Opening the Books … the ‘Inconvenient Truth’ about our Council’s finances 28 August 2007 Larry. N. Mitchell Finance & Policy Analyst (Local Government)

Opening the BooksOpening the Books… … the ‘Inconvenient Truth’the ‘Inconvenient Truth’ about about

our Council’s financesour Council’s finances28 August 200728 August 2007

Larry. N. MitchellLarry. N. MitchellFinance & Policy AnalystFinance & Policy Analyst (Local Government)(Local Government)

© Larry. N. Mitchell 2007

‘‘Opening the Rodney District Opening the Rodney District Council’s Books’Council’s Books’

This presentation is available atThis presentation is available at

www.kauriglen.co.nz/mayor07/presentations/indexwww.kauriglen.co.nz/mayor07/presentations/index


© Larry. N. Mitchell 2007

http://www.kauriglen.co.nz/mayor07/presentations/index

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Larry. N. MitchellFinance & Policy Analyst (Local Government)

Objectives for ‘Opening the Books’Objectives for ‘Opening the Books’

ObjectiveObjective … ‘‘To provide interested parties … To provide interested parties …

including the 2007 election candidates including the 2007 election candidates with evidence of the Council’s present with evidence of the Council’s present dauntingdaunting financial circumstances … financial circumstances …to outline the challenges that to outline the challenges that we allwe all

now face’now face’

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Agenda for ‘Opening the Books’Agenda for ‘Opening the Books’

Agenda Part IAgenda Part I

Introductory Introductory …A Personal statement … Some History … Data sources … Accuracy … Evidence … Good information … Disclosure Obligations

The big issues … Debt … Interest and Rates

Debt … ‘Prudence’ … Comparisons and graphs … Management’s Views …’Reliability’?

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Agenda for ‘Opening the Books’Agenda for ‘Opening the Books’

Agenda Part IIAgenda Part IIRates …Rates …

Official Information Act request … the OIA request and the Council’s reply

Performance … Council performance and surveys

The Royal Commission … Super Auckland … Super Rodney?

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‘‘Opening the Books’Opening the Books’

‘‘Personal Statement’Personal Statement’‘‘The rationale for this presentation is that if The rationale for this presentation is that if

elected, Council candidates are entitled to elected, Council candidates are entitled to ‘know what they will find’ . Whoever is ‘know what they will find’ . Whoever is elected … all will face the issues implicit in elected … all will face the issues implicit in the data …the data … ‘TINA’, there is no alternative‘TINA’, there is no alternative

This presentation presents the evidence … it This presentation presents the evidence … it

tends to speak for itself!’ tends to speak for itself!’

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‘‘Opening the Books’Opening the Books’

Some HistorySome History … ‘‘Previous attempts first made during the 2004 Previous attempts first made during the 2004 election to seriously debate the Council’s finances election to seriously debate the Council’s finances

came to ‘nothing’. The current 2006 – 2016 came to ‘nothing’. The current 2006 – 2016 financial plan is projecting maximum debt levels, by financial plan is projecting maximum debt levels, by

2011 of nearly $400M.2011 of nearly $400M.

Rates per household already average $2,135 Rates per household already average $2,135 Concerns regarding the sustainability and prudence Concerns regarding the sustainability and prudence

of the current financial plan … remain’. of the current financial plan … remain’.

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Data SourcesData Sources

‘‘Accuracy and sources of information’Accuracy and sources of information’

The sources of the information contained in this presentation are reliable and authenticated. All reasonable attempts have been taken to ensure data accuracy …many source references have been provided on the slides … (see also the last slide for more details).

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The ‘evidence’The ‘evidence’

The evidenceevidence of this presentation has been taken from official, principally audited sources … for instance Council’s Annual (financial) Report …and the Long Term (financial) Plan …

Other data has been obtained (or not) from the Council via a recent Official Information Act request

Graphs and charts are sourced from the ‘Base Stats with ‘Base Stats with TrendzTrendz’ 2007 reports

Other survey material have their sources ‘noted’

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Good Public InformationGood Public Information

Our council is duty bound and is legally obliged(S. 14 LGA 02) to…

‘‘Conduct its business in an Conduct its business in an open and transparentopen and transparent … … manner’manner’ S.14. (a) (i)

… ‘‘to ensure to ensure prudent stewardshipprudent stewardship’’ … with ‘efficient and efficient and effective use of its resources’ effective use of its resources’ S.14. (g)

The Key Question: ‘Is the Council acting prudently?… you decide … based on the evidence

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The three major issuesThe three major issues

Debt … Interest and Rates

The three major issues facing us allThe three major issues facing us all

are are high debt, interest payments on the debt high debt, interest payments on the debt and the impact of these upon our ratesand the impact of these upon our rates

… … Rodney District’s Rodney District’s high rateshigh rates … are caused … are caused largely by largely by high debthigh debt … that is, the … that is, the interest interest

contentcontent in an average ratepayers bill. in an average ratepayers bill.

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Reasons for ‘Opening the Books’Reasons for ‘Opening the Books’

The Council is digging itself a The Council is digging itself a BIG hole….BIG hole….

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……. and ….. and ….

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… … are building a mountain of DEBT….are building a mountain of DEBT….


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... and Rodney ratepayers are being asked to ... and Rodney ratepayers are being asked to climb it!climb it!


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The three major issuesThe three major issues

Debt … Interest …and RatesDebt … Interest …and Rates

As RDC debt has increased, interest costs have skyrocketed to the point that … interest costs are now 18% of rates (.18 cents in the dollar) and could … with higher interest rates

reach as high as .22 to.25 cents in every dollar of rates collected … one dollar in four

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Tests of prudence Rates and DebtTests of prudence Rates and Debt

There are many ways to gauge if a Council is acting prudently … most would agree that two important measures of ‘prudence’ are Council Debt levels and the sustainability of the related interest costs.

If Council debt and interest charges are too high … then our rates are too high toothen our rates are too high too …

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Tests of prudence … Rates and DebtTests of prudence … Rates and Debt

Earlier … (1996 to 2006) long term financial plans set prudent limits of Council debt at around $100 to $150 million maximum … the interest charges from this level of debt are sustainable … and our rates would be manageable.

Then ‘the goal posts got shifted’ … the current plan is for debt to reach $400 million … soon

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Debt … is too highDebt … is too high

Debt levels … Source: the RDC 2006 – 2016 Long term plan

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Prudent? … Debt and Rates Prudent? … Debt and Rates

A $200 Million increase of Council Debt - a 483% increase.

$41.4M $51.9M

$179.7M

$241.2M

Rodney District Council Debt- the most recent 6 years

2002 2004 2006 2008

A $200 Million increase of Council Debt - a 483% increase.

$41.4M $51.9M

$179.7M

$241.2M

Rodney District Council Debt- the most recent 6 years

2002 2004 2006 2008

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Debt comparisonsDebt comparisons

'Base Stats' Graph

Your Ranking is 1 out of 9

Debt per Ratepayer

$5,113

$2,227

$5,113

$1,009

$2,140

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Rodney DistrictCouncil

G9 GroupAverage

G9 Group High G9 Group Low Sector Average

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The Debt comparison ‘picture’The Debt comparison ‘picture’

Rodney District Wellington City

Ratepayer numbers 42,972 70,199

Net Assets value

$1.2 B $5.7 B

Proposed peak debt

levels

Close to $400 M (currently $241M)

$400M

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RDC management’s views of debtRDC management’s views of debt

CEO … ‘Debt is good …?’

Rodney Times … Headline September 30 2003

‘R D C - Burgeoning debt’

Vijaya Vaidyanath: “Good local government “Good local government financial practice is raising loans rather than financial practice is raising loans rather than requiring current rates to meet costs”.requiring current rates to meet costs”.

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RDC management’s views of debtRDC management’s views of debt

Finance Director Reliable? Information Rodney Times March 16th 2004

‘Recently released council figures show it will owe $168 million by 2007-2008 Ramsey … “The figures are only projected and borrowing is unlikely to reach those levels … the council realises the numbers are daunting but does not anticipate getting to those borrowing levels”

Data from the RDC’s 2007-2008 annual plan show total public debt to be $240 million

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‘‘It all adds up …’It all adds up …’

The 2007 $71 Million over budget ($239M -$168M) excess debt results from the following …

• Shortfalls to 2004 in subsidies ($15M) and of Developers contributions*

• Unbudgeted expenditures … the ‘mad’ Mad Butcher purchase ($10M),New Office block ($15M),Whangaparaoa sewerage scheme … (estimated $30M overrun) … and a $360,000 dollar toilet!

• RDC salaries and wages bill?• Excess ‘depreciation’ charges?

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Reliable? Information? … Financial Reliable? Information? … Financial (DFC) contributions(DFC) contributions

Huge accumulated Development Financial Contributions (‘DFC) shortfalls over many years … For example … ‘Cash (DFC) contributions’*

•2007 Budget $15,792$15,792•2007 Actual $1,098$1,098 !!!

Usually reliable sources … “For the first time the Finance director is reported now ‘to be concerned about debt …’”

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RDC Rates … are the highest RDC Rates … are the highest

Our RDC rates are the highest of the Auckland region … NZ Herald 13 September 2006

At an average of $2,135 pa RDC’s residential rates are 40% above the Auckland region’s average

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Official Information RequestOfficial Information Request

We asked some questions of our Council the ‘OIA request’ …

• Capital works budget blowouts? … the Whangaparaoa sewerage scheme

• Rates, debt and interest? • Staff levels and payroll?• Proposed treatment of the recently announced

'CCO' initiative …a transfer off the RDC's balance sheet of 'associated debt'.

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Official Information RequestOfficial Information Request

We got the following answers from the ‘OIA’ request …features of the response …

Information RDC Response

Whangaparaoa sewerage scheme cost overruns

Information requested … not available … our estimate, $30 Million plus

Staff numbers and salaries and wages

2007(2004) 472(374) payroll total $27M($18M)

Salary bands 33 staff (6%) over $100K pa (14% of $ total)

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Council performance … some recent Council performance … some recent independentindependent survey data survey data

Survey name Nature of survey findingsAcceptable score ‘75’Acceptable score ‘75’

RDC Annual Residents Survey 2006

Customer (resident) ‘satisfaction’ score of 53.5 … serious (dissatisfaction) issues

Ditto (the ARS 06) and ‘Gravitas’ survey

Democratic process … ‘open and honest’ …?

Media Sunday Star Times … ‘The Big Council Spend Up’ RDC payroll!

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RDC Annual Resident’s Survey 2006RDC Annual Resident’s Survey 2006

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RDC Annual Resident’s Survey 2006RDC Annual Resident’s Survey 2006

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Sunday Star Times RDC payrollSunday Star Times RDC payroll

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RDC … top of the (wrong) pollRDC … top of the (wrong) poll

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A ‘Super’ City … not so super for us?A ‘Super’ City … not so super for us?

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The ‘Royal Commission … never The ‘Royal Commission … never take a knife to the gunfight?take a knife to the gunfight?

Our Council faces a new and MAJOR issue … to present its case … by October 2008 to The Royal Commission … the Auckland region re-organisation

The RDC has ‘little to offer’ in any forced or voluntary amalgamation … ‘a bride without a dowry’

The new (2007-2009) Council will need to deal with these issues in the best interests of all RDC ratepayers … given the following sobering facts …

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RDC’s Debt per ratepayer compared RDC’s Debt per ratepayer compared to the Auckland TLA’sto the Auckland TLA’s

'Base Stats' Graph

Your Ranking is 1 out of 7

Debt per Ratepayer

$5,113

$3,030

$5,113

$1,235

$2,140

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Rodney DistrictCouncil

RodGrpAverage

RodGrp High RodGrp Low Sector Average

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RDC’s Debt per ratepayer compared RDC’s Debt per ratepayer compared to the Auckland TLA’sto the Auckland TLA’s

'Trendz' Graph

RodGrp High $2,575 $2,543 $2,295 $4,268 $5,113RodGrp Low $852 $1,100 $1,078 $1,434 $1,235

Ranking 3/7 3/7 3/7 2/7 1/7

Debt per Ratepayer

$1,740$2,209 $2,188

$3,717

$5,113

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2002 2003 2004 2005 2006

Debt per Ratepayer RodGrp Average Sector Average

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RDC’s economic ‘stats’ compared to RDC’s economic ‘stats’ compared to the Auckland TLA’sthe Auckland TLA’s

Combined Composite IndicesOutcomes-Results

Outcomes Results - Composite Index of Income Factors

2002 2003 2004 2005 2006

Very High

NeutralVery Low

High

LowExtremely Low

Extremely High

Outcome Results - Composite Index of Economic Factors

2002 2003 2004 2005 2006

Very High

NeutralVery Low

High

LowExtremely Low

Extremely High

Outcome Results - Composite Index of Wealth Factors

2002 2003 2004 2005 2006

Very High

NeutralVery Low

High

LowExtremely Low

Extremely High

Outcome Results - Combined Composite Indices

2002 2003 2004 2005 2006

Very High

Neutral

Very Low

High

Low

Extremely Low

Extremely High

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One Observation …One Observation …

The present Rodney Council … elected first in 2001 has presided over a deepening financial crisis. A recent survey response from a Councilor stated that … ‘there is no one on Council who understands finance …’

Furthermore … the Council has been ‘running’ its affairs for the last three or more years without a Finance Committee!

‘Go Figure’

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Questions and discussionQuestions and discussion

The evidence speaks for it The evidence speaks for it itself … itself …

What is it telling you?What is it telling you?

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Serious … Issues and Questions Serious … Issues and Questions

Are future rates … likely to exceed on average $3,000 per ratepayer … acceptable?

Is an interest content of our rates of over .20 cents in the dollar reasonable?

Is the $400 Million debt level prudent? sustainable?

Are the right people paying?Are we not entitled to expect the best

Council in New Zealand … ?How do ‘We’ …fix it?

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AndAnd nownow forfor ….….

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Source references ‘Opening the Source references ‘Opening the Books’Books’

ReferencesReferences

RDC web site … Debt Interest and Rates … audited Annual Report 2006 and audited LTCCP 2006 -2016 www.rodney.govt.nz

Larry.N. Mitchell web site www.kauriglen.co.nz OIA request … RDC response to Letter from Ross Craig dated 16th August

2007 Survey data … PowerPoint slide references Press … Media … PowerPoint slide references ‘Base Stats with Trendz’ graphs www.kauriglen.co.nz Interest costs, DFC’s … RDC’s 15th August 2007 ‘Quarterly Update Report’ Subsidy shortfalls … Brian Smith ARC representative 2004

Larry Mitchell is a Finance & Policy Analyst working with Local Government. His products include ‘Base Stats with Trendz’ reports,

which now include ‘Outcomes-Results’ and ‘Data Mining’ benchmarks.

Email: [email protected] Website: www.kauriglen.co.nz/larry

PO Box 404 103, Puhoi, North Auckland, NZPh: 09 422 0598 Fax: 09 422 0700Mobile: 027 479 2328All phones: 0800 784 648 (0800 PUHOI U)Skype callto:larryave


mailto:[email protected]

http://www.kauriglen.co.nz/larry

Documents

Opening the Books … the ‘Inconvenient Truth’ about our Council’s finances 28 August 2007 Larry. N. Mitchell Finance & Policy Analyst (Local Government)