more, to my utmost surprise, the Council’s own long term plan documents
confirm this situation. In the plan ‘Summary’ at the unnumbered third page under the
heading ‘A Year of Consolidation’, incredibly these words appear …

       ‘However, there may be a delay between the time an asset is built and when
       the new properties start paying for it. (And the Council) is asking existing
       ratepayers to pay through their rates in the meantime’.

What an absolute travesty! … asking existing ratepayers, who do not benefit from these
expenditures, who have not participated in these growth related projects, asking them to
pay for them … when developers who do benefit and have participated … don’t pay.

What is to be done? Well I have previously publicly listed over 20 strategies that would
start to make a positive difference compared with the bankrupt strategies of this plan.
These include …

       a commitment to an RDC performance improvement, ISO standard quality
        assurance programme
       the formation of a powerful and well resourced performance, audit and financial
        governance committee of Council … at present the Council has not got one!

                                          Larry. N. Mitchell
                                Finance & Policy Analyst (Local Government)                3
       Larry. N. Mitchell
       Finance & Policy Analyst (Local Government)

       introducing policies for the full recovery of developers financial contributions
        and a cessation of capital growth works until this is assured and
       a total commitment to obtaining additional central government funding from all
        forms of available subsidies, grants or concessions.

The best chance this Council has in future to reduce its dependence upon unsustainable
levels of debt and excessive rates increases is for it to make a start now, by both
improving its efficiency and increasing its non-rates-sourced revenues.

I want to assist the Council to make a start in these matters. I would like following this
submission to present the CEO (at no charge) with my RDC customized 2006 ‘Base
Stats with Trendz’ performance improvement reports.

They will make a good starting point if they are used properly to design prudent and
workable financial strategies. Over thirty New Zealand Councils currently subscribe to
these reports. For the information of other persons, all of this ‘Base Stats’ information
is at present on my web site.

And as for the existing bankrupt long term plan? …

It should be withdrawn and totally revised to reflect reality and to incorporate feasible
prudent financial policies, … which plainly at present it does not.

Larry. N. Mitchell
14th May 2006

                                          Larry. N. Mitchell
                                Finance & Policy Analyst (Local Government)              4

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