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ELECTED MEMBERS MAKE THEIR STAND 31.03.2013
The KDC elected members rose to the occasion at today’s council meeting when called upon to vote on two issues that are of fundamental importance to Mangawhai and to Kaipara.
Councillor Larsen Notice of Motion
The first issue was the Notice of Motion of Councillor Larsen calling on the KDC chief executive to brief the elected members on the capacity and debt of the MCWWS and to clarify matters raised in the Kaipara Concerns column dated 19 March 2021 and Mangawhai Matters column in Mangawhai Focus dated 22 March 2021 regarding the MCWWS capacity and debt.
Somewhat surprisingly, the resolution calling for the briefing was passed unanimously. Councillors expressed a need to have all the correct information before them. The only negative comments came from Councillor Wethey. He said that he only voted for the briefing because he felt that the allegations of misrepresentation were incorrect and that the briefing would vindicate the Council’s figures.
If the chief executive’s briefing shows that the figures have been misrepresented, and the debt model was flawed for the last ten years it will raise serious issue about the information in the draft LTP and may require parts of the document to be redrafted and re-consulted.
It will also raise serious doubts about the competence and integrity of the staff who provided the information to the commissioners.
Resolution to adopt the recommendation of the Hearing Panel on Mangawhai Central
KDC staff, along with a legal adviser, put considerable pressure on the elected members to adopt the recommendation of the Panel which effectively rubber-stamps PC78. However, several councillors expressed their concern at being pressured to make decision with only a few days and to assimilate the mass of documentation provided. Councillor Wills had taken legal advice on the matter which suggested that if he made a decision under such pressure it could be challenged in court.
Mayor Smith, who moved the resolution, spoke eloquently about the wisdom and experience of the commissioners and that the councillors should accept their recommendation without question. Councillor Wethey was also an ardent supporter of the Panel’s recommendation. He spoke strongly in favour of the smaller sections and high rises. He also supported the situation in respect of water supply, suggesting somewhat bizarrely that a reasonable supply was guaranteed by the water consent from the NRC. He also pointed out that the development could stall at the later consent stage if there proved to be insufficient water.
The resolution will “sit on the table” for a month when it will be considered again. It will be in exactly the same format. However, by then the chief executive will have revealed the truth about the MCWWS and there may be additional information that overrides some of the conclusions reached by the Panel especially in respect of wastewater.
The result was completely unexpected. Hopefully we will now be able to have the unadulterated truth about the capacity of the MCWWS and the KDC can finally admit to the community that it has made fundamental errors in the debt repayment model. It might also give us some insight into how the KDC expects to pay the historic debt. Hold on to your wallets!
D DAY FOR MANGAWHAI CENTRAL 30.03.2021
Tomorrow is D Day for Mangawhai Central. The KDC meets to decide if it going to accept the recommendation of the Panel of Commissioners which effectively endorses virtually all aspects of PC78.
Council staff are putting pressure on the elected members to adopt the recommendation of the Panel tomorrow, and have provided a completely one-sided report recommending that action.
Councillor Larsen has filed a notice of Motion suggesting that the elected members request the chief executive to explain the allegations of misrepresentations as to the capacity of the MCWWS made by KDC staff during the PC78 process.
Since then, this website has revealed that for ten years the KDC staff applied a repayment model for the historic MCWWS debt in full knowledge that it was fundamentally flawed.
Both of these revelations affect the capacity and financing of the MCWWS and should be considered by the elected members before the vote on the Panel’s recommendation.
I have therefore provided the KDC and the elected members with an alternative proposal that could be adopted at tomorrow’s meeting. This entails delaying all decision-making until the elected members are fully advised by the chief executive of the current situation in respect of the capacity and financing of the MCWWS.
The KDC, Viranda and community representatives then work in unison to resolve the issues of water and wastewater supply with a view to the agreed terms being included in a development agreement between the KDC and Viranda.
The KDC staff is applying huge pressure on the elected members to ignore the irregularities of the staff, so that they will effectively be buried. And it seems more than likely that the elected members will respond to that pressure and reject Councillor Larsen’s motion and will simply ignore the proposals that I have made.
In my proposal I have set out clearly the legal obligations of a councillor in such a situation and one would hope that the elected members will take that on board and vote accordingly.
I have pointed out that the KDC has suffered a huge reputational loss because of the irregularities of its staff, but the elected members are seen as innocent parties because, like the community, they have been completely unaware of the staff irregularities until now.
If the elected members vote to adopt the Panel’s recommendation under pressure and without any understanding of what mischief the KDC staff have been up to, then the elected members are effectively endorsing the irregularities that have been committed, and they become part of the problem.
My proposal gives the elected members breathing space and an opportunity for all of the parties to resolve the situation cooperatively with a full knowledge of the facts.
I have also suggested that Councillor Curnow should not be allowed to vote on the recommendation because of the conflict or interest arising because she was a party to the recommendation.
I have also suggested that the Mayor Smith should not be able to vote. Whilst Councillors Wethey and Larsen have consistently refused to comment on Mangawhai Central because they had to retain their independence in anticipation of this vote, the Mayor has embraced the development in every respect and this has been reported widely in the media. His close connections with Viranda have raised the perception of predetermination which disqualifies him from voting.
It will be a fascinating meeting. We will see how the Mayor reacts to the various issues. The spotlight will be on the elected members and we are about to find out how they respond as a group and individually to the situation.
The meeting is a tomorrow 31 March 2021 at 9:30 am at the Domain hall Moir Street.
The Hearing Panel’s recommendation is here.
The recommendation from KDC staff is here.
Councillor Larsen’s Notice of Motion is here.
The alternative proposal on behalf of the community is here.
KDC: THE DISHONESTY CONTINUES 26.03.2021
In the post of 19 March 2021 (below) I revealed that the KDC has finally acknowledged that that the $58 million historic debt for the construction of the MCWWS is currently, at March 2021, 10 years after the scheme opened, $34,430,745.
The KDC has also acknowledged that for those ten years it applied the wrong repayment model. This startling news means that the historic debt cannot be repaid before the MCWWS reaches capacity in four years’ time. This is what the KDC had to say:
This was an error relating to connections (originally advised there would be 5000 not the 2800 that has eventuated). We now know that the capacity will be reached in the next 4 years.
The model for repayment of the historic debt of $58 million was, according to the KDC, based on the KDC being “advised” that the MCWWS would have a capacity of 5,000 connections which would provide enough development contributions for the $58 million historic debt to be repaid over 30 years. It was a simple mathematical equation.
The problem is that that mathematical equation was not only incorrect, it was glaringly incorrect. The capacity of the MCWWS, as built, had a capacity of less than half of the 5,000 figure. This meant, applying simple arithmetic, that there were insufficient development contributions to repay the historic debt, not only within the specified 30 year period allocated, but within the next four years which is when the KDC says the MCWWS will reach capacity.
There is no evidence of the KDC being “advised” that the capacity was 5,000 connections. It was clear from the start that the capacity of the scheme was around 2,000 plus. (There are various figures around that mark.)
Likewise, the statement that the figure of 2,800 has “eventuated”, like some epiphany out of the blue, is nonsense. Not only was the 2,000 plus figure clearly apparent when the scheme was built, there have been endless recognitions of that figure by the KDC in LTPs and reports during the past 10 years.
Quite simply, the KDC has always known the repayment model was fundamentally flawed, but, for reasons unknown, it continued to mislead the community, and would have continued to do so if it had not be been caught out.
[The factual history of the true capacity of the MCWWS is set out in the following post.]
Having finally acknowledged its “error”, the KDC immediately responded with this simplistic off-the-cuff solution.
The debt prior to new additions in the LTP 2021-2031 (ie old debt) is scheduled to be recouped by 2042 and new capital expenditure in 2021-2031 be recouped by 2051 when we reach 4600 connections in total.
Instead of coming clean with the truth the KDC has dug a deeper hole for itself. It moves further away from the truth into fantasy land. Here are some relevant facts:
Attitude of KDC’s Decision-Makers
Who made all the decisions for the KDC in respect of the MCWWS debt?
The Local Government Act 2002 states that it is the role of the elected members to make important decisions, and all financial decisions are endorsed by the elected members through the formal adoption of LTPs. Elected members make the decisions and then it is the role of the chief executive to implement those decisions through her staff.
The problem with the KDC is that the issues that go to the elected members in the meeting agendas are decided by a group of decision-makers in the council. The elected members only get to decide on issues that are placed before them. Even then the options are limited by what the staff reveal, and there is little time during council meetings to consider any of the issues in depth.
For instance you will find no mention of the historic debt or the repayment model in the draft 2021/2031 LTP. Nor will you find any mention of KDC's new simplistic model for repayment of the historic debt and the new debt that it has just revealed.
So effectively the KDC decisions are made by the chief executive and her staff and those that they choose to consult. The elected members and the community are left in the dark.
It is absolutely clear, beyond any shadow of doubt, that the KDC chief executive and her senior staff are completely aware, and have been for several years, that the model for the repayment of the historic MCWWS debt has always been based on assumptions of the capacity of the scheme which have no basis in fact. The KDC has perpetuated a myth about the repayment model knowing that it would never work.
This also applies to all those in the KDC who preceded the current office holders.
The KDC has refused to revisit the model, except for some slight tinkering in the 2025/2025 LTP, and the district ratepayers have been left with a "stranded debt" for which there is no feasible method of repayment.
This basic dishonesty is part of a pattern of behaviour of the KDC staff in respect to the capacity of the MCWWS.
The KDC staff misrepresented the capacity of the MCWWS during the Mangawhai Central supermarket consent application process, and during the PC78 process. It restated the misrepresentations of capacity even when the truth was revealed.
It is impossible to comprehend what is the motivation of those in the KDC who have misled the community. It is so bizarre that it is almost beyond comprehension.
The effects of the KDC’s dishonesty will be far reaching. It has made representations to Mangawhai Central which it cannot support, and it has betrayed the community that it represents. We now have a debt that cannot be repaid except by inflicting further pain on a community that has already suffered dreadfully at the hands of the KDC in respect of the MCWWS.
A Council meeting is to be held at the Domain hall, at 9.30 am on Wednesday 31 March 2021. Councillor Larsen has filed a Notice of Motion which is to be considered at that meeting. The Notice of Motion proposes that the elected members direct the chief executive to arrange a briefing on the MCWWS to clarify matters raised by a post on this website on 19 March 2021 and the Mangawhai Matters column in the Mangawhai Focus dated 22 March 2021, regarding the MCWWS capacity and debt.
In other words, the chief executive and her staff would be obliged to respond to allegations that they have misled the community, the hearing commissioners, and the elected members about the capacity of the MCWWS and the repayment of the debt.
It will be interesting to see how our elected members react to this issue.
MCWWS: THE MYTH OF 4,000 TO 5,000 CONNECTIONS 26.03.2021
This post includes a lot of detailed evidence that establishes the capacity of the MCWWS at inception, and during the following ten years.
It shows that the capacity of the scheme has never been 5,000 connections, and in fact it has never exceed 2,000 plus. It also illustates from many examples the fallacy of the KDC funding more debt to increase the capacity and yet freezing the historic debt at $58 miilion.
It leaves no doubt that the KDC was fully aware of the flaws in the repayment model for the MCWWS and that the KDC elected to mislead the community.
Hopefully it will prove to be a useful tool for those examining the competence and the integrity of the KDC in dealing with this issue.
Where did the figure of 5,000 connections come from? Who was it that “advised” the KDC of that figure and supposedly led it astray for all of those years until the truth finally "eventuated" in March 2021?
The report of the Auditor General on the MCWWS (EcoCare) debacle provides the setting for what happened in October 2006.
The Project Deed signed by the KDC in 2005 to construct the MCWWS stipulated a maximum price of $26.3 million. By February 2006 the price had risen to $35.6 million. By October 2006 it had increased to $57.7 million.
As the estimated capital costs increased the Council sought to keep the scheme affordable by increasing the number of ratepayers paying for it.
It appears that the possible culprit for the 5,000 figure is a document presented to the KDC elected members at a public-excluded Council meeting by Beca, KDC’s adviser and joint project manager, on 25 October 2005.
The report went by the harmless name of Mangawhai EcoCare – Discussion Paper on Rates and Charges. That innocuous title disguised the fact that this report and the Council meeting that considered it in “public excluded” would trigger the financial mayhem that has blighted the KDC for the past 14 years.
The KDC minutes are here at page 25
Beca report: Mangwhai EcoCare - Discussion Paper on Rates and Charges
The Beca report is here
This is the report to the KDC which which triggered the substantial increase in costs of the scheme in October 2006, along with a supposedly corresponding increase in the number of connections.
The report recommended servicing 3.000 connections rather than the 1,216 provide for in the earlier agreement. Its previous assumptions of growth indicated a need for 3,300 connections after 25 years, but new figures suggested that there would be a much greater demand. It therefore provided modelling for 4000, 4500 and 5000 connections, along with the original estimate of 3300.
Beca recommended the 4500 option on the basis that the costs to ratepayers would be cheaper over the 25 years needed to clear the debt.
Beca did issue a warning that there was:
…….some potential that growth rates over time will not achieve the projected number, the risk should be managed by regularly reviewing the growth rates and the level of rates and charges received and adjusting the rates and charges required.
The report was accepted by the KDC along with the recommendation of 4,500 connections.
The Minutes note on page 32 posed certain questions, including one that would prove to be extremely relevant:
At Council’s request the consultants will look into the following and bring back to Council:
Does $57 million allow for the scheme that will enable 4,500 to 5,000 to be serviced?
I have not been able to locate the answer to that question, if indeed an answer was ever supplied
The Beca report was flawed in many ways.
The OAG report subsequently made this understated criticism of the growth assumptions that were adopted.:
The data about growth assumptions supporting the increase in the member of ratepayers paying for the scheme was not robust.
The OAG report at 11.41 states that a Beca employee questioned the 4,500 connections model but no action was taken.
Beca advised the OAG when it was researching its report on the MCWWS that “the development contributions model was designed to be updated over time with actual data, to forecast funding requirements”.
However, as it has turned out, those growth assumptions have not been the issue.
The problem was far more fundamental. The nub of the problem is that the KDC took from this report that the MCWWS – the scheme as a whole – would, when completed, have the capacity to service 4,500 connections. That was clearly not possible. To achieve that target the scheme would have needed to cover the cost of a reticulation network connecting 4.500 properties to the treatment plant, a treatment plant capable of treating that number of connections, and a disposal system capable of coping with that amount of discharge.
It was patently clear that none of those targets came close to being achieved either at inception or at any time later..
Amended and Restated Project Deed 2006-2007
The changes to the proposed scheme agreed to by the KDC were incorporated the Amended and Restated Project Deed. This document defined the “works” to be undertaken by the contractor in Schedule A. The reticulation network was to service 1216 properties immediately. The capacity of the treatment plant was based on maximum daily flows, but this was not translated into the number of connections that could be accommodated. However, the OAG report calculated from the information that the treatment plant would have a capacity of 2,000+ connections.
The Amended and Restated Project Deed was not actually signed until November 2007. The chief executive, Jack McKerchar, presented a report to the Council of 28 November 2007 which stated at page 36:
The project remained within the parameters adopted by Council and was recommended for signature.
Council noted the original project services 1,216 sections. This was the contract that was being signed. Further modifications would be negotiated as construction proceeds and this should connect a further 500 to 1,000 properties bringing the serviced total to increases of 2,000 properties. The treatment plant was capable of servicing beyond this level and future potential modifications would be brought to Council for consideration.
There was no mention of 4.500 or 5,000 connections. So quite clearly the KDC – staff and elected members – were fully aware of the limits of capacity of the scheme, and, importantly that future modifications would be needed to increase that capacity.
No one challenged the disconnect between Beca’s representations of capacity and the actual reality in the contract deed. No one seemed to understand how this misrepresentation fundamentally affected the model for repayment of the debt - less than half the connections, and therefore less than half the development contributions, to pay the same debt.
The OAG report stated at para 12.46 that the 2006 /2007 “increase in the scope of the plant” actually resulted in a smaller plant operating on a different system than the proposed scheme in the original 2005 Project Deed.
Whilst the treatment plant was deemed to be capable of servicing beyond the level of 2,000 properties with “future potential modifications”, the same could not be said for the reticulation network or the disposal field. The reticulation network was limited to the initial network of 1216 connections. Any expansion to provide for more connections would require future planning and additional funding.
In respect of the Browns Road disposal field, it was always accepted by the KDC that it did not have enough irrigation area to cope with the effluent of the scheme, and that additional disposal facilities would be required in future. Again, this would require further planning and additional capital costs to meet the capacity target.
None of this vitally relevant information was taken on board by the KDC. Its model for repayment of the frozen debt of $58 million remained intact.
Segmented Debt Policy 2006
The original model for repaying the cost of the MCWWS was based on a model provided by PWC Australia. It led to the introduction of the concept of a “segmented debt”. This bizarre invention was necessary because the MCWWS debt exceeded acceptable debt limits. In those days the income to debt ratio was 2:1.
The MCWWS debt was segmented and separated from the core debt of the KDC on the basis that those connected to the scheme could fund all the costs of the scheme including the capital costs, the interest, and the servicing of the scheme, without any assistance from the general rates. It was therefore independent of, and segmented, or ring-fenced from, the core debts of the KDC. It was not therefore included in calculating debt limits.
The model was completely flawed. It was blindingly obvious that 1,216 connections connected in 2010 were never going to support the $58 million debt, the capitalised interest, and the annual servicing costs. The funding model and the segmented debt were highly criticised in the OAG report. The strict conditions and rules for the segmented debt were never applied by the KDC and it was subsequently discontinued without any comment.
PJ & Associates Report: 7 July 2011
This independent financial report criticised the segmented debt policy. It also criticised the model for repayment of the MCWWS debt because it provided no "sensitivity analysis" as to changes in the projected number of lots over a period of time. This resulted in “there being no mechanism to identify the shortfall of revenue and how it is to be ultimately recovered”.
It also pointed out that the model anticipated future borrowings to be sourced from KDC reserves, but the KDC had no reserves.
The report recommended that the KDC establish a contingency plan to reduce risk if the model for repayment of the debt proved to be defective. Also, “the KDC should ensure that all future income is based on a legally sound methodology and that all projected revenue is reasonable”.
That advice was never followed.
Amendment to LTP 2012/2022 (Incorporated into the 2013/2014 Annual Plan)
One of the fundamental problems in respect of the MCWWS debt repayment model is that the KDC “froze” the historic debt, relying on there being, at inception, 4,500 to 5,000 connections (and therefore development contributions) to fund the historic debt of $58 million over 30 years. Both assumptions were completely wrong.
The capacity of the scheme as constructed was only 2,000 plus. Not enough to pay the debt over 30 years. In addition, the necessary increase in capacity to fund the historic debt would incur additional capital costs which would have to be recovered over and above the historic debt.
The KDC never understood that simple equation. Or, at least, it pretended that it did not understand it.
Freezing the debt
The amendment to the 2012/2022 LTP introduced a new model for repayment of the historic debt, a model that still continues today. The MCWWS debt was fixed at $58 million, being the amount borrowed to fund the construction.
Attribution of the historic debt
The LTP amendment introduced a new model for repaying the historic debt. It attributed (allocated) the $58 million historic MCWWS debt between various “communities”. The debt was to be paid over 30 years.
TOTAL HISTORIC DEBT $58.0 million
Fundamental errors in repayment model
The model in the LTP perpetuated the original errors in the repayment model.
The debt was frozen at $58 million. This clearly did not anticipate the huge amount of interest that would be capitalised over 30 years and added to the amount outstanding. Nor did it take into account new debt for capital improvements to increase the deficient capacity.
The district-wide attribution was not affected as this part of the debt and the capitalised interest on it would be paid off by the general rates by all ratepayers across the district until this part of the debt was cleared.
The payments outstanding on the targeted rates and capital contributions of those who connected in the early stages were scheduled to be paid over 23 to 31 years. It is unclear if the capitalised interest was included in the repayment model. In addition we do not know if the amount to be paid by that community, which should be readily ascertainable, is sufficient to meet its attributed part of the debt.
This is where the major problems arise.
First, the issue of capitalised interest on this part of the debt over a period of 30 years. 50 per cent of that interest is paid by the district-wide community through the general rates, so that creates no issue about securing payment. The other 50 per cent is capitalised and added to the debt. Over 30 years that is an awful lot of additional debt. Take into account the compounding effect. Each year interest will added to the original debt and the interest previously added.
Has the KDC included, and correctly included, provision for capitalised interest in the repayment model for this part of the debt?
Second, and this is the biggie, the model requires 4.500 to 5,000 connections, and their development contributions, for this part of the debt to be repaid over 30 years. With an actual capacity of only 2,000 plus connections the scheme will reach capacity long before the debt is paid. That means that additional capacity will have to be created, which means further borrowing, and further new debt to be added to the historic debt.
In the amendment to the 2012/2022 LTP the KDC simply ignored these patently obvious issues.
Myth of 4,000 plus connections
In the LTP the Commissioners appeared to perpetuate the myth about the capacity of the MCWWS.
On page 151 the Commissioners refer to “a scheme that was designed to have 4,300 users”.
The Commissioners also stated:
Currently, there are approximately 2.140 properties that are connected or able to be connected, for a scheme capable of double that number.” (Page 139)
This statement clearly shows that the KDC was actually aware that in fact the scheme only had the current capacity for 2,000 plus connections, but that it was “capable of double that number”. Realising that capability would clearly entail a lot of additional capital works, which unquestionably would require more new debt that would have to be added to the historic debt.
The LTP also acknowledged the risk if the repayment model was based on incorrect figures. On page 204 of the Amendment to the LTP it stated that its forecasting assumptions for the repayment of the MCWWS debt over 30 years were based on there being 4,230 connections. It acknowledged the medium to high risk of:
The capacity of the MCWWS as currently engineered nay not be sufficient to accommodate the assumed number of connections either within the next 10 years or beyond.
The LTP stated that the effect of the uncertainty over capacity issues might result in the Council investigating options to ensure that the development contribution income was adequate to repay the debt as per the financial strategy. The LTP added: “The financial impact of this uncertainty is not currently able to be assessed.”
The Deloitte auditor’s report (page 134) also sounded warning bells about the KDC “relying on significant development contributions to help repay debt associated with the MCWWS. If the forecast level of development contributions is not achieved, it could affect debt levels, finance costs and rates”.
These warnings were not heeded. During the term of the LTP the repayment model for the historic debt was not revisited.
MCWWS Network Extension Project: December 2014
This KDC report stated that the capacity of the MCWWS was, at that time, 2550 connections
The KDC clearly based its model for repayment of the historic debt on intergenerational equity. The capital for an infrastructural asset should be borrowed and repaid over the years. It was only fair that all those using the asset over its lifetime should contribute to the cost.
However, in 2015 it was clear that the model was flawed. In the three years since the previous LTP was adopted the historic debt had actually grown from $58 million to $58.5 million. The LTP acknowledged the problem as follows:
The funding of the capital costs of the scheme is an important issue. The scheme has been built and largely funded by borrowing. Council was not, partly as a result of the drop in the level of new development, receiving sufficient income to repay the principal associated with these loans. (Page 37)
The Development Contributions Policy for wastewater for Mangawhai itself has been revised to reflect that, even though growth over the last two censuses has been significant, it has not flowed through to Development Contributions as most of the growth to date is where a capital contribution is being or has been paid. This area will need to be reviewed on an annual basis. (Page 23)
The challenges associated with [funding the scheme] are increased by the fact that at the time there was the equivalent of 1,987 users for a scheme that was designed to have 4,300 users. It is recognised, however, that there is some ability to increase the number of users connected by extending the reticulation network within the existing scheme area or “drainage district”. (Page 37)
Refining the repayment model
The KDC took two steps in the LTP to refine the repayment model.
Increasing the number of connections
First, the KDC embarked on a programme to connect more properties to secure more development contributions. The KDC acknowledged the issues:
“Future new connections will place more demand on disposal capacity, and require an extension of the reticulation network.”
So the Catch-22 was that in securing more connections to fund the debt, more capital costs and new debt would be required to extend the connection network and the disposal system at Browns Road. The KDC recognised that:
Significant expenditure will be needed for Mangawhai if a decision is made to accommodate growth and new connections. (Page 101)
The LTP advised that a review dealing with development and charging for the scheme was underway. At the conclusion of the review, a proposal would be consulted with the community as a separate exercise. “Pending the outcome of the review, funding for the extension of the network of $2.7 million has been provided for in the later years of the Plan.” (Page 23)
That $2.7 million was to be funded by new debt but the KDC was silent on how that debt was to be repaid and how it impacted on the historic debt and its repayment.
Increasing repayment period to 40 years
Second, the KDC revised the repayment period for future communities:
“Development Contributions projections have been updated to reflect the actual level of income received to date and revised projections about the level that will be received in future. The impact of this is that repayment of the future community portion of the debt will be over the next 40 years (to 2054), rather than in the same timeframe as the other segments of the debt (variable over 30 years to 2042). (Page 38)
No doubt the aim was to include a further ten years of development contributions to fund the historic debt.
However, the KDC did not consider in the LTP how the new debt for the increase in connections and the extension of the disposal field were to be funded and paid for. The elephant in the room was ignored.
MCWWS Community Advisory Panel Final Report July 2015
This is the report of community advisory panel appointed by the Commissioners, pursuant to the 2015/2025 LTP, on the potential extension of the catchment area for connections to the MCWWS.
Interestingly the Preface to the report refers to the “mythology” and lack of facts about the MCWWS:
It is recognised that the MCWWS is encased in much ‘urban mythology’ in terms of its current performance, reliability, capacity and other related matters. Given the animosities involved, such myths are often portrayed as facts –particularly when the data to confirm otherwise has not been readily available to the community
In the panel’s view this report was intended to remedy that situation:
It represents the best possible and fair view of the facts as we know them, and a sound and logical basis for moving forward
The report stated that the number of connected properties at the time was about 1800 with another 500 that were connectable and that about 75 connections were made each year.
The one vital fact that the report failed to ascertain was the actual capacity of the scheme at the time of the report. The purpose of the report was narrow in focus; to consider ways in which more development contributions could be triggered to pay off the historic debt over 30 years.
The report concluded at 6.2, on the basis of advice from Harrison Grierson, that the treatment plant would require capacity upgrades to meet the additional loading that would come from mandatory connection and associated extension of the reticulation network. The form of these would depend on the ultimate decision around what disposal option(s) for the treated effluent was decided upon. For instance if disposal consisted of a combination of the farm and golf course irrigation, then in conjunction with the capacity upgrade it would also be necessary to remove a greater level of the dissolved solid materials to avoid clogging of the irrigation nozzles.
Disposal of effluent
Following discussions with the KDC and Harrison Grierson, the panel took the view that the current disposal field was not large enough to cope with an increase in the number of connections. The report recommended an increase in the disposal area at Browns Road. In the short term, the only consented land-based option available to Council was disposal at Browns Road. Any other option would be unlikely to be available until AEE and consent requirements were carried out, which could take several years
Concerns about debt repayment
The report also considered community concerns about the financial sustainability of the MCWWS scheme and the associated debt. Sadly, the authors of the report referred that issue to the KDC. The KDC responded with a copy of the historic debt allocation taken from the 2015/2025 LTP, which is referred to above, without any further explanation.
Unfortunately, the report failed to take the opportunity to consider the fundamental issues facing the financial model for repayment of the debt.
Yet again, a KDC report failed to understand that the financial model for repaying the MCWWS historic debt over 30 years was a simple mathematical equation. There needed to be 4,500 to 5,000 connections providing development contributions, a treatment plant with that capacity, and a disposal facility that could cope with that number of connections.
The MCWWS failed on all three counts. It had only half that number of connections. The treatment plant could not cope with any more connections above 2,500. The disposal field needed to be extended to cope with any increase in connections above the current level.
Likewise, the report failed to understand the financial implications pf its extension proposals and the effect that they would have on the repayment model for the historic debt. The model was based on all debt being frozen at $58 million. The proposed extension of the catchment area and the disposal field would require capital expenditure, to be funded by new debt, and to be paid from development contributions from the additional connections created.
But, those development contributions were already accounted for and allocated to the repayment of the historic debt.
The report anticipated a cost of about $4 million in years 1 to 3, and $9 - $12 million in years 3 to 10 to fund the increases in connections and disposal facilities. Beyond that time frame it considered that a substantial capital investment would be needed to provide an alternative disposal system.
All of these capital costs were to be funded by new debt and paid by the development contributions from the new connections, which had already been allocated to the historic debt.
This blindness to reality in using the same development contributions twice was also shown in the 2016/2017 Annual Plan in referring to new capital expenditure for the MCWWS:
Capital expenditure for the 2016/2017 year of the Long Term Plan was $0.6 million and for the proposed Annual Plan it is $1.25 million, a difference of $0.65 million. Most of this has been carried over from the 2015/2016 year and is funded by prior years’ funds and development contributions
Opus: Treatment Plant Capacity Assessment: December 2016
This report stated that the estimated number of connections that could be introduced into the existing MCWWS was 2,153.
Strategy and Options Report 2018
This report from the advisory panel was a precursor to the 2018/2028 LTP.
Again it presented factual details about the MCWWS
The treatment plant’s limiting factor is its ability to meet the current resource consent’s Total Nitrogen (TN) limit of 30 mg/l.
The treatment plant is nearing its capacity to meet this consent condition
The report also included a very relevant warning about the debt risk:
Debt risk: Potential for stranded debt, if we cannot collect development contributions; and
Managing any additional debt for extension to ensure that it remains within acceptable and prudent financial parameters
This warning was spot on target, but like all the warnings in reports, was completely ignored.
Given those facts, how could the KDC continue with its historic debt repayment model when there were clearly insufficient connections to make it work?
Four options for increasing capacity were considered in the report.
The terminal pump station that pumps all the effluent to the WWTP has a design capacity to service approximately 2,500 connections
To show the KDC’s complete lack of understanding of the financial issues, the report had this to say:
The irony of these proposal is that, in 2018, it was going to take a FURTHER 22 years and a new debt of $34.78 million, in addition to the historic debt of $58 million to give the MCWWS a capacity of 4,700 connections. And both the historic debt and the new debt were to be paid by the same development contributions.
The myth of the MCWWS having a capacity of 4,500 to 5,000 connections in 2010 or in 2018 was well and truly busted.
The current LTP made provision for the capital works on the MCWWS recommended by the previous report:
Mangawhai Community Wastewater Scheme Included $20.05 million, funded through debt over the 10 years to 2028 for the upgrade and extension of the scheme to accommodate new connections. (Page 11)
And how was it to be paid?
The growth portion shall be paid through development contributions
The Plan budgets $5.8 million of capital expenditures for the first three years of the plan relating to “Additional capacity for growth-Council contribution, extend irrigation system, extend reticulation (8 years) upgrade existing reticulation, and upgrade WWTP (Part One page 160)
The LTP did not do any assessment of the historic debt repayment model for the MCWWS even though it committed itself to $20.05 million of new debt to increase the capacity of the scheme
KDC Report of 23 May 2018
This report states that the new debt of $20.05 million was to be levied on future connections and funded from development contributions.
In other words this new debt is to be paid by the same development contributions that have already been allocated to paying the historic debt.
Interestingly, the report also states:
In order to cater for growth in Mangawhai, it is recommended that Council commences the extension of the MCWWS to the full extent of 4,700 connections including reticulation, treatment and disposal capacity in the next 10 years ($20.5 million).
Balance Tank Proposal 2021
The balance tank for the treatment plant will detain peak flows during peak periods and storms and prevent the overflowing of sewage at pump stations. The cost is $2.1 million, or under new proposals the “enhanced” version is $2.869 million.
Again, this is new debt that is needed to maintain current capacity rather than increase it. Again, it is to be paid by future development contributions, which means that they will not be available to repay the historic debt.
Opus: Future Options Development report: 28 November 2019
Treatment plant will reach capacity at 3,000 connections
Disposal field will reach capacity at 3,000 connections
KDC Wastewater Strategy Workshop 22 May 2020
This was attended by WSP experts and the KDC chief executive and senior engineering staff.
General: Upgrade is essential if Growth to occur with increase in Network, Treatment Capacity, Disposal Rout
Reticulation network: Current System suitable for max 3000 connections.
Disposal field: Full Capacity reached before 3000 connections. Wet years may exceed capacity before this point.
The costs of diposal options to reach 5000 connections was considered:
Discharge Options 5000 connections
Disposal Field $38m
Sea Outfall $47m
Draft 2021/2031 LTP consultation document
Here are couple of snippets that confirm that the KDC is fully aware of the limited capacity of the MCWWS:
With growth levels in Mangawhai there is more substantial investment signalled in the LTP. There are currently 2,411 connections and the existing capacity of the treatment system is circa 2,800.
$20.4m (inflated costs) is included in the current financial forecasts for 2021-2031 for growth (just for the treatment plant)
And here are some more that show that the KDC has no understanding of how the lack of capacity of the plant has affected the repayment of the debt:
Expanding the MCWWS will be primarily funded through development contributions not rates;
That is to say, development contributions that have already been applied to the historic debt
Development Contributions are set at $24,766 per property excl gst
Based on an extra 840 connections over ten years – we would receive $20.8m
It sounds like a bonus windfall. But those development contributions have already been allocated to paying the historic debt.
KDC FINALLY ACKNOWLEDGES HISTORIC MCWWS DEBT 19.03.2021
The KDC has responded to a LGOIMA request (Official Information) and revealed how much of the historic MCWWS is still outstanding.
We know that the remaining part of the debt allocated to district-wide ($1.4 million), and paid through the general rates by all ratepayers, has now been paid in full. (See posts below.)
The current amount of the historic MCWWS debt, as at March 2021, is $34,430,745.
This is made up of the two remaining allocations.
Existing users’ allocation - originally $13.4 million
This allocation relates to the properties that were connected or connectable when the scheme became operative. KDC has clarified why those users still owe money. Rather than paying the development contribution in one lump sum, some of those who connected in the early days opted to pay over time. This allocation represents that outstanding debt.
The KDC acknowledges that the current amount owing under this allocation is $9,563,745
What the KDC has failed to tell us is whether the payments outstanding under the long-term payment arrangements are sufficient to satisfy this part of the debt. If they are not, then who will pay that part of the debt?
Future communities’ allocation – originally $26.2 million
This allocation is to be paid by “future communities”, being those who connected after the plant was first commissioned.
KDC acknowledges that the current amount owing under this allocation is $24.867 million.
Error in calculation
In my LGOIMA request I suggested that in calculating its repayment model the KDC had relied on the promise of 4,500 connections from Beca. That figure would have provided sufficient development contributions to pay this part of the historic debt.
KDC has finally acknowledged that it made a fundamental error in calculating the repayment of the debt. It has this to say:
This was an error relating to connections (originally advised there would be 5000 not the 2800 that has eventuated).
Both of those figures seem to be suspect. However, there was clearly a fundamental error that was made many years ago, and it has finally been acknowledged in March 2021.
The concern is that it was blindingly obvious many years ago that the capacity of the plant was nowhere near what was anticipated and it would be impossible to recoup that part of the debt before the plant reached capacity.
For years the KDC has failed to acknowledge the situation and to adjust its debt management. It is now faced with a massive black hole for which it has no realistic solution.
The KDC states in its response to the LGOIMA request:
We know that capacity will be reached in the next 4 years
The reality is that for several years the treatment plant has not been able to cope with peak flows in summers and during heavy rainfall when stormwater infiltrates the wastewater pipes. For that reason a balance tank costing $2.8 million is being built as a matter of urgency. This will serve as detention tank to store the extra flow and discharge it to the plant when capacity is available.
In addition, the discharge field at Browns Road is close to capacity. The KDC is desperately searching for alternative disposal methods including, yet again, discharge to the golf course.
All of these issues will be exacerbated when Mangawhai Central comes on board.
The draft 2021/2031 LTP allocates $20.04 million of funding for this deferred maintenance and increase in capacity over the next 10 years. (However the 2019 WSP report estimated that a new disposal field would be needed by 2026 at a cost of $38 million.)
The point is that the KDC is faced with massive infrastructure costs in the future for the MCWWS. These will be funded by debt and that future debt will be repaid from development contributions from future connections.
However, if those development contributions are allocated to future debt, how will the current historic debt allocated to future communities of $24.867 million be repaid?
The KDC has just revealed its hare-brained proposals to pay both the historic and the future debts from development contributions.
KDC sets out the original model for repayment of the original allocation of $26.2 million from development contributions:
$6 million in the 6 years from 2013 to 2021
$20 million over 10-30 years (2022-2042).
However the KDC acknowledges that the model has failed because it relied on a capacity of 5,000 connections when the plant was built. Even though “we decided we can’t recoup the $26m over the next 4 years” the KDC is sticking with the same model. That means that the allocation of the historic debt to future communities will not be paid off until 2042
So, if all future development contributions until the year 2042 are allocated to repaying the historic debt, how is the $20.04 million of future debt in the draft LTP to be repaid? This is the KDC’s simplistic solution:
The debt prior to new additions in the LTP 2021-2031 (ie old debt) is scheduled to be recouped by 2042 and new capital expenditure in 2021-2031 be recouped by 2051 when we reach 4600 connections in total.
In other words:
This bizarre proposal appears to be an attempt to play for time so that those running the KDC will be long gone to greener pastures before the proverbial hits the fan. That presumably is why the various successive iterations of the KDC over the past eleven years have not revealed the dark secret of the historic debt.
Note that at the KDC briefing of 03 March 2021 the report on the balance tank stated that it is to be paid from development contributions. However, it seems that in fact that it will be funded by debt which will not be repaid until 2042-2051. That means 30 years of accrued interest in addition to the original cost.
Additional capital costs added to original debt
The KDC advises that there was $2.009 million in capital expenditure on the MCWWS in the past ten years.
Can we trust that figure? The amounts allocated in the various LTPs and annual plan suggest that the figure is much higher. It is also unclear whether those additional capital costs are included as part of the historic debt.
KDC repeatedly makes the statement that capital expenditure is funded from development contributions. Well, yes, eventually if you wait 20, 30 or 40 years. The reality is that capital expenditure is funded through debt and it may take anything up to forty years for the debt to be repaid.
So how is the interest on that debt treated?
In the last 10 years $7.5 million in interest payments has been capitalised. It is unclear if this figure is included in the total amount owing under the historic debt or whether it is dealt with separately in the accounts.
This is the KDC’s muddled explanation of what happens to the interest:
The debt gets interest added to it which ranges from 4.56% to 2.47%. In the first year this is 1.3m and 404k is transferred through to the general rates rather than being charged to future development contributions. New capital expenditure is added each year.
The general ratepayer because of a Council decision pays 50% of the interest on its rates annually rather than putting 100% to the development contributions outstanding (10-20Years). This totals $404,000 in the first year of the LTP and is about the same in most years of the plan.
You can search the Consultation Document for the draft 2021/2031 LTP but you will not find any of the above information. It is the KDC’s dirty secret which it has been forced to reveal – very reluctantly. But it is not going to consult on it with the community.
The KDC’s ineptitude in pursuing a model for repayment that was based on blatantly incorrect figures is mind-boggling. The secret solution to pay off the historic and future debts by 2051 is nothing more than KDC’s version of a Ponzi scheme.
Following on from the bizarre misrepresentations re the current capacity of the MCWWS by KDC staff in the PC78 process, and the blow-out on the fit-out of the NRC new building in Dargaville, the latest revelations must raise serious doubts about the competence of the KDC to perform its functions in compliance with its statutory obligations, and with the fiduciary duties that it owes the community that elected it.
Next: Has the KDC complied with its own Development Contributions Policy and the requirements of the Local Government Act 2002 in the way that it proposes to apply future development contributions?
KDC’S WASTEWATER PLANS: A ROADMAP TO NOWHERE 06.03.2021
In an earlier post I considered how Mangawhai Central Limited (MCL) has been obliged to find its own water supply to service Mangawhai Central, and the problems relating to the two new water takes consented by the NRC.
Now I consider the issue of wastewater and whether there will be enough capacity in the MCWWS for the Mangawhai Central proposal.
During the PC78 process the KDC and its expert consultants were adamant that the MCWWS has the capacity, at present, to meet the demands of the Mangawhai Central development, as well as the demand arising from the recent increase in other development in the township.
These assurances of capacity were seized on by the MCL experts without any investigation of their own. The hearing commissioners were assured by experts from MCL and the KDC that the MCWWS has capacity, at present, for the proposed development.
However, submitters from the community established beyond any doubt that such a proposition was not supportable by the facts.
As a result the commissioners sought from the KDC further information on the capacity of the MCWWS and its plans to increase capacity.
The response from the KDC, through James Sephton General Manager Structural Services, was incredibly vague and contradictory. It states:
3.8 There is currently planned capacity available for the Mangawhai Estuary Estates and if approved, PC78.
That is not true. There is no actual capacity available at present for either development (500 or 1,000 plus connections). There is no planned capacity because there has been no planning to increase capacity.
The response refused to supply the planning proposals in the draft 2021/2031 LTP because, Mr Sephton argued, the plan had not been adopted and the provisions could change. Its main message was that a major upgrade would be required circa 2026-2029. Over the ten years of the new LTP it was likely that the capacity of the scheme would be increased to 5,000 connections.
Roadmap to future capacity
The reality is that are no plans in the new LTP for increasing capacity to meet future demands. Rather the LTP includes what it calls a "roadmap" which will look at options for future capacity upgrades, and make recommendations. And:
It is anticipated that these recommendations will be accommodated in the 2024/2034 version of the Long Term Plan.
At the council meeting of 3 March 2021 a detailed version of this roadmap was presented to the elected members.
This shows the proposed planning process over the next few years including decision-making in respect of capacity options, recommendations, community engagement, resource consents and hearings in the next few years. The construction of upgrades to the plant and a new “disposal route” will be available for 2028.
The draft 2021/2031 LTP has now been adopted, so the plans, if you can call them that, for the MCWWS are now available.
The Consultation Document which is part of the LTP highlights the “roadmap” and on page 9 confirms the timeline provided to the elected members.
In the 2021/2022 year the roadmap will entail, in KDC-speak: “catchment study to inform on reticulation strategy and renewal, water reuse optioneering (Golf course, farms, gardens etc), and community engagement”.
In the years 2021 to 2028 the roadmap will entail: “Upgrade network • Increased treatment capacity • Increased disposal system”, so that the “capacity improvements required for the MCWWS” are completed by 2028. That is the date that KDC anticipates that extra capacity will be absolutely essential.
In short, the KDC has no plans for increasing the capacity of the MCWWS. All it has is a very vague roadmap of the options that it might consider over the next few years. It is a road map to nowhere.
A road map to nowhere
The brutal facts
The brutal truth is that the MCWWS has capacity issues at present in respect of both the treatment plant and the disposal field at Browns Road. This has been made clear over the last few years.
An Opus report of 22 December 2016 stated that the treatment plant and disposal field were reported to be close to its design capacity with only 162 connections available.
The KDC Advisory Panel report Strategy and Options of August 2017 recommended the upgrade and extension of the current disposal system, a new disposal system and the augmentation of the treatement plant.
An Opus report of September 2018 made a list of twelve issues that the needed attention A subsequent Opus report of December 2018 set out the proposed solutions for the issues with the treatment plant that had been identified. However, in May 2019 the KDC decided to advance only certain items, with the remaining upgrade items being put on hold.
In the last couple of years the irrigation field in Browns Road has been extended to eke out capacity, but that has now reached capacity coverage.
A report to Council of 4 December 2019 by Mr Sephton stated that WSP had been engaged “to provide a complete picture of the entire system”. The report warned “that the growth experienced to date will require earlier intervention than was anticipated”. The report referred to the “network being under pressure” and “some pump stations and rising mains need upsizing”. “The treatment facility is nearing its capacity to manage peak flows”. In respect of Browns Road, “we are now at 100% coverage of land that can be discharged to.”
The Opus report of November 2019, kept secret, by the KDC but disclosed by submitters at the PC78 hearing, painted a grim picture of the capacity of the MCWWS, with a pressing need to find a new disposal option.
Proposals to meet current capacity issues
So how does the KDC intend to meet the current lack of capacity?
At the Council meeting of 25 November 2021 a resolution of 23 May 2018 to investigate future disposal options was given the status of “in progress”. A report presented to the elected members made a surprise statement:
Council has approved the development of the retention/CASS tank (blance tank). This will be taken as part of the Do Minimum assumption for disposal options. (Underlining added)
It appears that pending the major upgrade to the treatment plant and disposal system to be planned through the roadmap, the KDC has adopted a Do Minimum, ad hoc approach, extracting efficiencies from the present set-up and only doing upgrades such as the balance tank if they prove necessary.
The LTP Consultation Document at page 9 makes the balance tank (or balancing tank) the top priority.
For several years the plant has not been able to cope with the inflow of sewage at peak holiday times and during storms. There are overflows of sewage at various pumping stations, especially the one in Jack Boyd Drive. Hence the offensive smell in that area reported by residents.
During storms, stormwater leaks into the wastewater pipes. It increases the flow from a normal 600m3 to a massive 5,000m3. An 8-fold increase.
The leakage of stormwater arises because of the poor condition of the reticulation pipes. A KDC report of 9 September 2020 states that they have not been surveyed since they were installed in the early 2000s, and that “49 km of pipeline is scheduled to be surveyed in Mangawhai”.
The balance tank is a temporary measure to detain excessive flow in a large storage tank at peak times so that it can be pumped into the treatment plant when the flow rate is lower. Apparently it will increase the inflows by 42% and increase the storage capacity of the treatment plant by 33%.
It is anticipated that the balance tank will not be needed once options for upgrading the plant, piping and pumps are finally decided and undertaken under the roadmap. It is suggested that the tank can then be re-used as a reactor tank in the upgraded plant.
The cost of the balance tank was $2.1 million but that was increased to $2,869,000 in a proposal presented to the council briefing of 3 March 2021. The increase is for upgrades to future proof the tank and for safety reasons. The elected members have so far only approved the lower figure.
the tank will be installed this year.
INCREASING DISPOSAL CAPACITY
Hopefully, the balance tank will be a temporary solution to the overflows occurring because of the lack of capacity in the treatment plant. But what happens at the other end, so to speak, with the disposal of the treated waste?
Under the ‘”do minimum” strategy the KDC is looking for efficiencies and alternative methods of disposal. It is planning to replace the filters in the treatment plant so that a higher grade of discharge is produced, opening up more stop-gap discharge options.
However, under the road map, a permanent disposal solution has to be decided on and constructed in the next few years when the disposal capacity is used up.
The 2019 WSP report estimated the costs of disposal options as follows:
New diposal field: $38million
Sea outfall: $47 million
Estuary: $26 million:
Golf course option
In the last few weeks, since the PC78 hearing on 3 February 2021, the option of disposing to the golf course has been raised again.
The options for disposal were considered in a Harrison Grierson report of September 2014, including the golf course. A BMT WBM report of June 2015 and a subsequent Harrison Grierson report in 2015 considered the golf course option. The latter report estimated the cost of discharge to the golf course to be $11.608 million.
It now seems that the golf course option has a new set of legs.
A committee consisting of members from the KDC, the golf club and the community has been formed to look into the feasibility of the proposal.
The last minute proposal has been sneaked into the Consultation Document for the draft 2021/2031 LTP on page 10. It suggests, wrongly, that this golf course proposal is already set in concrete:
The Council is currently planning an irrigation system for the adjacent golf course and $1.5m has been allowed for in year 1 of the LTP 2021-2031 for construction. With our current water quality this can be used to irrigate at night. Improving the quality to Grade A will allow for further irrigation uses and increase the amount that can be reused for the benefit of the community
In fact, a committee is "looking into" the proposal. Discharge would be to the wetlands, green fields and the bush area. Certainly it is an attractive option if it is feasible and acceptable to the golf club. The golf course is adjacent to the treatment plant in Thelma Road which would save immeasurably on costs.
However, the proposal has to be invesitgated in detail. Take a look at the figures mentioned above. Construction of the disposal field will be completed in 2021/2022 at a cost of $1.5 million. Compare that to the Harrison Grierson estimate of $11.068 million in 2015.
One of the issues raised in earlier reports is that because the dishcharge would be to sand on the golf course, the discharge would quickly leach into the harnbour. It would therefore be necessary to upgrade the quality of the discharge by replacing the mesh filters
For a project that is only a few weeks old, with a history of being rejected, with no detailed consideration or planning, it includes some huge assumptions.
Browns Road farm
There are also other costs. Even if the golf course option is feasible:
We will still need to dispose of water in storm events and funding has been set aside to increase the size of the pipe from the plant to the reservoir at Browns Road.
This is a completely new left-field suggestion with few details. The cost is dismissed with “funding has been set aside” but without stating what the cost is or identifying exactly where the funding has been set aside.
The Browns Road farm is 14 kilometres from the plant. That is a massive and costly length of pipework, along with higher grade pumps etc.
It the pipe is increased in volume then it means that the holding reservoir/lake on the farm would have to be expanded to cope with the extra inflow. However, the discharge to the land from the reservoir is already at capacity and the reservoir would become a stagnant lake with nowhere for the effluent to go.
In short, the newly adopted golf course option appears to be a last- hope, temporary holding measure until an alternative disposal option is planned, consented and constructed acording to the roadmap.
CURRENT CAPACITY OF THE MCWWS
The current capacity figures of the MCWWS provided by the KDC are both conflicting and alarming.
The Consultation Document on page 8 contains capacity figures for the MCWWS which conflict with earlier figures. For instance:
There are currently 2,411 connections and existing capacity of the treatment system is circa 2,800.
Those figures tie in with the statement of Jim Sephton, General Manager Infrastructure Services, in his report to the commissioners that there were 389 connections left in December 2020. However, the KDC advised in June 2020 in response to a LGOIMA request that there was atn that time a total of 2,230 connections.. If that earlier figure was correct it would mean that there was an increase in connections of 181 in 6 months.
The figures for assumed growth in the next few years are a greater reason for concern
The Consultation Document has this to say on page 8:
Over the time of the last Long-Term Plan (2018-2028) we have seen 77 connections a year. We have investigated future options for between 70 and 100 new connections, which allows us to prepare for lower or faster rates of growth.
That figure of 77 connections a year is highly suspect. In fact the 2018/2028 LTP anticipated an increase of 108 connections per year. It is hard to believe that only 77 connections were made in the last 12 months given the increase in building activity.
It gets worse. Even more questionable is the anticipated number of connections for the term of the new LTP:
Over the next ten years we have assumed 84 connections will be made each year, combining to an additional 840 connections.
In short, there are 389 connections available at present, and it is anticipated that in future there will be a demand for 84 connections a year, with a total of 840 over the ten years of the new LTP
Long shadow of Mangawhai Central
How can that figure be correct when Mangawhai is facing its biggest boom ever and Mangawhai Central is about to release a demand for at least 500 connections (as Estuary Estates) and perhaps over 1,000 connections?
If you have an doubts about the intentions of Mangawhai Central, take a close look at the extent (and the cost) of the site works. Does anyone really believe that Mangawhai Central wil be happy with 84 connections a year, and 840 over ten years, to be shated with other developers?
In his final summing up at the PC 78 hearing, legal counsel for MCL stated:
The supermarket (approved by resource consents) is expected to connect to the wastewater network in 2021, and then residential lots are expected to begin connecting in 2022. This is in line with planned funding and upgrades.
Forget about the “planned funding and upgrades”. They are pie in the sky fantasies. There are only 389 connections left. It means that within 4 years or so there will be a “full’ sign on the MCWWS. And that is at the assumed 84 connections a year. Once Mangwhai Central is unleashed, capacity will be reached in much shorter space of time.
KDC’s plans for dealing with the demand
So what if demand proves to be greater than 84 connections a year? How will the KDC suddenly provide enough capacity in the MCWWS? what are its contingency plans? This is where we get into the airy-fairy stuff.
The KDC is “planning” – if that is the appropriate word - a staged increase in capacity to match the demand for growth. This is how the “strategy” is spelt out in the consultation document:
We monitor the rate of take up (i.e. resource consents) allowing us to keep ahead of our planned connection numbers, ensuring our planned capital expenditure meets the needs as it arrives, if not before.
We can be flexible on these plans, should there be a large jump, or a greater than planned for demand occurs in Mangawhai. As growth occurs and Council determines it needs more capacity, the cost of infrastructure has been planned for, and will occur just ahead of its requirement.
With respect, these are weasel words that are intended to mislead and have no basis in fact. The demand has already occurred with the upsurge in development and with Mangawhai Central about to beat on the MCWWS door. But there is no actual planning to increase capacity. Planning has been deferred yet again with only a “roadmap” to discuss options for the future.
To suggest that KDC can respond immediately to ansurge in demand is absolute nonsense. Note that the WSP report recommended that 6 years be allowed for a substantial upgrade for “optioneering”, planning, community consultation, consenting and building. It is simply impossible for the KDC to respond immediately to an upsurge in demand.
It is difficult to comprehend the mind-set of the KDC staff. They have made assertions about the capacity of the MCWWS and its ability to accommodate the huge demand from Mangawhai Central that are blatantly incorrect. Now, with the prospect of Mangawhai Central being given the green light, the KDC has reversed its position. It has now adopted assumptions that there will only be a demand for 84 connections a year for the next 10 year. Mangawhai Central is completrely ignored and not considered.
FUNDING FOR THE INCREASE IN CAPACITY (ONCE DECISIONS HAVE BEEN MADE)
The Consultation Document sets out the costs of the roadmap on page 10:
The LTP 2021-2031 includes $300,000 to design the expansion to the overall system in financial year 2021/2022. This design work will allow for a number of solutions to manage growth in the coming years, and can be staged to meet the demands on the network.
And what of the cost of these unknown solutions? The consultation document has this to say:
Construction (of the unknown solutions) will commence in financial year 2024/2025 with a total of $10 million budgeted to be spent between 2025 and 2031.
More details are provided for the funding for these yet-to-be-decided solutions:
Expanding the MCWWS will be primarily funded through development contributions, not rates;
If you do the calculation you will see that the development contributions meet the allocated costs over 10 years
However, there are a few issues with these statements:
The elephant in the room is the historic debt still owing on the MCWWS. This is the debt of $58 million for constructing the scheme, or at least what is left of that debt.
That debt was allocated to different “communities” in the 2018/2028 LTP. $18.4 million was allocated to the district-wide community to be paid through general rates. That figure was reduced to $1.4 million by the commissioners through asset sales and a $5.2 million payment from the Auditor-General. According to Mayor Jake, that remaining $1.4 million has now been repaid.
The elephantine issue is the remaining debt:
That leaves $39.6 million of historic debt. In addition, half the interest on the future community allocation has been capitalised and that will continue for forty years until the debt is repaid.
This balance of the debt was ignored by Mayor Jake in his recent expression of effusive joy on repaying the $1.4 million district-wide allocation. The balance of the debt is not identified or referred to in any way in the draft 2021/2031 LTP. It has become an embarrassment to the current council and has become the "buried debt".
The problem is the size of the historic debt. A massive part of the loan monies to build the MCWWS was spent enriching those involved in one of the biggest rorts in local government history. The government directed KDC commissioners did not pursue those responsible, so a large part of the debt, the amount negligently or fraudulently incurred, remains payable by the community. The development contributions charged over the past ten years have probably paid off the genuine costs of building the MCWWS, which leaves the community to fund the illegitimate part of the debt.
The KDC seriously miscalculated how the debt would be repaid. Unfortunately the current council will not face up to the problem that has resulted.
Back in the dark days, in its secret and unlawful proposal to increase the size of the scheme and the costs, Beca promised a plant of 4,500 connections. If that had been correct then the allocation of the debt over 30 and 40 years may have been successful. The amount of development contributions collected over that time-span would have, most likely, repaid the whole debt.
The reality is that the scheme has struggled to make 2,000 connections, and that is with more capital funding over the past 10 years. That means that any future development contributions are not used to pay off the historic debt, as was anticipated. They are needed to pay off the capital costs of upgrades to increase the capacity of the treatment plant and the disposal field. The cost of the balance tank for instance will absorb the next 116 development contributions. All future development contributions will be applied, out of necessity, to future capital upgrades.
The forgotten historic debt sits hidden in the KDC accounts, gathering interest, and awaiting a council that has the integrity to face up to the problem. Mayor Jake and the KDC staff have shown that their inclination is to keep the debt well and truly buried. That approach will only change if the community realises what has happened and brings pressure to bear on the KDC.
The issue is blindingly simple. If all development contributions collected in the future are to be used to pay future debt which funds maintenance and new infrastructure,, who is to pay the remaining historic debt for the construction of the MCWWS?
AN ALTERNATIVE APPROACH
In his further information provided to the hearing commissioners, Jim Sephton had this to say:
3.7 Connections to the [MCWWS] are provided on a first come first served availability for development basis
That will provide little comfort to MCL. Millions already spent of planning and development costs but with minimum wastewater facilities for its proposals. It must be getting desperate.
With only 84 connections available each year, and with a demand much greater than that from Mangawhai Central and other developments, the KDC might adopt an alternative strategy and auction off the connections to the highest bidder. A connection might fetch far more than the standard development contributions and help defray the historic debt.
MCL must be in a real lather.
Its water supply for Mangawhai Central appears to have evaporated.
It is being obliged to dredge some dried up watercourses to find water, and to build a humungous reservoir of an impossible size and at a huge cost to store what water it can eke out.
MCL is going to be obliged to comply with the draconian provisions of the Water Services Bill once it is enacted. It will get no help from the KDC.
Now MCL's wastewater services that it was relying on are fast disappearing down the drain.
With the KDC’s pie in the sky “roadmap” for options for increasing capacity in the MCWWS, and its complete failure to front up to the historic debt on the MCWWS, it might be time for MCL to seriously consider constructing its own wastewater plant. Or at least it would seem apprpriate to enter into a development agreement with the KDC to pay its share of the current system and the necessary upgrades
The KDC’s Engineering Standards state:
If the existing network does not have sufficient capacity at the nominated connection location to receive the number of sections or peak flows from the development, the Developer will either need to:
The first option is not feasible. The MCWWS cannot cope with peak and storm flows at present. The balance tank solution will hopefully resolve the immediate problems but could not cope with the demand from Mangawhai Central. The disposal field is at capacity.
There is no capacity in an alternative location.
We are therefore left with option 3. The KDC enters into a development agreement with the KDC whereby it meets some of the historic costs of the MCWWS to cover its share of the scheme as it is, and part of the necessary upgrade costs to cover future capacity.
MAYOR JAKE: FAKE NEWS ABOUT THE ECOCARE DEBT 26.02.2021
We are getting used to the gung-ho, rah- rah- rah comments of Mayor Jake extolling his own personal achievements in steering the good ship SS Kaipara on a steady course.
In his latest MAYOR’S MEMO in the Mangawhai Focus and the Kaipara Lifestyler he celebrates the fact that the EcoCare debt has been paid. This is what he has to say:
Before we start out into that next plan, a major milestone from former Kaipara times has recently been crossed and deserves special mention: the district-wide portion of the Mangawhai Community Waste Water Scheme has been paid in full, earlier than expected. This legacy from a painful part of Kaipara’s story has hung heavily for years but a tough era has now passed. I feel lighter for this and acknowledge all the hard work of many here, and the clouds continue to lift. How we are moving on. Keep safe as you go.
Really? It is always hard to trust any figures emerging from the KDC but we must accept at face value what the Mayor says. But look closely, the reason for his rejoicing is not that the EcoCare debt has been repaid, but that “the district-wide portion” of the debt has been repaid. That description will be lost on most readers.
The overall debt referred to is the debt incurred in building the ill-fated EcoCare wastewater plant, now known as the Mangawhai Waste Water Community Scheme (MCWWS).
The “district wide portion” is that part of that debt that the KDC commissioners dumped on all Kaipara ratepayers to pay for the incompetence of the KDC. The rationale was that it was only fair that all ratepayers bear some of the burden given that the councillors and mayor who were responsible for the financial carnage represented the whole of the Kaipara community.
That district-wide proportion was to be paid out of general rates. It has now been repaid, apparently.
The point that needs to be made is that while Mayor Jake beats his own drum about the repayment of this small portion of the overall debt, he remains absolutely silent about the major part of the debt that will remain a burden on the Mangawhai community for generations to come.
The EcoCare plant opened in 2010, so it has been operating for the past 10 years. Back in the dark days the KDC secretly agreed to increase the size of the plant and to increase the contract price without following the legal consultation process with the community, as required by the Local Government Act.
According to the Auditor-General’s report on the debacle, the cost of the EcoCare plant was estimated at about $63.3 million.
The current 2018/2028 LTP noted that the EcoCare debt was $58 million which was allocated as follows:
The Mayor’s Memo refers to the last category only. But, as stated above, that part of the debt was reduced to $1.4 million during the commissioners’ appointment as a result of the sale of assets and a $5.3 million out of court settlement from the Auditor-General for her Office’s role in the EcoCare debacle. As at 1 July 2018, when the LTP took effect, there was only $1.4 million allocated to that part of the debt.
So, if, according to the Mayor, the payment of that $1.4 million over the following 3 years brought an end to the legacy and painful part of Kaipara’s story that has hung heavily for years, are we entitled to ask about the rest of the debt that remains unpaid?
Mayor Jake may feel lighter and the clouds may have lifted around him, but what of the community that still has to bear the major part of that debt?
The 2018/2028 LTP states that the $13.4 million allocated to the existing Mangawhai community is to be repaid over 30 years. The KDC has not revealed the current amount outstanding under this allocation.
The $26.2 million portion is allocated to what the LTP calls “future community” and is to be repaid over 40 years. In the interim, 50% of the interest on that amount is to be paid from general rates and the other 50% capitalised and added to the debt, to be recovered from the future community development contributions. On that basis, it is presumed that this part of the debt will continue to grow. The current amount of this part of the debt is not known.
It is unclear when the 30 and 40 year periods started. What is clear is that there is substantial amount of money still owing on the EcoCare plant after ten years and it may be many decades before it is repaid.
Fallacy of repayment
In the secret negotiation to increase the size of the EcoCare plant we were promised by Beca a plant with the capacity for 4,500 connections. The reality is that the MCWWS has struggled to make it to 2,000 connections. The difficulty that the current council has is that the capacity of the plant is fast running out with only 389 connections still available (figure provided by the KDC) before capacity is reached. That means that there will be not enough connections from the “future community” to pay its allocated share of the original debt. The plant will be long past its use by date in 40 years’ time.
The WSP report of 2019 estimates that the cost of a new disposal field at $38 million and that will be needed in the next few years. So who will pay for that? If new communities such as Mangawhai Central are allocated that new debt then who is to pay the substantial balance of the historic EcoCare debt?
Is the current council going to, yet again, dump the historic debt on to those currently connected to the MCWWS? Or will it spread the burden over the whole of the district?
The Mayor’s celebration of a very minor repayment of debt, while the major part of that debt still hangs over Mangawhai, with no prospect of repayment, does nothing to give the community any confidence in the leadership of the KDC. The reputation of KDC has already taken a severe beating because of its approach to Mangawhai Central and its grovelling endorsement of the proposal. The Mayor’s misleading comments on the repayment of the debt, and his failure to recognise public concern over the balance of the historic debt, only increases the distrust of the community.
Misleading spin from the KDC
I attended the KDC council meeting on 20 January 2021 when Sue Davidson (General Manager Finance) presented the Draft Financial Strategy to be included in the 2021/2031 LTP. Sue Davidson directed KDC staff “to communicate clearly that the Mangawhai Wastewater Treatment Plant debt has been repaid.” I was surprised at that statement because, unless a miracle has happened, it is simply not true. A minor portion of the debt had been repaid, but not the major part of the debt. Yet the statement was repeated in the Minutes of the meeting.
It seems that the KDC has adopted this fake-facts approach to mislead the community into thinking that the historic debt is no longer an issue.
By the time Mayor Smith wrote his column the situation was fine-tuned discreetly with his obtuse reference to “district-wide portion”, but the high level of spin and hyperboles shows the clear intention to create the wrong impression about the historic debt.
MASSIVE LEAP IN NEW BUILDING COSTS 26.02.2021
THE KDC and Mayor Jake have failed to publicly reveal the blow out in costs in relation to the Dargaville building which KDC will lease from the NRC once it is completed.
In September 2019 Kaipara Concerns revealed the secret plans of the KDC to lease part of a building to be constructed in Dargaville by the NRC. The new premises will replace the existing offices which have a doubtful future because of leaking and other issues.
Part of the negotiated agreement stipulated that the KDC would pay $400,000 for the fit-out of its offices.
Leap forward 16 months. At the KDC council meeting of 20 January 2021 KDC staff revealed that the cost of the fit-out had increased to $1.2 million. That is an increase of $800,000 or treble the original amount.
Councillors were less than pleased. Councillor Victoria del la Varis-Woodcock was especially annoyed. She asked why KDC staff had not negotiated a fixed price in the contract negotiations. She also pointed out that the increase reflected badly on councillors who had voted to proceed with the leasing on the basis of the figures presented by staff, only to find later that the figures had been increased. It diminished the credibility of councillors in the eyes of the community.
Councillor del la Varis-Woodcock asked for her concerns to be noted, and she requested KDC staff to explain how the increase in the negotiated amount came about.
Councillor del la Varis-Woodcock’s concerns are not noted in the Minutes of the meeting.
MANGAWHAI CENTRAL - BACK TO SQUARE ONE? 25.02.2021
Originally, in the halcyon days when Viranda courted the community with endless promises and financial inducements, with undertakings to consult on every issue, it was a given that it would have to provide its own water supply and wastewater system if Mangawhai Central was going to proceed.
Then, Viranda embraced the KDC, dumped the community, and spat the dummy in respect of providing the basic services for Mangawhai Central.
We all watched in amazement as the KDC staff and consultants endorsed the development proposals in every way and assured commissioners in two hearings (the supermarket consent and PC78) that there was adequate capacity for wastewater in the MCWWS. That was despite overwhelming evidence to the contrary.
The KDC and their consultants showed the same myopia in respect of water supply. Despite the evidence of drought, and clear warnings that tank water on small sections and bore water did not guarantee an adequate water supply, they doggedly persisted with their alternative facts.
Perhaps the KDC and Viranda are now realising that they are back where they started. Even if the commissioners rubber stamp PC 78, which is more than likely, the simple fact is that without water and without wastewater the proposal simply cannot proceed. They may be successful in changing the plan, but that does not mean they can obtain subdivision consents and building consents if the lots are not adequately serviced for water and wastewater.
WATER SUPPLY 25.02.2021
In the resumed hearing earlier this month Mangawhai Central Limited (MCL) virtually acknowledged that its proposals for water supply were inadequate. Harvesting rainwater on lots too small to have tanks of sufficient size was never going to work. The right to draw water from a bore when all bores are struggling because of the drought was of no help.
MCL shocked everyone by announcing the water right granted by the NRC on 8 January 20. It has the right to draw ground water from two unnamed tributaries of the Mangawhai Estuary.
The consent is two take water from the two locations at “high flow”, which will only occur in winter or when there is excessive rain. That means that the water will have to be taken and stored in a reservoir for use in dry periods.
At the resumption of the hearing earlier this month, counsel for the MCL revealed that MCL has no plans yet in respect of the taking of the water, the storage of the water, the treatment of the water or the reticulation of the water. It suggested that a 100,000 m3 reservoir would be needed, but because of its size there may have to be several reservoirs.
Because the water take is from natural wetlands, MCL provided a legal opinion to establish that the water take consent complied with the newly-released Resource Management (National Environmental Standards for Freshwater) Regulations 2020. MCL argued that the proposal to take the water was a “specified infrastructure” because MCL was a “lifeline utility” under Part B of Schedule 1 of the Civil Defence Emergency Management Act 2002 because it is “An entity that supplies or distributes water to the inhabitants of a city district, or other place”.
Counsel for MCL also argued that Regulation 52 would not apply because:
We are advised by the independent experts who have undertaken investigations and reporting on the Proposal that the ongoing water takes and associated activities will not (and are not likely to) result in the “complete or partial drainage of all or part of a natural wetland”. Given that water will only be taken when flows are above median flows, we are advised that the take will not (or at least are very unlikely to) result in the complete or partial drainage of all or part of the wetland(s) involved or a reduction in their extent.
MCL provided an expert report on the water flow at the two locations as at August 2020. Because there was no flow monitoring data available, the assessments of flow was based on the expert’s “professional judgement and understanding of the local soil type and underlying geology”, along with NIWA’s estimate of rainfall and evaporation, and the application of standard modelling.
The conclusion reached was that there would be only minor changes to the inundation of the wetland area during moderate to high flow events.
However, this assessment came with a substantial caveat:
It should be noted, while the catchment flow modelling and reservoir water balance assessment detailed above provide an appropriate preliminary assessment, the catchment flow models have not been calibrated/validated against measured flow data. Therefore, the reliability analysis and assessment of impact on downstream flows is considered indicative relative responses only at this stage, and we recommend installation of flow gauges at both take locations to confirm the median flows.
Site of water takes
The plan below shows the site of the two water takes. They are both culverts that run under the farm track that runs off Old Waipu Road through the middle of the MCL land.
Take 1 is in the natural wetland that runs south-east into the farm of Glennis McCarthy and then through culverts under Molesworth Drive into the Estuary.
Take 2 is on a watercourse that immediately after the take runs north-east into the McCarthy land and then into the wetland.
Photos of the two take locations
Take 2 (February 2021)
Take 2 watercourse (February 2021)
A mountain to climb
MCL has a veritable mountain to climb in proving that it has a secure and adequate water supply to service Mangawhai Central. The KDC has washed its hands of any reticulated water supply for Mangawhai, so MCL is all on its own.
There is absolutely no guarantee that the two water takes will supply enough water within the requirements of the NRC for flow volume, and the placement and construction of the reservoir will create untold problems and add hugely to the cost of the project.
Water Services Bill
The Water Services Bill is currently before the select committee of parliament. The Bill is draconian. It places strict requirements on water suppliers that will be very difficult to meet and will make water a very expensive commodity.
Mangawhai Central will have to become a water supplier and comply with all the statutory requirements. The KDC will also have oversight obligations that it will not be able to shirk or ignore.
The full effects of the legislation are still not apparent, but it will be a nightmare for any water supplier. (See the post below for details of the Bill)
So, even if the commissioners rubber stamp the PC78, as they did with the supermarket consent, MCL is basically back to square one with its issues with adequate supply and the new statutory regime..
One of the experts for MCL provided this insight in its report to the NRC to support the water take application:
Mangawhai largely relies on rainwater collection systems for potable and domestic use. An options assessment has indicated groundwater, because of existing saline intrusion, is a less viable option as a resource for the proposed development, and water supplied from harvesting rainwater off roofs is not sufficient for meeting firefighting and potable water needs.
So, the Mangawhai Central proposal hinges on drawing sufficient water from the two water takes shown in the pictures above.
One wonders how MCL could have gone so far, spent so much money, and employed so many consultants, and yet they have ended up two pathetic, occasional watercourses to supply its development.
Rumour has it that the commissioners’ decision is not too far away.
Next: The wastewater fiasco
For earlier post go here