(Note that all comments for 2011 can be viewed under Archives.)

A recent press release from Transparency International NZ may provoke some reaction from ratepayers in Kaipara. It states:

The Transparency International Secretariat in Berlin today released its annual Corruption Perceptions Index. The Index, which ranks the public sector of 177 countries across the world according to perception of corruption, has consistently shown New Zealand as a country with a strong reputation for clean government. In 2013, New Zealand ties with Denmark for first place due to strong access to information systems and rules governing the behaviour of those in public positions.

A subsequent report has been released by Transparency entitled: Integrity Plus 2013 - New Zealand National Integrity System Assessment. The report refers to the "pillars" that support the National Integrity System and comments:

The four key strengths from the interactions between pillars are:

• the effectiveness of the judiciary as a check on executive action

• the effectiveness of the Office of the Auditor-General in supporting parliamentary oversight of the public finances

• the effectiveness of the Ombudsman as a restraint on the exercise of administrative power and in enforcing citizens’ rights of access to information under the Official Information Act 1982

when cases of corruption or unethical behaviour by those in power are exposed, the media, political parties, the Auditor-General, law enforcement agencies, and the judiciary usually pursue these cases vigorously.

Ratepayers in Kaipara will wonder where Transparency gets its information from.  If Kaipara is anything to go by - and remember that Kaipara is being dealt to by the "pillars" in Wellington - then the whole country is riddled with corruption.  Kaipara is a perfect example of of "corruption and unethical behaviour" being exposed but the suggestion that "the media, political parties, the Auditor-General, law enforcement agencies, and the judiciary usually pursue these cases vigorously" is utterly risible.

Not only that, the so-called "pillars" do absolutely nothing to uphold the National Integrity System. The only exception is the judiciary, which to date has not been involved. We do not know yet how far it will go to protect the rights of New Zealanders from the corruption in local government. No doubt we will find out in February next year.

The absolute irony is, of course, that everything is being done by those in local government to prevent the judiciary having any role in this sordid affair.

The press release from Transparency goes on to say:

Chair of Transparency International New Zealand, and Co-Chair of the National Integrity System assessment, Suzanne Snively said, “The annual perceptions index ranks New Zealand highly. Our collective role now is to ensure the reality and the perception match.

The last sentence says it all. It's all about perception and not reality.

The reality, of course, is that New Zealand is as corrupt as any country in the world. It is just that we do it more discreetly. Kiwis regard themselves as honest and up-front dudes and are happy to delude themselves into thinking that their country is corruption free, when in fact the evidence is all around them that this country is riddled with rorts.

Tips of massive icebergs emerge at times. The destruction of the life savings of many New Zealanders by the leaky building syndrome and the finance company rip-offs are symptomatic of widespread corruption

The ratepayers of Kaipara will be very aware that one of the biggest areas of corruption is in the local government field. The corruption that went on in Kaipara is quite beyond belief, but even more incredible is the corruption of those who were supposed to be watch-dogs and chose to turn a blind eye.

What is happening in Kaipara is happening all over the country. Many councils in New Zealand are running out of control in the same way as Kaipara. One has to wonder whether Auckland, with a Mayor who appears to be totally unbridled, will end up with a financial catastrophe that will, in time, dwarf the Kaipara debacle.

Forget all the high flown principles that are supposed to dictate the way local government in New Zealand operates. These are the real rules for the local government rort:

• Ratepayers are responsible for everything whether legal or not.

• The banks have to be protected at all costs.

• The local government free-riders can flout the law and their own policies with utter impunity.

• The watchdogs are deaf, dumb and blind, and stricken with paralysis. They will not interfere.

• Any action taken by a local government agency even though clearly illegal or in breach of a regulation or policy is deemed to be legal until a court decides otherwise.

• All the agencies of government will join to prevent any action being brought before a court.

• In the rare case that any actions are identified as illegal then Parliament will morph into a Chinese laundry and white-wash and sanitise them.

• All those working in local government and closely related fields will support each other and ensure that the local government gravy train continues unhindered on its journey.

Have I missed anything?

There is ultimately only one thing that will stop this local government rort dead in its tracks. The courts may well interfere in Kaipara (but only at huge cost to the ratepayers) but ultimately ratepayers have to draw a line in the sand and say "no more".

Politicians will tell us that our power is in the ballot box every three years but that is a cop-out. In any case Kaipara has no democracy. We are stuck with three dictators who are determined to dump on us.

If we all stop paying rates, and ignore all their propaganda and threats, then it will be amazing how quickly the Commissioners adopt a far more reasoned and conciliatory approach.

Ratepayers have their fate in their own hands. If they do nothing now then in years to come, when they have to start paying off the principal of a debt as high as $120 million, they will rue the day that they did not stand up for themselves.

(Thanks to John Dickie for the reference)


Kaipara desperately needs a little bit of wisdom at the moment. The commissioners are driving their freight train at full throttle down a no exit line and sooner or later there will be one almighty crash.

The commissioners were appointed to ensure that the ratepayers of the district were forced to pay the illegal debts incurred by council and that appears to be their major motivation, at least for some of them. They need to win this battle so that their CVs can show that they are successful "enforcers".

The problem is that they are way out of their depth, do not understand the ramifications of what they are doing, are taking massive risks, and their high speed train is heading for a crash.

Take the validation bill.

Ratepayers have made it perfectly clear that a validation bill of some sort will be needed at some stage. Council has created such a legal shambles that legislation is the only way to fix the problem. But wiser counsel says that this must not be rushed.

There is no point in rushing through a bill until ALL of the problems facing the KDC have been identified and some resolution agreed upon.

Within the next few months the Auditor-General will release the report on the EcoCare disaster. Likewise there will be the High Court decision on the judicial review application. Both of these may have outcomes that substantially change the legal situation of the KDC and will have to be factored into any validation bill.

Why not wait until those issues are resolved?

What the commissioners do not realise is that they have only one shot at validation and if they get it wrong they are in total legal limbo.

Rule 261 of Parliament's Standing Orders states:

The following may not be proposed in the same calendar year:

(a) a bill that is the same in substance as a bill that received, or was defeated on, a first, second or third reading:

So once a bill goes through its first reading and is subsequently defeated or withdrawn then it cannot be proposed again until the following calendar year.

The commissioner therefore have to be absolutely certain that they have got it right otherwise there is a long wait before they can have a second bite at the cherry. And if they do have a second bite further down the track they can expect a very luke-warm response from MPs who would be expected, yet again, to rescue the KDC and sanitize the incompetence of Dargaville.

That alone makes proceeding with the validation bill at this stage a massive risk to take. But the risk is even greater when you consider that ratepayers will fight it tooth and nail through every step of the process, that the government has a meagre majority in the house, and that could be at risk because of the fundamental principles of democracy and governance and the rule of law that are at stake.

It is the same with the commissioners' opposition to the judicial review. Most of the decisions being challenged as illegal have already been acknowledged as being illegal by the council. So why bother to dispute that, at a massive cost to the ratepayers?

Council has already acknowledged that it breached the law by failing to consult on the EcoCare scheme and the EcoCare debt. The only issue outstanding is whether ratepayers are responsible for a debt illegally incurred by the Council.

It is an important point of law that has to be decided and the commissioners should cut the war cries and the war dance and concentrate on the one real issue.

The commissioners have expressed concern that they are obliged to fight the case because it could establish a dangerous legal precedent. They are absolutely right. It could explain once and for all the obligations of ratepayers in respect of rates. But that is not dangerous. It is a simple clarification of the law which everyone should welcome.  It is only dangerous if you have a vested interest in a system where ratepayers have to pay for all the follies of a council.

The commissioners could put it all to bed by reaching an accord with ratepayers on the legality of the debt and then reaching an agreement on the contents of a validation bill and on other remedial actions.

The whole shebang could be back on the road again in no time.

But one suspects that the current commissioners do not have the wherewithal to change tack, to adopt a new paradigm, or to resolve problems cooperatively. I suspect that it will be "All aboard!" on the express train, whistles blowing, and full speed ahead.

Just wait for the crash.

Many ratepayers have pointed out the misleading financial information in the draft annual plan (DAP). The true debt of Council is seriously misstated and the projected income for the future is based on sheer fantasy.

The commissioners were forced to admit to a meeting in Mangawhai that the debt in the DAP accounts only refers to external debt which is debt owed to outside third parties like banks.

That in itself is not true because the figure does not include debts that have been acknowledged as owing to ratepayers for $17.3 million dollars, for illegal rates collected, and a further unknown sum for illegal development contributions.

But the smoke and mirrors really come in when it comes to internal debt.

Internal debt is consists of monies held in separate accounts for special purposes that have been appropriated by Council for general purposes.

Such a procedure is perfectly acceptable in a council provided that is financially healthy. It makes sense to borrow the monies at a lower interest rate internally than on the open market. But only if the council is capable of refunding the money when it becomes necessary.

In old fashioned terms it is like taking the rent money to pay for the groceries. Fine if you can pay it back, but a disaster if rent day comes around and there is no money in the rent kitty.

The other matter is governance. If you are going to use monies held in trust for another purpose then it is vital that the transaction follows the correct procedure and is appropriately documented, and that the beneficiaries of that trust - the ratepayers - are advised of what is happening. The interest rate, which should be fair, must also be disclosed.

This Council fails dismally on every count. Its finances are in such a parlous state that it cannot meet its liabilities out of income, cannot repay the borrowings, and its transparency and governance are appalling.

Ask Chief Executive Steve Ruru about internal borrowing, or what happened to the Reserves fund or the Mangawhai Endowment fund, and he gets the "startled rabbit" look and starts talking Braille.

The decision to refuse funding from the reserve funds to the Mangawhai Activity Zone Charitable Trust, reported in a Kaipara Lifestyler article, has exposed the ineptness and dishonesty of Council's policies.

The monies for the Activity Zone were to come form the reserves fund

The reserve contribution fund consists of cash contributions from development resource consents, and is applied solely for the development or upgrading of reserves and public spaces. The fund currently stands at more than $4 million, of which $155,000 was received this financial year.

Bucket loads of money, so what's the problem? Commissioner Colin Dale gives a hint:

Commissioner Colin Dale questioned how the grant might affect council’s ability to fund the MRRA defence and still maintain the current cap on debt.

Reading between the lines, the $4 million is only on paper. There are actually no monies in the fund. It has been filched by Council for other purposes. But much worse, Council is unable to pay it out of its operating income and needs to borrow the whole amount. But it can't do that because it is way over its prudent debt limits and has placed a cap on all further debt.

Steve Ruru is more forthright:

Council CEO, Steve Ruru, says that although the fund is separate from rating income and council had previously budgeted to disburse $267,000 of it this year, the cash balance is used to reduce external borrowing. “From a cash perspective we would need to increase our level of external borrowing to fund the grant.”

This confirms three things:

• Council under the commissioners is till running the piggy bank accounting system that caused so many problems under the McKerchar/Tiller/Geange regime.

• Transparency is non-existent.

• Council is not a "going concern" because it cannot meet its liabilities out of income.

The last point is of major concern. In spite of the gung-ho attitude of the commissioners this Council is over its head in debt and simply cannot meet its commitments.

It has dramatically overstated its projected income by truckloads in the DAP whilst promising minimal rate increases in future years. That is to suck ratepayers in and keep the banks and the government happy.

It can fudge the figures but it can't fudge reality. The reality is that the KDC cannot cope with its true debt on the basis that it is set out in the DAP. If it was honest in the assessment of its debts and its future projections of income then it would have to concede that, because of an unsupportable debt, Kaipara cannot continue to function as a local authority.

The only way out is massive increase in rates for generations to cover the loan repayments, and capital repayments. The only other alternative is to raise more debt and increase rates to pay it off over even more generations.

Both of those alternative would destroy Kaipara and the people living there. It would become a ghetto.

If this Council continues on its current track then Kaipara is doomed. It may fold this year, it may be next year, but fold it will. The commissioners are beleaguered in their bunker in Dargaville totally out of touch with the people and trying desperately to convince the world that their crumbling little empire can survive.

Better to face up to reality now, get some transparency and honesty into the situation, a clinical and independent assessment of the true financial status, and work out how the Kaipara shambles is to be resolved.

It would take a bold step by the government to force this solution on the Council. But far better to do that now whilst Kaipara is still salvageable rather than letting the commissioners incur more and more debt, and totally destroy the reputation of Kaipara, by trying to impose their will on the ratepayers of the district both in court and in parliament.

The government needs to step in and stop the madness now.

The commissioners are feeling the pressure. In an attempt to justify their dictatorial, unilateral moves to validate the gross incompetence of the past and to stop ratepayers getting the justice they deserve in the High Court, they are digging themselves into a bigger hole with their ridiculous scare-mongering tactics.

To frighten ratepayers we have had the spectre raised of the possibility of a $500,000 defence of the MRRA judicial review.

Last week we saw the Mangawhai Activities Zone being dealt to by the commissioners in a pique of infantile retaliation against the citizens of Mangawhai.

Now the spin machine is in full swing with the issue of another press release stating that the validation bill will not stop the commissioners taking legal action against those responsible for the legal and financial shambles.

And pigs might fly.

The commissioners do not have the slightest intention of taking action against anyone. They have been in office for nine months and have done absolutely nothing to pursue any of the responsible parties. They intimate that they are waiting for the report from the Auditor-General, but they already have that report and know exactly what it says.

John Robertson is reported as making the earth-shaking statement that Council "was keeping its options open".

The truth is that while they can railroad the ratepayers into footing the bill for all Council's incompetence and illegalities, they are not going to look at pursuing any other parties.

The only way that they will ever consider the liability of those who were truly responsible is if they are compelled to by a decision of the court. If the court decides that ratepayers are not responsible for debts incurred by a council outside its legal authority then the commissioners will be forced to pursue the real culprits.

That is why the MRRA legal action is so important, and that is why Robertson and Co are panicking and doing all that they can to block access to the court.

Heaven forbid, if the ratepayers get off the hook the commissioners might have to look at taking legal action against the likes of the OAG, Audit NZ, past Councillors and staff, and all the other suspects.

Financial Analyst Larry Mitchell, who wrote a couple of reports for Council a few years ago, has written a paper called Councils in schtook. It can be viewed in full here.

He highlights the deceptiveness of local authorities financial practices:

Discussions of Council debt are often compounded by current Council practices. These amount to opaque, imprecise Council debt accounting and “smoke and mirrors” disclosures. It is tempting to suggest that these are deliberate attempts to suppress discussion of Council debt on a “don’t scare the horses” basis

He highlights a problem that ratepayers have with the Council:

This is particularly evident for use of the term by Councils of “Internal Borrowing”, a meaningless label, better described as “Robbing Peter”, covering as it does Council treasury management dealings involving a clear misuse, (some might say misappropriation) of asset replacement funds.

Ratepayers still have no clear answer from Council about the Mangawhai Endowment Fund. You will search in vain for it in any of the financial accounts.

Add to these sleights of hand a motivation for the more highly indebted Councils is to keep their heads down when their debt totals soar, along with a tendency toward misinformation.

That all sounds very familiar.

Councils invariably discourage full, plain English disclosure of their challenging debt circumstances eschewing useful inter-Council comparisons of debt levels. The sketchy information supplied rarely “encourages” or promotes a balanced debate of prudent and sustainable levels of debt

What’s more, in the most egregious cases, Councils taking on excess levels of debt play fast and loose. With the tacit approval and unremarked by their auditors, Councils show a breath-taking lack of process and accountability such as when they respond to a breach of previously imposed prudential debt limits. Without batting an eyelid they merely move the goalposts and increase their debt limits.

The Kaipara Council in its heyday of reckless illegalities simply ignored its debt limits. I suspect that it had no idea what they were.

Likewise all the rules of segmented debt relating to EcoCare that were set out in the 2006/16 LTP with such precision, to protect the best interests of ratepayers, were all broken and shattered in the scramble to pump up the EcoCare price, without any consideration of them.

Accountability? None. The total failure to comply was ignored and never mentioned. No one was held responsible.

The auditor - the OAG and Audit New Zealand? Nothing. Why? Because the Council kept EcoCare out of its books for several years and the auditor failed to notice. That's right, the auditor did not notice that the biggest undertaking in Council's history was not in the books.

That could be a case study for trainee auditors: the elephant in the books that the auditor overlooked.

The paper then points the finger at the financial accounts of the KDC in the current DAP

Most of the case studies are merely vexatious but one recent high profile example is not. It is a worst case cautionary tale sub-titled “A good Little Council gone bad”. The recent audited financial statements of the Kaipara District Council display most of the deficiencies of debt disclosure already discussed. The Kaipara case appears to be one where they have failed to disclose material amounts of debt attached to the Mangawhai wastewater scheme.

That is why the DAP is a sham. The Council deliberately understates the debt and overstates the projected income for the future to make it look as if it is a going concern.

The financial accounts of the previous Council have been exposed as incompetent and misleading. Ratepayers can see little that has changed with the arrival of the commissioners.

And that is the very reason why ratepayers need to dig their toes in and demand an independent examination of the financial status of Council.

If experts like Larry Mitchell think there is serious cause for concern, then there must be.

The commissioners have not let up on their aggressive approach to ratepayers.

Given the task of protecting the interests of the banks they have adopted a sterner tone in their letters to striking ratepayers.

They are now threatening legal action against those who do not cough up the illegal rates within 14 days.

This new approach is utterly deplorable given that the commissioners have formally acknowledged that the rates are illegal and are going cap in hand to parliament to have the rates retroactively validated.

To suggest that they have the power to pursue legal actions for a debt that they acknowledge is illegal is risible.

The fact that the matter is before the courts by way of the judicial review proceedings make the commissioners' new strategy even more reprehensible.

John Robertson's unctuous smile with the bully-boy follow-up is not working and he is alienating ratepayers throughout the district. He is doing immeasurable damage to the relations between Council and ratepayers and making his own position as chair of commissioners untenable.

He also has to be careful about the threats of issuing proceedings against ratepayers.

The Commerce Commission is very tough on entities that misrepresent the legal powers that they have in enforcing debts. John Robertson and his crew are pushing that limit threatening court action when they know that the court would not entertain such an action. This could well be in breach of the Fair Trading Act.

The commissioners can't have their cake and eat it. Having accepted that the rates are invalid by including them in a validation bill they now have to live with that and wait until the court or parliament makes a decision one way or another. In the meantime they have no legal right to collect rates.

Ratepayers should advise Council that they are refusing to pay any further rates until the legal situation as to the validity of the rates and Council's legal status (it is operating without a valid LTP on its own admission) is clarified.

The matter is before the court. Let the court decide.

The Kaipara commissioners must be feeling rather unloved. The MRRA has had enough of their propaganda and the lack of transparency and has filed legal proceedings against them, the Minister has no doubt rapped them over the knuckles for not doing their jobs properly, their insane validation bill looks as if it will stumble at the first fence, and now the ratepayers in Kaiwaka have really got the pip with them

In the Kaiwaka Bugle the editor Anna J reports (here) on a public meeting with the commissioners in the township on 25 March. She comments;

I have never sat through such a condescending and patronising event in my life!

She questioned the commissioners at the meeting on how last year's 20 per cent rate rise for across the district ended up as 34-48 per cent rise in Kaiwaka and whether the same would happen again with the projected 9.3 pr cent rise for this year. She got no satisfactory answer.

But the biggest bungle by the commissioners was their response to queries about terminating the lease for the KDC offices in Kaiwaka and moving to Mangawhai.

The commissioners explained to the meeting that the move was precipitated because the current landlord was asking too much rent for the existing premises. A report to Council dated 5 March 2013 from John Burt, General Manger Operations, stated that "negotiations for a new lease have broken down".

The problem is that this was not actually true, as the current landlord was only too glad to point out at the meeting. It appears that there was no negotiation over the new lease.

The editor then goes on to say:

It just proved to me and, I‘m sure, anyone else sitting there listening to these jokers, that they are indeed experts in pulling the wool over our eyes.

Nothing changes: Commissioners and Council treat us like mushrooms, ie: keep us in the dark and feed us on sheep dodo. Haven‘t we had enough of that from the previous council?

Greg Gent's Review Team were quite adamant that the commisioners would need to develop a plan to connect and rebuild trust with the communities of Kaipara

The review team also commented:

It is arguable that no solutions to any of the Council’s problems, regardless of how technically sound they are, will be tenable unless there is buy in from the community.

The commissioners have failed miserably to comply with those recommendations and the terms of reference set by the Minister. As a result there has been no "buy-in" from the community. They have merely perpetuated the problems that ratepayers had under the old Council.

The Kaiwaka meeting is a perfect illustration of that.

The commissioners and the Minister need to reassess the situation and see whether a totally new approach would not be more productive. Ratepayers still want a cooperative solution to the problems of Kaipara but it needs a radical change in attitude from the commissioners and the Minister if that is going to happen.

Chair of commissioners John Robertson has a dedicated question and answer session in the latest Mangawhai Focus where he is given free rein to present his spin.

He starts by stating that there have been a lot of innuendos and incorrect statements in letters to the editor of that newspaper. He then goes on to counter these with his own innuendo and incorrect statements.

He poses his own questions and then answers them. A lot of what he says is complete nonsense, the same old spin, that does not deserve a response. However, I will take issue on one particular point. He starts by stating that the Council is not insolvent or bankrupt.

The truth of the matter is that the commissioners are doing everything that they can to misrepresent the financial status of Council. They do this in several ways.

Misrepresent the debt
First they minimise the debts by clever sleight of hand. They were caught out at the meeting at Mangawhai when they were forced to explain that the "debt " that they talk of is only external debt and does not include internal debt, meaning the millions that they have filched from the Mangawhai Endowment Fund and the Reserves Fund, and which they will have to repay.

Even the external debt is misrepresented. The Council acknowledges that it owes $17.3 million in rates that it illegally collected from ratepayers. There is also an unknown amount in development contributions that were collected illegally, but no doubt running into several millions.

Council has cleverly announced the filing of an application to validate this illegality prior to the DAP being released so that it can exclude this liability from the balance sheet on the basis that the validation bill will extinguish the debt.

It cannot do that. The validation bill will almost certainly stumble in parliament. It is poorly drafted, riddled with errors, and attempts to mislead parliament.

But perhaps more relevant is the fact that in the judicial review proceedings filed by the MRRA, the court is asked to declare the rates invalid and order the repayment of the $17.3 million, plus the illegal development contributions.

The court application is also applying for the current year's rates to be declared illegal and refunded on the basis that the current LTP is, on Council's own admission, invalid.

If all of these liabilities are added to the acknowledged debt then the TOTAL DEBT owing by Council looks to be somewhere between $110-120 million, not the $80 million acknowledged

Misrepresent income
The financial models for EcoCare prepared many years ago were quite simply rubbish. They were prepared at great expense by professionals, were highly criticised at the time, and have proved to be nothing but a fantasy.

That is a problem with the EcoCare rort: its financial basis cannot be explained or justified in any way, so those promoting it are obliged to resort to duplicity and fantasyland.

That is exactly what the commissioners have done in the DAP. I have already pointed out in an earlier article (Treatment of EcoCare debt - here) how a large proportion of the debt is allocated to future development and is to be funded by development contributions in the future.

The only problem is that the income from development contributions is a mere dribble and does not and will not come within cooey of meeting those targets.

Not only that, the government is in the process of deciding whether to continue with development contributions or not.

Whatever happens, there is never going to be sufficient monies to cover the liabilities without turning again to ratepayers to pay for the shortfall - yet again.

Sooner or later John Key and his government is going to have to accept the inevitable, and that is that. regardless of illegalities and wrongdoings, the Kaipara debt is simply too big for the people of Kaipara to pay.

The Council also conveniently overlooks the fact that there is a shortfall of several million dollars in the rate take because of the rate strike, and this will continue to grow with the Council's acknowledgement in the validation bill that the current LTP and rates are also invalid.

Then there is the whole question of the findings off the OAG inquiry which may impact hugely on the Council's finances.

The new spanner in the works is, of course, the judicial review application. The court is being asked to declare that the EcoCare debt is illegal and is not the responsibility of ratepayers. If the court agrees with that claim then Council is well and truly up the creek financially with nary a paddle in sight.

Insolvent or bankrupt are not really appropriate words to apply to a local authority, although they convey the message that is intended. The legal test the Council has to satisfy is the going concern test supposedly applied by the OAG: Can the Council meet its liabilities out of income in the foreseeable future?

Any independent accountant would answer that question with a resounding "No ".

At present the banks are standing firm publicly, but behind the scenes things must be all aflutter.

How long before they pull the plug?

The Cyprus financial crisis has dominated the news for the past few days. The Greek government proposed to "tax" monies held by citizens in bank accounts to pay for its own financial incompetence.

There has been some conjecture that New Zealand is heading in the same direction with the OBR (open bank resolution) being proposed by the government, whereby bank depositors would lose some of their monies deposited with a bank if there was a financial crisis.

Kiwis are affronted to think that something like Cyprus could happen here and that their savings could be "taxed" by the banks with government approval.

But what people do not realise is that we already have a situation far worse than what is happening in Cyprus.

Imagine for the moment that the Kaipara Council is the Cypriot government. It cons the people into believing that it is going to build a $34 million sewerage plant that is guaranteed to have no cost overruns.

Having secured all the necessary consents, it then secretly and illegally doubles the size and the cost of the scheme. More than that, it goes on a reckless spending spree and spends over $65 million on a sewerage plant that is subsequently valued generously at only half that amount.

One would immediately think that when such a scam was discovered there would be absolute outrage; there would be an independent inquiry as to how such a dreadful breach of the law and public trust was allowed to happen; there would be forensic examination of every cent that was spent to see who was improperly benefited; and, it would only be natural, that those responsible would be identified and brought to justice.

Not so in New Zealand in 2013. An inquiry? Yes. But carried out by the government watchdog that totally ignored the illegality and wrongdoing over many years. And an inquiry that has so far taken 13 months with nothing to show.

Forensic examination to see where the monies went? Nothing at all. The curtains have been drawn and the doors closed on the financial irregularities.

As for accountability and liability for those responsible, no such luck. The Council that was responsible for the scam is still in power, with government appointees running it, with strict instructions to move forward and not to look back. Accountability and legal liability for the perpetrators of the scam are to be shunned.

However the government and the Council have come up with a scheme to pay the debt. The main aim is to ensure that the banks - who knowingly risked their monies in this rort - are fully repaid. The local ratepayers - the only innocent party in the whole scam - are going to be "taxed" with a special rate levied by the Council, and enforced by the government, whereby they become solely responsible for the illegal spending, and the repayment of the debt to the bank.

Ratepayers have already paid the their share of the capital of the plant under the original agreement with Council. But now they have to pay for all the additional monies that disappeared and ended up in the pockets of those who were parties to the scam.

No one knows how much will be required, but each year, for many years, a new "tax" will be levied on ratepayers until the banks are fully reimbursed.

Pretty dreadful when you look at it like that. If such a thing happened in Greece or Cyprus we would all be appalled.

But here it is happening in New Zealand under our very noses.

Kalimera, Kaipara.

("Good morning, Kaipara" in Greek)

This post relates to clause 9 of the Preamble to the draft validation bill. The full draft validation bill can be seen here.

For convenience clause 9 is set out in full below:

(9) With respect to the Mangawhai EcoCare Wastewater Treatment Scheme –

(a) on 22 February 2006, the Council resolved to adopt the Mangawhai EcoCare Wastewater Treatment Scheme Statement of Proposal for release as contained in the Schedules of the Draft Long-term Council Community Plan 2006-2016; and

(b) on 7 June 2006 the Council resolved to adopt the Long-term Council Community Plan 2006-2016 which provided for the Mangawhai EcoCare Sewerage Scheme; and

(c) on 25 October 2006, the Council considered a report that provided full details of the proposed Mangawhai EcoCare Sewerage Scheme, its capital costs and its funding regime, and set out a scope change that would double the scope of the Scheme; and

(d) on 25 October 2006, the Council resolved that the report and the actions contained therein be adopted:

Note that it is a requirement of section 97 LGA that a local authority consults with the ratepayers via a statement of proposal (SOP) BEFORE agreeing to or signing any contract for a significant undertaking like EcoCare.

I make the following points:

1. The Preamble recites the defects in all of the funding impact statements and rates resolutions in the relevant years. There appears to be no reason or relevance for clause 9 to be present.

2. Note that clause 9 commences with the adoption of an SOP in February 2006. This is not correct. It completely omits the Project Deed and the financial facility documents that were signed on 26 October 2005.

3. Sub clauses 9 (b), (c) and (d) show a sequence that suggests that the KDC adopted the LTCCP (now called an LTP) incorporating the SOP in June 2006 and then adopted the proposals for the EcoCare scheme and its financing in October 2006. The sequence appears to suggest that the KDC complied with its legal obligation to adopt an SOP prior to adopting any EcoCare proposals and finance.

However, that is completely misleading. The SOP that was adopted in June had nothing to do with the EcoCare proposals adopted in October.

The SOP that was issued in February 2006 and adopted in June 2006 related to the original EcoCare Project Deed agreement signed in October 2005, the document that was omitted from the sequence.

That SOP should have been adopted BEFORE the original Project Deed was signed in October 2005.

So what of the SOP for the EcoCare proposals adopted in October 2006?

A new SOP was required because the scope of the scheme and the cost was almost doubled from the original Project Deed. The KDC failed to issue one.

4. One can only presume the original Project Deed of October 2005 was omitted, and the sequence presented as it is in the Preamble, so that those reading it would be led to believe that the KDC had complied with its legal obligations to adopt an SOP (and thereby consult with ratepayers) prior to adopting any contract of financial arrangements.

The reality is that the KDC adopted the SOP for the original Project Deed after the deed was signed. This makes that Project Deed invalid. In respect of the second proposals - the only ones mentioned in these clauses of the Preamble - there was no SOP either before or after. So these proposals were also invalid.

The misrepresentation of the true sequence of events appears to be so blatant that ratepayers have to ask if those responsible for the drafting of the bill were deliberately intending to mislead parliament.

I have put this accusation to the commissioners and have yet to receive a response.

Chair of commissioners John Robertson has been adamant that the draft validation bill does not include any validation of the illegal decisions in respect of the EcoCare contract and the EcoCare loans.

He is at pains to point out that those are totally separate matters and the commissioners will await the findings of the OAG inquiry.

Seems pretty clear, and he is a man to be trusted.

Or is he?

Readers are invited to take a look at clause 10 of the Preamble to the bill:

(10) With respect to the Mangawhai EcoCare Sewerage Scheme, -

(a) the Council subsequently borrowed $57,978,000.00 to fund the capital costs of the Scheme; and

(b) it is acknowledged that section 117 of the Local Government Act 2002 applies to those borrowings such that they are protected transactions and remain valid and enforceable:

I have challenged John Robertson on this clause which appears to contradict his oft repeated comments. His response is:

Your insinuation is incorrect. In such a Bill, the Preamble that you have drawn from records the background facts. It is not the operative part of the Bill. In this context, paragraph 10(b) acknowledges the effect of section 117 of the LGA 2002. It does not purport to, and does not, validate anything. There is nothing in the operative provisions (sections 1 to 15) which validates decisions made in 2006.

Interesting. It is true that the statement is included in the Preamble, and there is no attempt to validate the debt in the operative part of the bill.

But, the Preamble is a statement of the relevant background events that explain the context of the rating errors. Clauses 9 an 10 are completely irrelevant to the sequence of events relating to the setting of rates. So why were they included?

And, clause 10(b) is not a simple recital of a relevant event, it is a clear statement of the legal status of the debt. Why would an acknowledgement of the legal status of the debt be included in the Preamble?

What the commissioners have done is pretty crafty. Certainly they are not purporting to validate the debt. There is no need. What they have done is to deftly introduce into the preamble a clear statement that the debt is acknowledged to be valid and enforceable (so no need for validation), so that becomes the underlying basis on which the whole validation process is based.

When we come to challenge the validity of the debt in the future the commissioners will be able to point to an Act of Parliament (which is what the bill will become) which acknowledges absolutely clearly and unequivocally that the EcoCare debt is valid and enforceable.

The bill will effectively confirm the validity of the EcoCare debt rather than validate it.

Clever stuff.

Many of us have suspected the motivation and competence of the commissioners from the start. Others saw their hollow, obsequious performance at the recent meetings with ratepayers and came to the same conclusion.

We all suspect that they are in power for one purpose only and that is to extract the last cent out of the people of Kaipara for the benefit of the banks and to protect at all costs the crumbling local government fantasy of John Key and his government.

Our worst fears have now been confirmed. The draft validation bill, which is designed to validate all the wrongs and illegalities committed by this utterly incompetent Council, has been released and can be viewed here.

For the ratepayers of Kaipara this is a bridge too far. This is one of the most shameful documents that has ever cast its shadow over the principles of fairness, transparency, legal compliance and the rule of law in New Zealand.

It is a disgrace to the National Party that has promoted the document - sight unseen - and it will be a sad reflection of the state of New Zealand's national integrity if parliament allows this travesty to proceed.

The bill itself is completely unintelligible. The illegal rates and other decisions that the bill seeks to validate were completely unintelligible in the first place, and to try and explain why they are illegal becomes a mission in verbal contortion.

All the average ratepayer will see is 30 pages of mumbo jumbo which means absolutely nothing to them.

That's what makes my blood boil.

The utterly incompetent, arrogant half-wits who were responsible for the illegalities were part of a dynasty of total incompetence and left a trail of illegalities that defy belief and totally ignored virtually every requirement of the law.

But more than that they denied ratepayers their legal right to be consulted on the rates because they were unintelligible, because they were omitted from documents, or simply because the rates were imposed totally outside the law and no consultation was allowed.

But now the apologists for this debacle, like Mike Sabin the local National MP who has sponsored the bill, are now telling the people that this validation procedure gives them the opportunity to voice their concerns.

Get off the grass, Mike. Do you really believe that ratepayers will be able to understand the bill and make appropriate submissions? Do you understand any part of the bill yourself?

Not only were ratepayers denied their rights when the illegalities were being perpetrated, but they are now denied any rights again in the validation process.

It has been said many times that EcoCare is a big Ponzi scheme. The Council was captured by consultants and contractors, and they took ratepayers for a ride. They misled them about the costs of the scheme and went on a reckless spending spree totally outside the law.

The day of judgment has now arrived, and instead of the guilty parties being made to face the music the government has stepped in, is validating all the illegalities and forcing the innocent ratepayers to pay again, and again, and again for the sheer banditry of others.

In a normal Ponzi scheme new investors are sucked in to payout the prior investors. In the Kaipara version the government forces ratepayers to keep paying over and over again.

All so the banks can get their pound of flesh, and the ratepayers are forced to accept their designated role as funders of all the excesses, illegalities and incompetence of local government in New Zealand.

More details on the contents of the bill later.

In a surprise move the commissioners have decided to include the current LTP and the current year's rates in the validation bill that they believe will validate 6 years of incompetence and total disregard for the law.

The details can be seen here.

This is quite incredible as the commissioners have been arguing black and blue that the 2012/22 LTP and the 2012/13 rates are valid, and that they have legal opinions to support their stance. They completely rejected the barrister's opinion obtained by the MRRA to the effect that the rates and LTP are invalid.

This total about-turn shows that they were completely wrong and have had to eat humble pie. They now are clearly of the view that both the LTP and the current year's rates are invalid. Otherwise there would be no need to include them in the validation proposals.

This is a complete vindication of the view of the MRRA and all those who challenged the validity of the plan and the rates.

It is also a kick up the back-side for the Department of Internal Affairs whose arrogant and unprincipled behaviour in a this drama has been a complete eye-opener to taxpayers.

Note that Honest John Robertson has not come clean on the matter. No discussions with ratepayers about the matter. No advice to ratepayers about the matter. Those of us who should have been consulted have only found out, yet again, through a Press Release. This appears to be the way the commissioners now consult with ratepayers - by issuing edicts, very much like Papal Bulls.

Even those thick-skinned souls who believe the commissioners are sent from Heaven must be starting to doubt the honesty and sincerity of these guys, and wondering where all this is leading.

That will become only too apparent when the new rates are released in the draft annual plan later this month.

But the admission that the current LTP as well as the current rates are all invalid is excellent news. It means that the Council is, by its own admission, now operating outside the law with no valid LTP. This means that it has no power to operate as a local authority in New Zealand because its powers are derived from an operative LTP.

There is also a clear admission that the rates for the current year are invalid. This means that Council has no right to collect those rates and cannot enforce the collection of those rates in a court of law.


The fact that Council is talking about validating all the illegalities means absolutely nothing. If pigs could fly and the validation process gets under way, it could take several years before parliament passes the bill into law. Only then would the LTP and the rates be validated. Until then they are invalid.

Council has misjudged badly in opting for validating while spurning the cooperation of the ratepayers because it is entering into no man's land where it is obliged to acknowledge that the plan and the rates are invalid and will be unable to operate legally or collect any rates.

It also puts its debts in jeopardy because it has breached its loan covenants by not having a valid LTP, and operating illegally outside the law. The ANZ and the BNZ are taking huge risks in continuing to support a local authority that acknowledges that it is operating without a valid LTP.

Remember the Armageddon that Greg Gent threatened if Council did not adopt its LTP. Well he brought enough pressure to bear and the LTP was adopted. But sadly, for the banks, the Council has not been finally been forced to acknowledge that the LTP is invalid.

Welcome to Armageddon.

More hollow and ingratiating comments from Chief Commissioner John Robertson in the Dargaville and District News (here - you will need to subscribe) 

"You really do see from a public meeting the thirst for knowledge from people"

How right he is. Ratepayers are thirsting for the facts rather than the meaningless rubbish that he and his cohorts utter.

They want to know what happened in the past, and what the commissioners are doing about it, not airy fairy nonsense about "going forward".

They want to know why they as totally innocent parties should have to bear the illegal debts run up by a bunch of out of control cowboys acting outside the law.

They want to know who is responsible for the mess Council is in and how they are going to be dealt with it, and they want it NOW. They are not interested in vague promises of going back some vague time in the future.

They want honesty rather than glibness

They want to hear the truth about the financial situation, the amount of the true debt, and the crisis that we are in, rather than the contrived and misleading figures that Council has been producing for the past six years and is still doing.

And, at question and answer time they want answers to their important questions, not blank looks and then a "next please".

Once John Robertson starts, he finds it hard to stop:

"I've said at each of the meetings that we can fix the financial issues and fix the organisational issues but the toughest challenge is dealing with the past and the feeling of anger and grievance that exists."

Fixing the financial issues? The KDC is in financial crisis and the next couple of months will bring that to a head. The Council is drowned in debt and the only remedy that the commissioners have is to bury reality and keep dumping more and more on the ratepayers.

Fixing the organisational issues? Presumably this means the legal shambles that has been created. Peter Winder's pathetic, ad hoc, ill-judged attempt at validation is not going to get past GO. Council is operating illegally under an invalid LTP with current rates completely illegal. It is swamped with invalidity to the same extent that General Custer was swamped with Indians at the Little Big Horn. it does not have the understanding of the situation or the competence to fix the problems. Only the government, with the help of legal experts, has the power to put Humpty Dumpty together again.

The obsequious comments about the "anger and grievance" in the community speak for themselves. False sympathy resonates with insincerity. It is as if he is saying, while crushing ratepayers under his oppressive fiscal heel: "This is hurting me more than you."

Some advice, John. Don't waste your words on shallow, insincere blandishments. Simply take on board the reasons for the anger and grievance and DO something about it.

At the commissioner's Mangawhai meeting with ratepayers someone suggested that the $150,000 cost of validation should be met by those whose negligence caused the problems and therefore the need for validation.

The commissioners responded like stunned mullets. It appears to be beyond their comprehension that anyone but the ratepayers should be responsible for all the incompetence, negligence and illegalities of a local authority.

That is the mindset of anyone who works in local government for any length of time.

There is no doubt that the former Chief Executive and the Councillors who voted in favour of the illegalities were negligent. But it is equally clear that the Office of the Auditor-General, which was the KDC auditor, and that Office's agent, Audit New Zealand, also have blood on their hands.

Below is an article that I wrote some time ago about the failure of the OAG and its agent which remains very relevant and pinpoints the extent of the failure of the OAG and Audit New Zealand to audit the KDC appropriately.

One of the main reasons for the invalid rates that the Salter report identified was the errors in the funding impact statement (FIS). This is the document in the annual plan or LTP that tells ratepayers exactly what rates they are to pay, what categories of properties are to be rated, whether the rate is uniform or differential, and how the liability for the rate is to be determined.

Equally important is the fact that the FIS is the base document for the rates. When rates are set, or legally created, by the rates resolution then it must be in accordance with the FIS. The terms in the two documents must be consistent. If they are not the rates are quite simply invalid.

The Office of the Auditor-General provides a reference check document for Audit NZ to guide auditors examining documents. The guide for the LTP deals with the FIS and sets out all the individual requirements in far more detailed format than I have set out above. It then includes the following warning:

The FIS is one of the prerequisite information requirements for a rate to be lawfully set. If a rate and how liability for the rate is to be calculated has not been set out in the FIS the rate may not be lawful. Therefore Auditors need to ensure that all the information requirements are met with a coherent overall presentation in the FIS.

Kaipara's FIS for EcoCare for all four years is an incomprehensible mess. It is totally confused and conflicting. It uses terms which are not appropriate for rating. It fails to indicate which rate it is referring to and refers to the same rate by different names. It fails to identify the categories of properties to be targeted, and the basis of liability for the rates.

It also conflicts with the terms of the rates resolution.

In short it is an abomination. And yet for four years Audit NZ, even with a check sheet and a stark warning, failed to pick up the fact that the FIS was totally defective.

It needs to be said that in the years from 2006 to 2012 there were twenty full pages of errors in the funding impact statements and the rates resolutions, and not one of them was picked up by Audit New Zealand.

Ratepayers need to ask themselves why they are paying the bill to remedy these errors when the commissioners should be issuing legal proceedings against the OAG and Audit New Zealand for negligence. The matter would be settled out of court in a trice.

Legal Eagle attended a sometimes fiery meeting with KDC commissioners in Mangawhai this morning. John Robertson started a very smooth presentation with all the skill of a snake-oil salesman. He speaks from a script that is short on substance and big on smoke and mirrors.

Illegal rates
He got into trouble when he blandly announced that all the errors being validated by the private bill are technical errors, and the rates were otherwise due and payable.

He clearly believed his own rhetoric and appears to endorse the adage that if you tell a lie long enough then it will become true.

Some of the errors could possibly be classed as "technical" if you want to stretch and distort that word. For each illegal rate there are about a dozen matters of non-compliance with the law, and at times it is impossible to tell which rate is being referred to and what the provision is supposed to mean. Some provisions are complete gobbledegook.

In several instances one of the rates was completely omitted from the funding impact statement. There was actually no provision for the rate. It wasn't described wrongly or any such technical error. It was totally omitted.

I can understand validation being used where there was some technical error in describing a rate, but the wholesale failure to include the rate means that there is nothing to validate.

There are undoubtedly some rates that could be said to be due and payable, if only the Council had been able to comply with the legislation and do its job properly. However, there are some rates that were charged that were a complete abuse of the powers of a local authority.

Steve Ruru the Chief Executive is well aware that the rates for the first two years of EcoCare were completely outside Council's power because the scheme was not up and running at 1 July in both those years as required by the Rating Act.

Such errors are not technical errors. A Council does not have the power to set a rate in contravention of the Act and beyond its clearly stipulated powers. Such a rate cannot be validated.

Council has to refund those rates.

Steve Ruru said at the meeting that one of the rates in the first year was subsequently credited back to ratepayers. True. But alarmingly he stays silent on the fact that the other rate levied in that first year was not credited, nor were the two ultra vires rates in the following year. What is he trying to hide?

Likewise with the "unit of demand" levies that McKerchar and his henchman used to illegally extort monies out of ratepayers for second units on their properties. Along every step of the rating process McKerchar and co failed to describe the new rate, failed to comply with statutory requirements, and failed to consult with ratepayers. The so-called rate was never included in any of the rating documents and it was never adopted as part of the rating process. It was nothing more than an extortion racket with no legal basis whatsoever.

The dismal failure of the commissioners to accept this clear and simple truth, which both Steve Ruru, the Chief Executive, and Jonathan Salter, the KDC's lawyer, both acknowledge, and to bundle it into the validation package, illustrates more than anything the lack of good faith of the commissioners.

And, talking of good faith, we should not forget that the commissioners have also breached their terms of reference and the understanding with ratepayers, both of which obliged them to consult with ratepayers before deciding on how to deal with the illegal rates.

A couple of common sense questions that were posed but not answered:

First, the eminently sensible suggestion that those responsible for the incompetent setting of the rates should bear the costs of fixing them, left the commissioners looking like possums caught in a car's headlights.

Second, the logic behind the need for validation. We were told in no uncertain terms by the commissioners that rates are payable by ratepayers even though they may be invalid. We were also told that the validity of a rate cannot be challenged after six years.

So, if the illegal rates are valid and enforceable, why is it necessary to go through the validation process (and $150,000) to make them legal? And why not wait six years so that no one can challenge their validity?

It doesn't make any sense.

Perhaps the answer lies in the fact that that what the commissioners are saying is not correct. The commissioners have acknowledged that many of the rates for a six year period are legally defective. They also acknowledge that the rates assessment notices were all defective. The problem is that no court in the land is going to enforce an action to recover rates when Council cannot establish that the rates are due and payable. They would be laughed out of court.

The only way that they can ever recover those rates from those who have not paid them is to validate the rates. And that is why they are doing it.

The illegal debt
It was interesting to hear Steve Ruru acknowledge that Council had failed to consult with ratepayers when it doubled the size and cost of EcoCare in late 2006, and that in his view "they should have".

That is the essence of the problem. Council were obliged under the general provisions of the LGA to go through a decision-making and consultation process. But more than that. Because EcoCare was a significant matter and a strategic asset, Council was obliged to issue a statement of proposal (with ratepayer consultation) and amend the LTP before signing any contracts (section 97 LGA). Not only did it fail to do so beforehand, it did not do it afterwards, and in fact kept the whole matter secret for five years.

That was a deliberate deception that should land all those responsible in jail. And when I talk about those responsible it extends well beyond the then Chief Executive and Councillors, and includes all of the professionals and the bankers who were involved with the contracts.  They must have been aware that they were ignoring the very clear and precise requirements of the legislation. They all should have known that Council was acting illegally.

And while we are at it, we have to ask why the Auditor-General, who was not only the appointed auditor of the Council but also the principal local government watchdog, turned a blind eye to the fundamental breach of the LGA.

All those experts and the watchdog, and yet not one of them picked up this blatant breach of the law.

Resolving issues
One sensible person told the commissioners that they could not plan for the future until the concerns and hurt of the community had been dealt with.

Ratepayers are not going to be happy with commissioners who are effectively working for the government and the banks, and whose main ethos is that ratepayers are responsible for all the problems of Council and must foot the bill for the incompetence and negligence of others.

Any reasonable person will see that glossing over the past is never going to work. There should have been, and there still needs to be, two totally independent investigations. One into the legal situation of the KDC and the other to examine the financial situation.

The inquiry by the Auditor-General is an absolute farce. How can she hold an inquiry when everyone is pointing the finger at her Office and suggesting that it carries a major part of the responsibility for the KDC fiasco? Even Greg Gent's review team suggested strongly that the commissioners should instruct lawyers with a view to a claim against the OAG.

We need a receiver type person who brings in the forensic lawyers. Give them a month and the would have the answers to most of the questions. The OAG has almost celebrated the first anniversary of her inquiry. It is nothing short of shameful.

In respect of financial matters the commissioners showed themselves to be utterly inept. They spouted platitudes but knew little about the detail of the debt. They were totally at sea in responding to the community's concerns about the Endowment Funds and where they are and what interest is being paid. They almost looked like little boys caught with their hands in the cookie jar.

Draft Annual Plan
The new plan - due out next month - is going to include some huge amendments to the illegal LTP. Rates are going through a complete revamp. It looks as if all wastewater charges are going to be levied across the district on the same basis. Which means that other areas will be helping to foot the massive EcoCare debt. That is not going to be popular out West. There are also fantasies about reducing the debt dramatically after ten years.

One thing is absolutely clear. The new rates for the new rating year are going to absolutely destroy the district. Many complained today to the commissioners about the massive rate increases that they suffered this year, and how they could not afford them. There were comments about mortgagee sales. It all fell on stone-deaf ears.

These guys showed that they are not the slightest bit interested in affordability, the suffering of ratepayers, or the economic survival of the district. They are there to extract the last pound of flesh.

The draft annual plan is going to be a complete farce. The debt of Council, when the true figure (internal and external) is acknowledged, is clearly unsustainable for a district like Kaipara. There is simply no way that the Council can meet the going concern test. It will be interesting to see how the new auditor, Deloitte, faces up to the problem.

And it will be interesting to see how ratepayers respond. There were those at the meeting today who said that the commissioners should be trusted and that we should all pay our rates.

With respect to those people, I have seen very little to trust in the last six months. Seeing the commissioners in action today convinced me that they are totally out of their depth and are just doing sufficient to comply with their obligations to the Minister and the banks and ensure that ratepayers are held responsible for all the shenanigans.

Although they mouth vague, sweet words about looking into the past there is absolutely no way they are ever going to explore the liabilities of others. They believe absolutely in the liability of ratepayers and are never going to budge from that stance.

They do not care a fig about the people of Kaipara, and that will only become too apparent when the draft annual plan is released next month.

My advice to all is:

Brace yourself for the new lot of rates.

Don't pay you current rates bill. Withholding monies is the only power that we have over a Council that is operating outside the law, and refuses to face up to past issues.

On several occasions the auditor for the KDC has drawn Council's attention to matters that are highly critical in assessing whether Council meets the "going concern" test. Simply the test means that a council must be able to meet all of its day to day commitments out of income for the foreseeable future.

If Council does not satisfy the test then it cannot function as a local authority.

The ex Kaipara Councillors were obliged to confirm that the Council was a going concern prior to adopting the LTP last August, but only after considerable pressure (some would call it "undue pressure") was exerted on them by the banks and the government.  (Those who witnessed the scene at the final Council meeting were shocked at the ruthlessness of the agents of the banks and the government.)

Any independent expert would have condemned Council's flimsy justification of its going concern status as a fraudulent charade. In the LTP it understated its debts, ignored liabilities that have been swept under the carpet, and minimised factors that will have a fundamental effect on Council's financial viability.

It is only a matter of time before the duplicity of Council - and all those other parties involved in this pathetic charade - is fully exposed for what it is.

That has started happening in a dramatic way. One of the matters that is fundamental to Council being considered a going concern is Council's absolute reliance on development contributions being available in the future to fund the loans associated with the Mangawhai Community Wastewater Scheme.

This is what the KDC annual report of 2011/12 says about the matter:

Reliance on Development Contributions
The Long Term Plan includes an assumption on future development within the Mangawhai Community Wastewater Scheme drainage district (or area of service) to utilise the spare capacity that has been included within the Scheme. In total $26 million of the total cost of $62.4 million has been allocated against growth. It is understood that the major components of the Scheme have been built with the capacity needed to service another 2,500 lots. There is a need for Council to complete further work to understand the additional capital costs that might be needed in the medium to long term to ensure that all components of the Scheme are able to cope with this level of growth. These additional works are likely to be regarded as needed for growth and therefore be able to be funded through development

There are two important points here.

First, development contributions in the future are supposed to pay for just under half the capital costs of the scheme ($26 million).

Second, the scheme cannot reach its promised potential unless further capital costs (not quantified) are incurred. (You thought that the $62.4 million paid for the WHOLE scheme?)  These are also to be funded from future development contributions.

This of course is an absolute fiction. Council has killed off most development in the area and developers are not going to return to pay the high costs demanded by Council. Those figures will never be achieved.  They were conceived in GaGa land.

So, even as things stand at present, there is going to be a massive short-fall in capital contributions. To make up that short-fall then there will have to be more borrowing (if the banks will allow it), which means higher interest costs to be funded by ratepayers.

Or, ratepayers will be stung yet again  for further massive capital contributions. (Remember this is a Ponzi scheme which ratepayers are obliged to keep funding.)  Perhaps another $20,000 per property, on top of the $20,000 to be paid starting from 1 July this year, and on top of the first capital costs paid several years ago?

The whole strategy is totally unsupportable as it stands at present. However, the government has just made an announcement that will put a massive and fatal spanner in the works.

The Ministers of Housing and Local Government are concerned that development contributions are adding to the unaffordability of housing and have announced the introduction of a Development Contribution Review Discussion Paper to examine the role of development contributions in housing affordability (here).

There is little doubt that the outcome of the review will be a cap on development contributions.

This spells the death knell of Kaipara.

It can no longer rely on development contributions to fund the capital charges to anywhere near the extent that it fantasised about.

It cannot borrow any more monies because it is in hock above its head already.

And it cannot raise rates to cover the deficit because ratepayers will have long stopped paying all rates, and by then the government will have introduced a cap on rate increases.

Effectively this means that Kaipara can no longer meet the going concern test because it will not be able to meet its liabilities out of income in the foreseeable future.

At this point it is worth looking at the OAG's auditing standards (here) where It lists the going concern criteria.  In respect of a public entity it sets out the question that the auditor must ask:

Without government or other external assistance over and above that provided to fund normal operations (including the need to invoke statutory processes to amend an entity’s ability to levy or rate), and without significant curtailment of activities, will the entity be able to continue operating for at least one year (or for the foreseeable future) from the date of the approval of the financial statements?

Note that all external asistance is excluded, and, very importantly, the local authority cannot rely on statutory processess such as validation by local bill to amend the ability to levy rates.  The $13.7 million of illegal rates therefore has to go into the balance sheet as a debt.

With a massive reduction in development contributions on the cards, and without the ability to validate illegal rates, the KDC is up the proverbial creek without a paddle.  It does not come within cooey of being a going concern.

There is no way that Deloitte, the new auditor, will be able to sign off the draft annual plan to be released next month.  Council will cease to function, and the government will be forced to step in with a rescue package.

I suspect that the government and the banks are not going to stick around until the bitter end. I imagine that they are having urgent talks at the moment about how they are going to tackle this unprecedented situation.

Ratepayers should be prepared.  Do not pay and further rates into this bottomless pit.

Chair of commissioners, John Robertson, included a personal letter with the latest rate demand full of the misrepresentations and half-truths that we have come to expect from him.

The full text of the letter can be seen here.

Below are extracts from the letter with Legal Eagle's comments in blue.

Currently, Kaipara District Council’s debt stands at around $79 million. This year, for the first time in many years, debt is not projected to increase. While this level of Council debt is high relative to Kaipara’s size, it is manageable.

The debt figure does not take into account over $13 million of rates that will have to be refunded to ratepayers, plus an unknown amount for development contributions that have been illegally charged and that will have to be refunded. In addition it does not include monies that have been "borrowed" from ratepayers funds that are held on trust by Council. Estimates put the real debt at around $120 million.

Council's debt is not "manageable". Projections in the LTP are based on development contributions providing capital to repay a large part of the debt. Development contributions depend on development going ahead. That is not going to happen given the uncertainty and high development costs imposed by the Council. Any short-fall in development contributions will have to be met by more borrowing or making ratepayers pay even more.

The burden on ratepayers is unsustainable. The rates increases in the current year were unconscionable but they are nothing compared to the increases planned for the 2013/14 rating year. The new targeted capital charges of $20,000 per Mangawhai property will be introduced together with a huge increase across all rates. This means that ratepayers in Mangawhai will be paying an extra $2,000 per year at least. The whole rating system will collapse because ratepayers will simply be unable to pay.

The reality is that the Council cannot meet its liabilities out of income - and never will be able to do so - and is operating in breach of the "going concern" assumption. The only solution is a receivership type situation presided over by the government.

I have previously advised that the Government will not pay off Kaipara’s debt. I have since heard some people suggest that the banks should ‘forgive’ much of the debt. That is not going to happen

Ratepayers could equally state that they are not going to pay the debt. In the end, what the commissioners say is irrelevant. It is becoming more and more apparent that this matter will end up before the court and it will be the court that will decide who is responsible for the debt.

There are many suspects and the government is one. The government has failed completely in its obligations to ensure that citizens are provided with access to watchdogs or regulators to protect them from the excesses and abuse of the power that has been delegated from central government to local government agencies.

The government's indifference to legal compliance and the excesses of local authorities has created an environment where local authorities are free to flout the law without any fear of sanction.

The government may not willingly chip in to cover the debts but if the court deems that its agents have failed in their legal obligations then it may have no choice.

I will deal with the banks separately in another post. But a brief word on the former Chief Executive. As time goes on it is becoming clear that Council has a very arguable claim against him for breach of his duty of care. Why then are the commissioners dumping on innocent ratepayers and failing to pursue those who appear to be genuinely responsible for much of the legal and financial carnage?

Kaipara District Council incurred this debt. While a significant portion of the debt is a reflection of poor project management and budgeting from previous administrations going back some years, the major part of it was incurred to build assets and provide services. Commissioners share the disappointment and frustration of ratepayers who are now lumbered with the debt that relates to poor practices in the past. However, we need to deal with it and we are doing that.

This admission is only the tip of the iceberg of duplicity and incompetence. There is no mention of the fundamental dishonesty and illegality in hiding the true cost of EcoCare and the amount of the loans from ratepayers for over 5 years.

To suggest that the major part of the debt was used to build assets and provide services is totally misleading. A massive sum of money (yet to be truthfully ascertained) was spent to build a sewerage system that is only worth a fraction of what was spent on it.

The commissioners' crocodile tears at sharing the disappointment and frustration of ratepayers lumbered with the debt is hypocritical. They could not give a fat rat's.

They also fail to ask a simple question: Why, if they openly acknowledge poor practices in the past, do they think that the ratepayers should be lumbered with the debt? There are such things in law as negligence and the duty of care, and if there have been poor practices in the past then the commissioners should be nailing those responsible for them.

Rating irregularities
We also expect to make significant progress this year on resolving historical rating errors. A number of procedural or technical errors were made between 2006 and 2012 . The services the rates paid for were supplied but procedural errors were made when the rates were set.

This comment is simply untrue. The errors were not procedural or technical. They were a total abuse of the rating procedure set out in the Rating Act. Council and the Chief Executive had absolutely no idea what they were doing. When the errors were pointed out to them they simply ignored the advice and blundered on.

In an earlier statement John Robertson said the whole thing was a "dog's breakfast". That is much closer to the mark.

As for the services being supplied: In the first two years of EcoCare the Council levied rates even though the system was not up and running as at  1 July in each year. The Rating Act does not allow Councils to levy rates for services connected after that date.

Likewise, the unit of demand levies on outbuildings were completely outside the Rating Act. Council had no power to make such levies and the enforcement of this rate was nothing short of an extortion racket.

Commissioners believe very strongly that the historical rating errors need to be addressed in a way that allows past decisions to be opened up to full and independent public scrutiny. We need to shine a light on past mistakes in a very public way and ensure that the community is given the opportunity to have its say on how these issues should be addressed.

It is now over a year since the full details of Council's EcoCare subterfuge became public. However, neither the government, the Minister or the Council have taken any action to ensure that there is an independent examination of the financial and legal problems of Council. They have wasted all that time. The forensic boys should have been in there immediately after Jack McKerchar announced his resignation.

To suggest that the validation process through parliament will shine a light on past mistakes in a very public way is farcical. The validation process involves only a small proportion of Council's massive list of legal errors (and none of its financial cock-ups) so very few of them will get an airing. And for those that do get an airing - if the process is not abandoned - it will be a very brief and perfunctory one. And don't expect the select committee to visit a town near you. That is simply misleading. You will have to go to Wellington.

The non-payment of some rates has already impacted on projects around the District. In December, Council deferred some road rebuilding and wastewater work because Commissioners were not prepared to exceed forecast debt levels to pay for this work. We will not incur costs that take the District further into debt.

The rates have not been paid because Council has acknowledged that the rates were set illegally and that the rates assessment notices were invalid. This means that ratepayers have no legal liability to pay the rates.

Council has known of the allegations of invalidity for many years but has failed to take any action to resolve the situation. It finally acknowledged the illegality of the rates over a year ago (after the Salter report) but has still taken no remedial action.

The validation is a desperate, pie in the sky fantasy that will not get off the ground. It will simply transfer monies from ratepayers' pockets into those of the lawyers.

The important factor about these pleas to pay rates is to remember that the major part of all monies collected in rates goes to pay the interest on illegal debts. That is why there is no money left to pay for the basic requirements of Council, such as roading etc. If Council had not incurred the massive illegal debts then rates could be dramatically reduced and there would be plenty to meet all the obligations of Council.


In the Northern Advocate article mentioned above (see here), Chairman of commissioners John Robertson is reported as saying that the McKerchar settlement was made a year before commissioners were appointed and he had no idea why the Council had paid out Mr McKerchar, nor how they established what had been a sizeable amount to pay him.

"The previous elected members are accountable for the decisions that led up to the settlement, not the commissioners," he said.

That of course is completely untrue. The KDC is a continuum and carries on as the same local authority irrespective of whether it is run by the previous Councillors or the current commissioners. Any problems of the past are the problems of the present and future. And it is John Robertson's duty to sort out those problems.

Either John Robertson does not understand that or he is deliberately misrepresenting the situation. Whichever is correct it is absolutely shameful that a person in his position should make such irresponsible comments.

What it does show, however, is, what we have always thought, that the commissioners are not the slightest bit interested in any problems that existed prior to the commissioners taking office. They are there solely to protect the fragile edifice of local government, and to ensure that ratepayers pay every last cent of monies owing to the banks.

Illegal rates? Illegal LTP? Illegal development contributions? Illegal and ultra vires debts? Tens of millions of dollars squandered illegally? Forget them all. The commissioners are not interested.

Not only that, the fees payable to the commissioners are bleeding the Council dry and putting the Council further into debt. The new Minister needs to take a really hard look at the situation and accept that the commissioners are alienating the community and making the financial situation much worse.

If John Robertson and his men continue in office then Kaipara will almost certainly be heading for financial collapse. The BNZ and the ANZ must be seriously worried and will no doubt be wondering how long this fiasco can go on before they are forced to pull the plug.

Both banks reluctantly waived the breach of banking covenants last year, and did not call up the loans (which they were entitled to do) but the on-going arrogant and incompetent management of Council by the commissioners must be causing massive concerns.

The banks are not stupid and will be fully aware that the KDC is no longer a "going concern". They will also realise that ratepayers are not going to be bullied into paying the debts that were illegally incurred.

How long are the banks going to believe the fantasy that Council can meet its debts out of its income, and that ratepayers will continue to fund a Council that is utterly incompetent and operating outside the law?


Peter Bull. ex councillor. has come out swinging again (Kaipara Lifestyler here) in support of the views of Lyall Preston and the commissioners' decision to proceed with the validation of rates.

He was somewhat miffed by the comments of Legal Eagle about his previous comments (here) but sticks to his guns and slates those who criticise the commissioners and who are withholding rates.

Sadly Peter Bull has no knowledge of what the illegalities and the ultra vires acts of Council really involve and he is happy to just regurgitate the spin of the commissioners that minimise the errors.

He criticises the hysterical outburst from "a few with their own agenda" but chooses to completely ignore the fact that the commissioners reneged on their clear commitment to ratepayers to consult on the options for fixing the illegal rates problem, and in so doing breached the Minister's terms of reference.

He even adds that the proposition to promote a Local Bill to sort out this mess "would seem to be the best option". That may well be his own personal view but ratepayers throughout Kaipara have been denied the legal right to be consulted on that decision. Peter Bull cannot speak on their behalf.

In the same edition of the Lifestyler (here) Bruce Rogan of the MRRA counters the views presented by Peter Bull. He points out the cost of $100,000 to $150,000 for legal advice alone on the validation procedure.

Peter Bull makes it clear in his comments that the Kaipara District has been trashed "by a level of incompetence and dishonesty that is almost beyond comprehension. Ratepayers are justifiably aggrieved at having been shabbily treated."

If that is the case, should those who were responsible for the incompetence and dishonesty and failed to comply with the law in setting the rates be responsible for meeting the costs of rectifying their errors?

Should the Mayor and Councillors, the Chief Executive and the Council's advisers pay the costs of fixing the illegal rates, or should the responsibility be dumped yet again on the innocent and shabbily treated ratepayers.

What do you think, Peter?


A NZ Herald report (here) states that directors in Belgrave Finance have been charged with misrepresenting how investors' money would be used and allegedly making untrue statements in offer documents.

It sounds very similar to the Statement of Proposal issued by the Kaipara Council that totally misrepresented to ratepayers the contract price of the EcoCare scheme and the cost to ratepayers.

One director pleaded guilty and was sentenced to three years in jail.

The report also adds:

A Waipukurau law firm - Davidson, Armstrong & Campbell - is also being targeted in the civil action along with Belgrave's auditors, chartered accountants Hayes Knight. The receivers have alleged that Hayes Knight owed Belgrave Finance certain duties of care and had acted negligently. Belgrave collapsed in 2008, owing around 1000 investors more than $20 million.

It is interesting that the lawyers and the auditor are being sued in a civil action for negligence and breach of their duty of care. That is what should be considered in respect of the Kaipara Council. We need independent experts in receivership to ascertain what went wrong with Council's finances and debt levels, and how Council wandered off the legal compliance path into legal chaos.

An expert receiver would soon come to grips with the problems and assess whether the Chief Executive, the Councillors, the consultants, the legal advisers, the auditor and others should be sued for negligence.

Greg Gent, the leader of the Minister's review team, made the following recommendations in the Executive Summary in his report:

7. An issue that was raised with the Review Team was why the Councillors’ auditors did not highlight many of the problems that have recently come to light in auditing its long term plans and annual reports. The Review Team recommends that commissioners seek legal advice on the perceived failures of the auditors.

Have the commissioners responded to this clear recommendation? Not at all. They are content to wait until the Auditor-General completes her inquiry into the competence of the Auditor-General's audit of Council. Which of course is a breach of all the rules of natural justice, but that is what is happening in New Zealand in 2013. 

Neither the commissioners, the Minister, and the government, or for that matter the Auditor-General herself, consider it inappropriate that the Auditor-General should be holding an inquiry into the audit performance of her own Office.

Independent legal advice would almost certainly upset the apple-cart and show where true liability lies and exonerate ratepayers. That would not fit in with John Key's vision of local government with ratepayers bearing all the risks and paying all the losses incurred by the incompetence and negligent actions of councils, their employees and contractors and the watch-dogs.

How long are ratepayers in New Zealand going to put up with this state of affairs?


Lyall Preston from Ruawai took a swing at the Mangawhai Residents and Ratepayers Association in a letter to the editor published in the Kaipara Lifestyler last week. He raises some issues which he suggests that the members of the MRRA should consider whilst "enjoying their beach environs".

The issues raised are important because they reflect the views of many ratepayers west of State Highway 1. They consider that ratepayers in Mangawhai should bear the cost of their inflated sewerage scheme and have little sympathy for the rate strike.

Legal Eagle is not a member of the MRRA but is always eager to take part in a debate such as this and present the opposing views.

The issues that are of concern to Lyall Preston are listed below (1-5) with comments from Legal Eagle in blue beneath.

1. The relevance of having an organisation describing itself as a ratepayer association when in fact many members don't pay rates.

Council has acknowledged that many of the rates for the past six years are illegal or ultra vires (it had no legal power to set them). It has not identified fully which rates these are. The fact that Council is proposing to go through the validation process is confirmation that the rates are invalid.

In addition Council has acknowledged, without giving details, that the rates invoices were also defective. In law the rates invoice is the legal demand for rates and if it is defective then there is no obligation on the ratepayer to pay the rates.

Rate strikers are withholding rates for the current rating year because a legal opinion states unequivocally that the new LTP does not comply with the requirements of the LGA and therefore the rates based on the LTP are illegal. That matter is going to be tested in court in the very near future.

Given Council's admission of illegalities, and with legal opinions stating the same, it seems quite sensible not to pay any further rates until the court gives an independent and definitive ruling on the legal status of the rates.

Those who are part of the rate strike would be very happy to pay "rates" - which are defined in the Rating Act as being set in accordance with the Act. However, they are not prepared to pay rates that have been set in contravention of the Act and are merely illegal charges that the Council has no power to levy.

You also need to understand that ratepayers in Mangawhai were advised by Council of the cost of EcoCare and what capital amounts each ratepayer would have to pay. Those capital costs were paid in good faith but it has now been discovered that Council misled ratepayers, that the cost was double the amount that was advised, and that further massive capital costs will have to be paid in future. Imagine agreeing to pay $250,000 to build a house and then being told that you had to pay $500,000.

2. The rates I am paying are contributing to the services and infrastructure they require to enjoy that beach environment.

That is not correct. It is propaganda from the commissioners. Most of the monies that Council receives in rates goes to pay the interest on the illegal debts that Council secretly arranged in breach of the Local Government Act. There is nothing left over to meet the day to day expenses of Council, whether in Mangawhai or elsewhere. Council is having to borrow even more simply to meet the interest on the illegal debts. The situation is going to get even worse and can only be remedied by ratepayers paying more and more rates.

There is more than sufficient monies raised from rates to pay the day to day expenses of Council. Take away the illegal debt and you have no problem.

3. The rest of the District see Mike Sabin's Local Bill as the best way for the whole sorry mess of KDC to be dealt with . What's wrong with established democratic process as a solution?

The fact is that the commissioners' commitment to ratepayers and the terms of reference for the commissioners set by the Minister required that the commissioners consulted with ratepayers in respect of the options for resolving the illegal rates issue. On 18 December2012 the commissioners unilaterally reneged on the commitment and breached their terms of reference by deciding to opt for the validation process. There was no consultation with ratepayers. Why was the democratic process denied ratepayers at this early stage?

The commissioners have already acted illegally in opting for the validation process without consultation which means that the process will almost certainly fail.

In addition, the commissioners, Mike Sabin, and the Minister are unaware that previous Minister Nick Smith said that he would not support validation if incompetence or dishonesty were involved when setting the illegal rates. The illegalities came about because of gross incompetence on the part of the previous chief executive and Council, and Council were warned of the illegalities and the consequences prior to setting the rates. There is also ample evidence of dishonesty and misleading conduct.

The cost of obtaining legal advice alone in respect of validation has been estimated by the commissioners at between $100,000 and $150,000. That will be completely wasted and Council will be no further advanced in remedying the illegal rates.

4. As to the Association's threat of legal action against the council haven't we already paid lawyers and consultants enough in this district?

I don't think that there would be one ratepayer who would disagree. Massive sums of ratepayers' monies have been poured down the gullets of consultants, contractors and lawyers, much of it paid illegally by incompetent Council employees and Councillors.

Do ratepayers meekly agree to bear all those losses or do they fight for their rights in the courts? All the legal opinions suggest that ratepayers are not responsible for the illegal debts taken out by Council.

Unless the government is forced to acknowledge the rights of ratepayers then the only alternative that ratepayers have is to apply to the court for a ruling on the matter.

5. While the rest of the district also wants accountability, we need to get on with life.

If only it were that simple. Ratepayers are being told a big lie. Council's debts are massive, far more that what it admits to. It is suggested that they amount to $120 million.

Given that figure, and given that interest rates will rise from June (if Council can refinance its loans), it is impossible for Council to meet its commitments out of its income without massive increases in rates that would effectively destroy the district.

Council is deliberately downplaying the financial crisis, ignoring some elements of debt and minimising the negative factors that reflect on its status as a "going concern".

For instance it is relying on a huge increase in sales of sections in the EcoCare catchment area to pay development contributions. That is not going to happen because of the massive costs of developing, which simply means that ratepayers will have to pay even more to cover the deficit.

There is little doubt that any genuine independent assessment by a third party expert would confirm that Council is effectively not a "going concern". In other words it cannot meet its outgoings out of income for the foreseeable future. Council will inevitably go into receivership in the next six months, unless rates are massively increased to meet the shortfall. Ratepayers will be screwed for more and more rates until the soul, as well as the money, is completely sucked out of the district.

The only way to prevent either of these outcomes is to insist that the debt is not ours and makes sure that those responsible for the financial and legal shambles foot the bill. Our rates can then be used for the purposes that they were intended for and the negligent cowboys who concocted the EcoCare rort can repay the banks.

Finally, dividing ratepayers into the West and Mangawhai and setting them against each other will not help matters. Kaipara as a whole simply cannot survive financially if it accepts the illegal debt burden. The only way out is to ensure that the guilty parties bear the responsibility for that debt.

Thanks to Lyall Preston for raising the issues.

Any other comments are welcome on


DEAR MINISTER   20.01.13
Legal Eagle's letter to Minister, David Carter, about the decision by the commissioners to uniterally seek the validation of the illegal rates without consulting with ratepayers as per Council's commitment, and in breach of the commissioners' terms of reference.

Dear Minister
I am writing to you about the performance of the commissioners that you appointed to run the Kaipara Council.

Just prior to Christmas (18 December 2012) the commissioners passed a resolution to the effect that they would not consult with ratepayers over the options for dealing with the $17 million or so illegal rates that had been identified by their own solicitors. Council had previously committed itself to consulting with the community on the options for resolving this issue and to forming a focus group with ratepayers. It was also a recommendation of your review authority led by Greg Gent that the commissioners consult with the ratepayers on this matter. It was also one of the major terms of the terms of reference that you imposed on the commissioners when they were appointed.

Ratepayers are furious that the commissioners have reneged not only on a clear understanding with ratepayers but that they have also breached a fundamental requirement of their terms of reference.

Setting aside the clear breach of good faith with the community, It appears that the Council is now acting ultra vires in respect of its terms of reference by deciding unilaterally to seek validation of the rates, and that it has also failed to comply with the decision-making and consultation process required by the LGA when considering options for the illegal rates. This means that the whole validation process is legally blighted before it even gets under way.

In addition, I should also point out that the previous Minister, Nick Smith, made it perfectly clear that he would not support any validation of illegal and ultra vires rates if they came about because of incompetence or dishonesty.

Unfortunately none of the proponents of validation, including yourself as Minister, the local MP, Mike Sabin, the current chief executive, Steve Ruru, the commissioners, nor Simpson Grierson, the Council’s current lawyers, have any knowledge of the background to the illegal rates debacle because they were not involved with Council at that stage. There is however ample evidence from those of us who were deeply involved with the issue at the time to illustrate that there was on-going incompetence of unbelievable proportions and that Council was fully alerted to the illegalities and ultra vires nature of its rating decisions before they were made. There is also clear of evidence of dishonesty and misrepresentation.

Council is planning to spend an unbudgeted $100,000 to $150,000 on legal advice for the validation, and that will no doubt go higher. It is another complete waste of ratepayers’ monies as the validation will never get off the ground because of the unlawful first steps taken by the commissioners and because the whole debacle is blighted with incompetence and dishonesty.

I am attaching for your information a score card on the commissioners’ performance in the first phase of their regime [scroll down to view] which explains in detail the breach of trust with ratepayers and the failure to comply with the terms of reference. The article is taken from my website:

I would be obliged if you could let us know what action you intend to take against the commissioners or what steps you intend to take to remedy this alarming situation.

Clive Boonham


The Office of the Auditor-General (OAG) has come up with a bizarre initiative. Faced with unrest throughout the country because of spiralling local authority debts, rising rates and poor or nil consultation with ratepayers, and facing widespread criticism over its handling of the KDC's audit, it has decided to ignore the real problems and come up with a novel, flimsy, and feel-good survey that shows how, in the OAG's make-believe land, local authorities are in reality "effective and efficient".

Forty seven success stories are shown on the OAG website here which show how absolutely wonderful councils are.

It appears that the Kaipara District Council is not included in the list of success stories but Kaipara ratepayers are so disenchanted with the OAG that such an outcome would not have been a surprise. It was only in 2011 that the OAG included the EcoCare scheme as a model case study on Public/Private Partnerships (here).

The commentary ironically states:

A major achievement of the project was the ability to change the scope of the works during the project development and construction stages.

The OAG's blinkered approach makes it sound absolutely marvellous but the reality is totally different. The changes to the scope, and the resulting increasing costs, were all made in secret and illegally without any appropriate decision-making or consultation under the LGA.

Not only that, the change in scope was based on pie-in-the-sky projections that were put together in Wonderland.

The whole thing was a rort from start to finish but the OAG - which was the auditor for the Council - remained blissfully ignorant of the years of financial and legal carnage that it failed to detect and quotes it as an exemplary case of cooperation between Private and Public spheres.

The latest foray into fantasy land with local authority successes comes with the following rider:

We have not audited the organisations' initiatives to check the facts, although each organisation has confirmed that their story is fairly represented.

Some wags who have looked at the OAG's dismal performance in auditing the KDC might wonder what difference an audit would make.


We are still waiting to hear whether details of Jack's farewell package are to be revealed or whether Jack has gazumped the Council with his threat of an injunction.

There was a lot of drama just before Christmas. It was like the final episode of Shortland Street at the end of a season with everything up in the air. Would Steve decide to reveal the document?  Would Jack's threat to injunct be carried out?  Would Steve and the commissioners call his bluff? Would the injunction go before the tribunal, and, if so, what would it decide? And, finally, what would the dastardly document reveal?

So far in the new year there have been no further developments, at least that we know about.

Looking back on it all I get the distinct impression that this whole drama has been orchestrated by the Council to achieve an outcome that I find hard to fathom.

I make the following points:

1. Council could easily have had all the discussions in private about the pros and cons of releasing the document and released its decision at the same time as releasing the document itself. It would then have been in the public arena before Jack could say Jack Flash and too late for any injunction.  Did Council not want to release it?

2. Did Council make the whole thing public, and draw it out over several weeks, with the intention of giving Jack the opportunity to take legal advice and cut off the release of the document at the pass by threatening to injunct? In other words did Council plan the whole thing so that Jack would know what was going on, would have time to take legal advice, and could then threaten to injunct the Council? Council would then back down. The end result? The document is not released and remains secret, the commissioners are exonerated of blame, Jack is the bad dog, and there are minimal legal costs.

3. If Council had been serious about releasing the document it would have discussed the legal situation with its lawyers before the toing and froing about whether the document should be released. You don't propose releasing a secret document with a confidentiality clause without taking some very serious legal advice. Was this one of the several opinions that Council recently obtained from its lawyers at a cost of $36,000? Or was the whole thing an orchestrated charade with no intention to release the document?

If the first scenario is correct then obviously the lawyers approved the release, otherwise there would have been no public discussion on the matter. But, If the lawyers had already given the disclosure of the document a tick, then the mere threat of an injunction should not be a consideration. Release it and the injunction would be irrelevant as the document would then be in the public arena. Jack's only remedy then would be to sue for damages - something that the lawyers would have already considered.

4. The dumping of the decision whether to release on to the Chief Executive was a farce. It smacks of clumsy artifice. Certainly the Chief Executive is responsible for all employment matters relating to staff, but the Council is responsible for all relations with the Chief Executive. That also includes a past Chief Executive. And that is especially so if Council has signed a problematic secret agreement with a previous Chief Executive. It was the commissioners' responsibility to resolve the issue and all the nonsense about dumping the decision on Steve Ruru was just plain silliness.

Do the commissioners really not understand what they are doing, or are they playing games?

5. In their resolutions of 18 December 2012 the commissioners made an incredible fuss about their relationship with ratepayers and the importance of revealing the details of the Deed of Settlement with Jack McKerchar. This is what the resolutions say:

3.Determines that in their view it is critical for Council to be able to build a relationship with the community that is based on trust and confidence and in which there is a high level of transparency as to the business of Council including the reasons for the key decisions that Council has made in the past; and

4.Commissioners note that it is important, if Council is to be able to develop a relationship based on trust and confidence, that information relating to the decision of the previous Council to enter into the Deed of Settlement with the former Chief Executive dated 02 August 2011 be made public given the significance and serious nature of the challenges facing Council today; and

5. Commissioners request the Chief Executive, when processing the current requests for the information contained in the Deed of Settlement, consider their concerns that the non-release of the Deed of Settlement between the Council and the former Chief Executive dated 02 August 2011 is hindering their ability to address the major issues affecting Council and rebuild a strong relationship with the community.

What an utter load of piffle. The commissioners have shown that they do not give a fat rat's for building a relationship with the community based on trust and confidence. They wouldn't have any idea what transparency meant. The views of the northern natives have absolutely no relevance to their mission. They are there simply to ensure that the rates are raised to sufficient levels every year to ensure repayment of the debts to the banks. Nothing more.

Just look at their appalling record of failing to communicate with ratepayers over the few months they have been in power. They are as bad as the previous lot.

For more concrete evidence take a look at the same minutes of 18 December 2012 where the commissioners unilaterally and furtively (just before Christmas) rescinded Council's clear and absolute commitment to consult with the community about options for dealing with the illegal rates. They break trust with the ratepayers and at the same time step outside the Minister's terms of reference which require consulting with the community on the options.

That step alone destroys any vestige of trust, any form of relationship, and any suggestion of transparency that any ratepayer might have vested in the commissioners.

So why all the crocodile tears in relation to the Jack's package? An important issue, yes, but when compared with all the other illegalities and acts of incompetence it scarcely raises a bleep. Why not concentrate all those energies and concerns about relationships trust etc on issues that really matter?

As I said, it is all beyond me. But it is a drama of cliff-hanger proportions. All we can do is sit and wait, and watch the plot unfold.

Better than Shortland Street.


The NZ Herald reports (here) that former National Bank chairman John Anderson concluded Timaru businessman Allan Hubbard had misled investors in his tangled affairs, in a report written shortly before Hubbard's death in a car accident in September 2011.

The finding that "he had misled investors" was included in a report by Anderson and Deloitte insolvency specialist Rod Pardington. The report has just been released after Hubbard's widow applied unsuccessfully to the Ombudsman to have the finding kept secret.

There are also a lot of Kaipara ratepayers and others, all around the country, who also believe that the Kaipara Council misled its ratepayers when it tricked them into accepting a sewerage scheme for $35.6 million and then secretly committed them to a bigger scheme costing over $70 million.

The only difference between the two is that independent insolvency experts were employed to examine the Hubbard situation and placed the blame where they believed it should lie.

In the case of the Kaipara Council the watchdogs and the government have done all that they can to bury the problem, avoid any examination of possible fraud or misleading or inappropriate conduct, and have tried to dump the illegal overspending on the innocent ratepayers.

That's bit like blaming the investors in Hubbard's companies for his excesses, and making them pay for all his liabilities.

The Kaipara case was quite simply a rort at ratepayer expense. There were clear and persistent breaches of the law relating to setting rates on many occasions, and there was decision-making and consultation that clearly failed to comply with legislative requirements. There were also shonky procedures that screamed out for further independent scrutiny. All were ignored.

The Auditor-General was the auditor, with Audit New Zealand acting as its agent. It did not pick up any of the illegalities, did not identify any of the persistent and massive errors in the accounts that were subsequently identified, and did not investigate any irregularities, financial, legal and procedural, that clearly suggested that all was not well in the Kingdom of Kaipara.

More that that, all attempts by ratepayers to have an independent expert investigate the affairs of Council, as happened in the Hubbard case, were rejected by the Council, the government and the Auditor-General.

In the end, after years of ignoring the litany of problems, illegalities and excesses, and then after rejecting well-founded legal complaints that proved later to be absolutely spot-on, the Auditor-General's Office finally undertook to conduct an inquiry into the EcoCare project as well as examining the competency of its own audit of the Council. In other words it was going to examine its own culpability.

That's a bit like Allan Hubbard conducting an inquiry into South Canterbury Finance.

Many ratepayers are asking why the Serious Fraud Office did not get involved. It was advised of the situation on many occasions and should have been in like Flint given the clear signs of inappropriate or fraudulent procedures. For some unknown reason it refused to be involved in any way.

The SFO is having a much stronger presence in pursuing fraud in the public sphere but appears to be very hesitant when pursuing fraud in local government. Like all the other watchdogs who are supposed to protect the best interests of the public it appears to have a very tentative approach where any inquiry might reflect negatively on the government, whether local or central.

There are suggestions that the OAG pulled rank on the SFO, warned it off, and advised that it would be called in IF the OAG found any evidence of fraud.

All in all the ratepayers of Kaipara have been shabbily treated by the government and its agents. They should have called in the SFO or independent specialist investigators when the Chief Executive Jack McKerchar left under a cloud last year. 

Ratepayers are scratching their heads and wondering why the watchdogs have developed a renewed energy to pursue finance companies that mislead investors but leave well-alone local authorities that are clearly and persistently acting illegally, misleading their ratepayers, and incurring massive illegal debts that ratepayers - the innocent parties -  are pressured by the authorities into paying.

Something is clearly not right. 

Adam Feeley was the SFO boss when the SF0 declined to be involved in an investigation into the role of Kaipara District Council's chief executive Jack McKerchar in the EcoCare fiasco. Evidence of irregularities was presented to the SFO on several occasions but it maintained its refusal to act.

On 31 July 2012 Mr Feeley advised that he was leaving the SFO and would take up a job as chief executive of the Queenstown Lakes District Council.


A LOAD OF BULL 09.01.13
Many ex councillors love their moment in the sun. It is now the turn of ex councillor Peter Bull to hog the headlines in the Nothern Advocate (here). He is calling for ratepayers to support the government appointed commissioners who, he says, inherited "total destruction". He goes on to say that he is "absolutely livid" with the way that KDC had "destroyed" Mangawhai through its conduct with the town's sewerage scheme. So far, no one would disagree with him.

However he moves rapidly into quicksands when he says that the commissioners are trying to get Kaipara living within its day to day expenditure. That of course is direct spin taken from the mouths of the commissioners. As most ratepayers realise, it is not the day to day expenditure that is causing the problem in balancing the books. There is more than enough collected from rates to pay for the 'groceries' (to filch that delightful term from our deposed Mayor Tiller). All services provided by Council can be funded adequately by the rates that are collected.

The problem is that there is insufficient income to pay the interest on the massive gambling debt that the previous Council entered into illegally and beyond its legal powers. Take the illegal debt away and you have a Council that is financially in balance.

The essence of the question that Peter Bull needs to ask himself is: Who should be responsible for the illegal debt - the innocent ratepayers who were totally misled by a devious Council operating completely outside the law, or those who were actually responsible for the illegalities?.

It is a convenient fiction for those indoctrinated in the ways of local government that ratepayers have to bear all financial burdens of a local authority even though they arise from the incompetence or the illegal actions of those in power. That is the view promoted by the government and that appears to be the view of Peter Bull.

It is, of course not true. Councillors have a fiduciary responsibility towards ratepayers and it is totally unacceptable for councillors acting as fiduciaries (trustees) to inflict the burden of debts illegally incurred on their beneficiary ratepayers.

In addition, councillors have a duty of care to ratepayers to act in a competent and legal manner. If they breach that duty of care then they are personally responsible for any losses.

The mantra that ratepayers are responsible for all errors and incompetence is repeated ad nauseam because it suits the whole structure of local government in New Zealand - the ratepayers are the new serfs at the bottom of the pile, paying for all the indiscretions further up the chain.

The mantra also gains credence because the courts, and consequently the rule of law and the principles of equity, are effectively excluded because of the high costs of issuing proceedings. As it stands at present the government, in its dominant position, can simply dictate the outcome that best suits its own policies without any consideration of what the law actually says.

There is little doubt that an application to the court would bring some sanity to the argument and make it clear once and for all where the obligation to repay illegal and ultra vires debt lies.

Unless the government wakes up to its obligations to the people and acts appropriately according to the rule of law then that is what inevitably will happen.

But, getting back to the article in the Advocate, Peter Bull states that he has seen the bill which Northland MP Mike Sabin is working on for Parliament. He is quoted as saying:

"It (the bill) is not looking to whitewash any genuine illegalities. Its looking to regularise the rates."

This is, of course, simply not true. All the illegalities are genuine illegalities. For heavens sake, if they weren't illegal why have a bill to legalise them? I could explain in great detail the legal ins and outs of the whole matter and point out to Peter Bull that some of the illegal rates were completely outside Council's powers, but perhaps he would prefer to regurgitate the spin emanating from the commissioners.

His statement that he has actually seen the bill raises some serious questions.

First, the bill is prepared by the Council along with its legal advisers (at a cost of $100,000 to $150,000). Mike Sabin only sponsors the bill. He is not "working" on it.

Second, the Council is not within cooey of deciding yet what will be included in the bill. Many of the rates are so illegal they will necessarily be chopped otherwise they could prejudice the whole package. There are also questions hanging over the legality of the current year's rates and development contributions in the past. Before the contents of the bill can even be considered Council has to have some very detailed legal advice on what should and should not be included in the bill. That is months away. It is almost certain that, at present, there is in fact no bill

Third, if there is a bill, why was Peter Bull allowed a copy of it, or at least allowed to see it?

So, Peter, if you have a copy of the bill then let all ratepayers see it. Don't keep it to yourself. I will happily publish it.


The terms of reference of the commissioners can be seen in full here.

Below are relevant extracts from the terms of reference together with Legal Eagle's assessment - in blue - on how well the commissioners complied with their legal obligations during the first phase of their term.

Terms and conditions of appointment

6. Pursuant to section 255(4) of the Act, the Minister of Local Government appoints the Commissioners on the following terms and conditions:

(a) The Commissioners will carry out all the functions and powers of the Council provided for under the Act, the Resource Management Act 1991 and any other Act which imposes powers, duties or obligations on the Council.

(b) The Commissioners must comply with any legal obligations that would otherwise apply to the Council, such as public consultation requirements in the Act and the Resource Management Act 1991.

(c) The Commissioners are required to perform the following tasks as outlined below.


The Commissioners will:

- work through issues raised by the Council's 2010/11 annual report and the Council's 2012-22 long-term plan that relate to the financial risks faced by the Council;

It is the view of many that commissioners have glossed over the severity of the financial crisis that it is facing. Their most compelling objective appears to be to appease the bankers who have so much to lose if the Council goes under. Council breached its banking covenants last year and it was touch and go whether the banks would call in the receivers. It took a lot of fancy foot-work from Greg Gent's review authority and the Minister to persuade the banks to refrain from pulling the plug and to provide further advances to cover the ongoing short-falls.

The true debt of Council, ignoring the smoke and mirrors of the commissioners, is probably in excess of $120 million. That is only the start. The $400,000 that was agreed to for the Proposed District plan has already ballooned (illegally and without consultation) to over $5 million, and that will go higher.

This is all money down the gurgler, because Kaipara will never function again as a democratic council but will be swallowed up by one of its neighbours once the commissioners have done their job.

Likewise the validation proposal is going to cost, on present estimates $100,000 to $150,000, but, like everything to do with this Council, that will simply be a starting point, and because of the innate complications the final figure will be several times that figure. Given the sheer incompetence of Council in the past and its inability to understand exactly what the problems are, the chances of the validation being successful are very slim.

Ironically the sewerage scheme that has caused most of the financial problems is a dead duck. With a capacity of only one third of what was promised it can no longer take any further connections without massive capital expenditure. That has been delayed in the interim and swept under Steve Ruru's magic carpet until the the rates flow can be reinstated.

The reality is that that the current debt figure (even ignoring the new debt in the pipe-line) is far too large to be supported by a small, impoverished district like Kaipara. There is no way that the ratepayers of the area will ever be able to meet the interest bill alone (the interest rate will rise dramatically in the next few years), never mind the capital.  It is rather like an average family having to cope with a mortgage of a million dollars.  No matter how much spin you put on it, there is insufficient income to cover the liabilities.

Any independent analyst would very quickly condemn the Council's undertaking as insolvent and totally beyond salvaging. Only in the realms of fantasy (or in Audit NZ's view) could it ever be viewed as a going concern. But the chances of ever getting an independent, honest appraisal in Kaipara is virtually zilch.

The government, the commissioners and the banks have also chosen to ignore the financial risks. They are counting on the ratepayers not launching any legal challenges in respect of the myriad of illegalities and invalidities that litter the last few years of Council's operation. For them it is a game of bluff. However, the year 2013 will show that Kaipara ratepayers are not going to sit by and watch the commissioners and the government ride rough-shod over the rule of law. The findings of the court will sooner or later completely upset the apple-cart, throw the Council into complete disarray and panic, and have the banks screaming for the receivers to be called in.

SCORE: 0/10    Financial disaster for Kaipara is inevitable if the debt is dumped on ratepayers.  (The only way Kaipara can survive finacially is if liability for the debt is placed on those who were responsible for the illegalities.)

- undertake actions to enforce the payment of 2012/13 rates and any unpaid rates from previous years;

The commissioners have sent out letters demanding payment of rates for previous years but they cannot take legal action because Council has acknowledged that many of the rates billed are illegal and that the rates assessments are invalid. Ratepayers therefore do not have a legal liability to pay the rates.

Council is also no doubt aware that the current LTP is invalid for a variety of reasons and consequently the rates for the current year are also invalid and cannot be enforced.

SCORE: 0/10 You cannot use the court to collect rates that you acknowledge are defective.  Validation via a private bill will not help.  It will take years and will not be accepted by parliament because of the incompetence and dishonesty of Council in setting invalid rates and its ongoing incompetence in the validation process (see below).

- work with the Kaipara community and ratepayers and the Department of Internal Affairs to identify options for dealing with invalidly set rates and other legal compliance matters;

Council has completely ignored this part of the terms of reference. It has consistently promised ratepayers that it would consult with them on the options available relating to the illegal rates following the Salter report.

This commitment was reflected in the resolution of 16 July 2012:

16 July 2012:
“Reconfirms its commitment to work with the community in identifying and assessing the options that might exist for addressing the rates irregularities that have been identified to date and in that regard agrees to form a Focus Group to review the options available for addressing the historical rating irregularities prior to any wider community consultation process being undertaken; and

Asks staff to develop Terms of Reference for the proposed focus group and that these be presented to Council at the time that the report outlining options for addressing the historical rating irregularities is presented.”

Without any warning or advice to ratepayers that resolution was rescinded by a resolution of the commissioners on 18 December 2012, with the following reason being given:

Reason for the decision
The Commissioners through their Terms of Reference have the task of addressing the irregularities identified in relation to the processes that Council has followed to set rates in the past.

That sentence sums up the fundamental dishonesty of the commissioners.

First, they reneged on a clear agreement with and commitment to ratepayers without any prior indication or discussion. A complete breach of good faith  Note also that they also sneaked it in just before Christmas so that no one would notice.

Second, they breached their clear legal obligations, set out in their terms of reference. to:

work with the Kaipara community and ratepayers and the Department of Internal Affairs to identify options for dealing with invalidly set rates and other legal compliance matters.

Their failure to do this was a fundamental breach of their terms of reference.

Third, they misrepresented in their Reason for the decision to rescind the commitment to consult (set out above) the actual wording of the terms of reference. They state that they have the task of addressing the irregularities identified in the past, but completely (and no doubt deliberately) omit the additional compulsory requirement that they work with the Kaipara community and ratepayers to identify options for dealing with the irregularities.

SCORE: 0/10 Regrettably, yet again, and all too predictably, another fundamental breach of trust from the Council and another failure to comply with strict legal guidelines.

- identify the capacity of the Mangawhai Community Wastewater Scheme, whether it is fit for purpose, and the ideal funding model for the scheme for the future. This work is to have regard to the findings from the Auditor-General's Inquiry into the Mangawhai Community Wastewater Scheme ("the Auditor-General's report");

The Auditor-General's report is months away and the Bicker's report commissioned by the Review Team has been completely buried.

No action at all on this matter.

SCORE: 0/10    No interest shown.

- begin to identify the extent of the problems faced by the Council (building on the work of the Kaipara District Council Review Team ("the Review Team") and the Auditor-General's report), and engage in existing Council initiatives to address these issues;

The commissioners have used the non-availability of the Auditor-General's report as an excuse for not following up on any of the problems identified by the review team. In the meantime the Council slides further into debt and financial chaos.

SCORE:  0/10   No action taken.

- begin initial engagement with the community and iwi to rebuild confidence and trust in the Council. This may include the establishment of community and iwi reference groups.

Engagement with the community?

Rebuild confidence and trust?

Reference groups? The promised focus group to resolve the illegal rates problem was dumped without consultation (see above).

The recommendations from Greg Gent's review team were quite clear:


6. A comprehensive plan is developed for engagement with the Kaipara community at all levels (commissioners/elected representatives and staff). This should include such things as regular meetings with stakeholders and regular clinics at which ratepayers can discuss issues with the commissioners (if appointed) or Councillors.

7. A dedicated communications advisor be employed, or a shared service agreement reached with either Northland Regional Council or Whangarei District Council, to manage engagement and communications with the community.

Both of these recommendations have been completely ignored.

SCORE:  0/10   A total failure to build any sort of relationship with the community.  Any good will the commisioners had on taking office has now been dissipated by their failure to engage and their failure to comply with commitments previously given by Council.

All in all a very dismal report card for the commissioners.  Their fundamental failure to consult with ratepayers on the options regarding the illegal rates will no doubt, like all other illegalities, be ignored by the Minister.  However, it puts the whole validation process in legal jeopardy. 

Breaching the terms of reference is one thing, but it is also clear that Council also failed to comply with the decision-making process in the LGA for what is clearly a significant decision - $20 million is at stake.  Its consideration of the options was perfunctory and totally inadequate.  Add to that the clear and deliberate repudiation of any consultation with ratepayers - as required by the LGA - and you have a recipe for disaster before the validation process has even started. 

The Council is paying a small fortune for legal advice on this matter but has come a legal cropper at the first hurdle.  Parliament is going to have little sympathy with an application for validation of illegalities arising out of incompetence, when the validation process itself is also blighted with the same incompetence.

Four years ago Legal Eagle and Mrs Eagle bought their holiday home in Mangawhai only to find that their modest bach and sleep out was being charged double EcoCare rates.

Queries to Council showed that the Council had no sound basis for setting the EcoCare rates on the property. As I dug deeper it became apparent that Council had no idea what it was doing in the rating field, was operating outside the legislation, and was doing so with impunity, clearly confident that neither the Ombudsman nor the OAG would interfere.

Thus began a long battle to bring back the rule of law to Kaipara.

After four years Council has finally agreed that our property is a single dwelling and has issued a new assessment for the current year.

The response from Steve Ruru is long and carefully argued and it has the hall-marks of coming from the pen of Jonathan Salter at Simpson Grierson. (One of the $36,000 legal opinions?)

It is a sweet victory but somewhat marred by the thought of the cost to ratepayers of putting right all the legal and financial transgressions of Jack McKerchar's regime.

I also reflect on all the other ratepayers who are being illegally charged for second units when in fact they do not exist.

The whole basis for charging for a second unit is that it is occupied by a separate household or a business. Forget Jack McKerchar's illegal definition of a unit of demand. Under the LGRA the separate unit has to be It has to be "a separately used or inhabited part" of the property.

If you feel you are being rated unfairly for two units then lodge a complaint with Council

Although Council has reassessed our rates for the current year and has acknowledged that our property is a single dwelling (see story above), it is refusing to refund the rates overcharged for previous years.

Council acknowledges that the rates for the so-called second unit were charged under the definition adopted for a "unit of demand" which was introduced by the McKerchar regime a few years ago.

The Council makes this comment:

Council accepts that there are a series of issues relating to the application of the unit of demand regime and other issues relating to the setting and assessing of these prior year rates. Council is currently assessing the options available for addressing these historical irregularities........At this stage we do not know whether council will look to regularise the approach that was followed, apply a new approach that does meet the requirements of the LGRA and/or refund some of the historical rates assessed where these have been paid.

The simple fact is that the unit of demand regime has always been completely outside the law. This was pointed out to Jack McKerchar and the Councillors by Legal Eagle before the resolution introducing it was passed and I have been beating that same drum ever since.

It is not just a question of the wrong wording or a technical error, this so-called rate was completely outside Council's powers under the Rating Act.

Not only that, the definition adopted by Council was not faintly related to the definition of separate units under the legislation.

Council knows that the unit of demand rate is utterly illegal and ultra vires. Steve Ruru knows that. The commissioners know that. All the opinions from Jonathan Salter from Simpson Grierson will have confirmed that.

All of them also know that the chances of validating such a rate are zilch. Parliament is never going to validate a rate that is a total abuse of the LGRA and the rule of law, and they risk the whole caboodle of rates in the validation bundle being tainted by this illegal abomination.

As I have said on many occasions, this is nothing more than theft. Council knows it has no legal right to the monies but is refusing to repay them. The NZ Police may not have sufficient balls to prosecute but that does no mean that what is happening is not a crime.

The implication that local authorities are above the law and can thumb their nose at the legislation, both administrative and criminal, is a proposition that is frightening.

If Council wants to start winning the hearts of ratepayers then it would be well advised to separate the illegal rates that it can justifiably argue were "payable " - for services that were actually rendered - from those that were totally outside the law. They should come clean and acknowledge that the latter are ultra vires and refund them forthwith.

Large figures for the cost of the validation process are being bandied about, and the question arises: Who is going to pay the costs of the process?

If you are a ratepayer then look in the mirror and you will find the answer.

As usual that is the easy way out. Dump it on the ratepayer who is at the end of the feeding chain, funding all the losses of the incompetents higher up the chain.

But we have to make it clear to Council and to government that we ratepayers will not bear the cost. We must pressure Council to look at those who were responsible for the illegal rates debacle and dump the responsibility of putting it right well and truly on their shoulders and in their pocket.

The clear responsibility lies with the Councillors who passed the relevant resolutions. They have to wear the responsibility for the decisions made by Council.

No doubt the Councillors will argue that they were misled by the Chief Executive and relied on his advice and the purported advice of Council's lawyers (delivered via the Chief Executive), and therefore acted in good faith.

However, the good faith defence does not apply because the Council and the individual Councillors were all advised by Legal Eagle before the resolutions were passed that they did not comply with the law, that there would be dire consequences if the rates were subsequently deemed to be illegal, and that they should get independent legal advice before making a decision. Legal Eagle pointed out the Chief Executive was misrepresenting to them the opinions obtained from Council's solicitors, and provided them with examples.

The Councillors, except for Cr Larsen, refused to heed that advice from Legal Eagle and approved the defective rates. In so doing they effectively destroyed the defence of acting in good faith which is available to them under the LGA.

The Councillors (Cr Larsen excepted) also gave up the good faith defence by, quite bizarrely, voting to deny themselves access to the legal opinions of Council's lawyers. It defies logic and any type of good sense but is true, and perhaps illustrates more than anything the totally dysfunctionality of the Kaipara Council.

Both the Chief Executive and the Councillors could be liable for the breach of their duty of care and obliged to pay the costs of remedial actions.

[Councillors are also liable under the LGA (sections 44 to 46) for any losses that have come about because of their unlawful or negligent acts and the monies can be recovered from them by the Auditor-General. However, given that Office's total lack of enthusiasm for enforcing the LGA, and that Office's own possible liability for Council's excesses, it seems unlikely that any action will be taken under these provisions.]

There would also have to be an examination of the liability of Council's advisers, consultant's and lawyers to see if their advice was in any way negligent.

Council especially needs to scrutinise the liability of its own legal advisers.

It is of concern that many opinions from Council's lawyers over several years confirmed the correctness of Council's rating processes and documentation and rejected the submissions of Legal Eagle that the rates were illegal or ultra vires.. Yet those submissions of Legal Eagle have now been vindicated by an expert in the field, Jonathan Salter of Simpson Grierson, Council's new lawyers. This suggests that there has to be some serious question marks over the accuracy of the advice previously received from Council's former solicitors.

If Council's lawyers were found wanting then action should also be taken against them.

Any reasonable person looking at the sheer incompetence of those responsible for the illegal rates, and the massive costs of remedying the situation, would have no hesitation in declaring that those responsible should be pursued and made to foot the bill.

The case against them is clear-cut, and they have little to offer in the way of a defence.

It would be good to see the commissioners instructing an independent lawyer to examine the liability of such parties and, if appropriate, issuing legal proceedings to recover from them the costs of any remedial process.

Or would that upset the local government apple-cart too much?


Legal Eagle has highlighted (scroll down to DEAR JOHN below) the commissioners' refusal to comply with the Minister's terms of reference and consult with the community before making a decision on the future of the illegal rates, and the failure to follow Council's own resolution to consult with the community and appoint a focus group.

This ruthless and dictatorial repudiation of the terms of reference and the understanding with ratepayers is illustrated in the resolution passed at the Council meeting of 18 December (here).

3.7 Addressing Historical Rating Irregularities: Local Bill

10. Rescinds the following resolutions which were passed by Council at its meeting on 16 July 2012:

“Reconfirms its commitment to work with the community in identifying and assessing the options that might exist for addressing the rates irregularities that have been identified to date and in that regard agrees to form a Focus Group to review the options available for addressing the historical rating irregularities prior to any wider community consultation process being undertaken; and

Asks staff to develop Terms of Reference for the proposed focus group and that these be presented to Council at the time that the report outlining options for addressing the historical rating irregularities is presented.”.

The reason for unilaterally rescinding the prior agreement with ratepayers can be found in a few words in the Chief Executive's report of 4 December 2012:

It was agreed by Council in July 2012 that a Community Focus Group be set up to consider options for addressing the rates irregularities. This is no longer recommended. Time and financial constraints and the need to “fix” the problems once and for all time; make a Local Bill the recommended solution.

We know that commissioners are not democratically appointed but this is startling proof that they are nothing more than dictators. They mouth promises of cooperation and engagement but, in reality, they are hard, ruthless despots who do not give a fig about the legality of their actions, ignore the Minister's terms of reference, and have absolutely no intention of "engaging" with the community.

They are here for one purpose only: to dump the illegal debt on ratepayers and to protect the banks' monies.

It is quite amazing how many of the those high up in local government do not have the abilities appropriate for the positions they are in.

When integrity, competence and skill are called for, and the essence of the job is to ensure the best outcome for the community being served, it is worrying that many of those who attain positions of responsibility in local government do not have the personal qualities, the skills, the competence and the attitude that are necessary for the job, and instead are self-serving and committed to some agenda that is far removed from the well being of the community.

We have seen instances of this in Jack McKerchar who had little skill or competence in the nitty-gritty of local government and was more concerned with enriching lawyers, consultants, and contractors that honouring the trust that ratepayers had placed him in.

Neil Tiller was a man of limited abilities who rose to his own level of incompetence. In his early years as a Councillor he showed some good qualities but then appeared to get side-tracked by other agendas and lost all direction and credibility.

John Robertson is a dyed in the wool politician, both in central and local government and brings with him a reputation that is not particularly flattering. In his short time at Kaipara he has added to that reputation.

His style of his press release (here) announcing the probable validation of illegal rates by way of a local bill tells us a lot about the man. He is adept at the art of smoke and mirrors and manages to contort the truth to serve his own ends. He uses every trick that he has acquired to convince ratepayers that the validation procedure (and the failure to enquire into problems of the past) is really for their benefit, when the reality is that Council is robbing them blind.

He does it with the glib, easy manner of a snake-oil salesman.

One of the reasons that Council has got into such a mess is that no one in Council had a basic understanding of the requirements of the LGA and the LGRA or were aware of the appropriate terminology under the legislation for setting rates.

That is why so many rates are now invalid and Council is left to sort out what John Robertson colourfully, and appropriately, calls a “dog’s breakfast of procedural and technical failings

Given the expense of trying to fix all these problems one would have hoped that the Council would have learned from its mistakes and used the correct terminology, but the press release suggests otherwise.

According to the press release the invalidity of the rates stems from the Council setting rates that "were inconsistent with Financial Impact Statements".

The problem is that there is no such thing as Financial Impact Statement. Try and find it in the LGA or the LGRA and you will try in vain. Look in the various annual and long term plans and you will not find it.

However, there is a Funding Impact Statement which is a vital step in the rating process and should be known to everyone in Council who has anything to do with rates.

Now this failure to give the correct name may seem like a small error but it actually shows an ongoing ignorance of the rating procedure by people who are paid by ratepayers to be experts in the field. There is no excuse for so-called experts to get the name wrong.

Setting rates is a fairly simple process provided that the correct procedures and terminology are used. The exact use of the appropriate language is required otherwise the rates risk being declared invalid. The cost to Council of such an outcome is horrendous, as we are now discovering.

One would expect Jack McKerchar and his staff, who made such a botch-up of the rates, to misname the Funding Impact Statement, but it is disheartening to see that he new Chief Executive used the wrong term in his report to Council in the validation proposal (here - page 143)

No doubt that error was copied into the press release. However, the commissioners, who issued the release, are supposed to be experts in the local government field and one would have thought that one of them would have picked up such a basic and glaring error.

The Kaipara Council has got to the stage where it is virtually incapable of doing anything without calling in lawyers and consultants. It now seems that it can't even issue a press release without having it vetted by the lawyers.


DEAR JOHN 14.12.12
Ratepayers are incensed at the discovery that Council is going to apply to parliament for a private bill to validate all the illegal rates that it has set over the past 6 years.

The startling thing about the new plan is the total failure of John Robertson's team to consult with ratepayers, yet again. He and his henchmen have again run roughshod over the rights of ratepayers.

Almost a year ago the when Jonathan Salter confirmed ratepayers allegations on the extent of incompetence and illegality in setting the rates, the Chief Executive Steve Ruru promised that the problems would be resolved hand in hand with the community. Ratepayers focus groups were promised an in-depth consultation. Absolutely nothing was done.

We are still waiting, Steve.

The review authority under Greg Gent made the following recommendation in its report:

3. The Minister of Local Government, in specifying the terms and conditions of the commissioners’ appointment, have specific regard to mechanisms to ensure the community has input into decisions of the commissioners.

That is pretty clear language.  Even more, the commissioners were specifically instructed by the Minister as part of their terms of reference to undertake the following

- work with the Kaipara community and ratepayers and the Department of Internal Affairs to identify options for dealing with invalidly set rates and other legal compliance matters;

- begin initial engagement with the community and iwi to rebuild confidence and trust in the Council. This may include the establishment of community and iwi reference groups.

All ignored. Ratepayers have never been consulted on the options for the invalid rates, or, for that matter, on any other problem.

There has been absolutely no engagement with the community. Those who have met with the commissioners report an obdurate indifference to the concerns of ratepayers, and an obsession with "the debt".

So how does Council look under John Robertson's regime?.

In breach of its promises? Yes. (So what, it has never kept a promise.)

In breach of its terms of reference? Yes. (Who cares?)

Ignoring the recommendations of the review team's report (What review team? What report?)

Appalling public relations? Yes. (But ten out of ten for consistency.)

Guaranteed to get the backs of ratepayers up? Yes.

In a few short months John Robertson has quickly shown that his appointment as chair of the commissioners was a huge mistake.

Greg Gent and his review team recognised the need for openness and honesty when they wrote in their report:


38. Restoring this relationship between the Council and the community is fundamental to addressing the problems the Council is facing. It is arguable that no solutions to any of the Council’s problems, regardless of how technically sound they are, will be tenable unless there is buy in from the community.

John Robertson would have done well to heed those words. But he is not interested in any "buy in" from ratepayers. He believes he can achieve his objectives with bullshit and bullying.

As the review team was so patently aware, ratepayers were willing to embrace the commissioners provided they were open, communicated with the people, and showed a willingness to respond to the concerns of the district.

John Robertson has done none of those things. He has behaved as a puppet of central government and a toady of the banks, with a steely and focused determination to dump the illegal debt on Kaipara ratepayers and to ignore the liability of others.

Even the most moderate of ratepayers have had a gutful of his disregard for the real problems, the sickening, misleading propaganda that emerges from his office, and his zealous defence of the banks' precarious loans, regardless of the cost to the communities and individuals in our district.

John Robertson was appointed as Captain of the Titanic to steer us on a new course, away from danger. The reality is that he has become the iceberg,  Like McKerchar, Tiller, and Geange before him, his actions are going to lead to the destruction of Kaipara as a viable district.

He is not the man for the job. The Minister needs to recognise that before more damage is done and send him on a very, very long Christmas holiday.


This website has been severely critical of the Auditor-General's failure to audit the Council appropriately, and also its failure to perform its watchdog role over local authorities. These combined failures have created an environment of legal non-compliance in local government where incompetents like Jack McKerchar, the former Chief Executive, can effectively destroy the financial base of a whole district.

I should point out here that the Auditor-General is by law the auditor for KDC. Audit NZ is appointed as an agent to carry out the audit on behalf of the Auditor-General, but the Auditor-General remains principally responsible for that audit.

Criticism of the Auditor-General's role in the Kaipara debacle is growing and it is now generally perceived  that the Auditor-General bears a substantial liability for the situation that Council finds itself in.

The Minister's review team under Greg Gent, that led to the demise of the old Council, pulled no punches when it came to stating their view of the short-comings of Council's auditors. This is what they said in their report:

Executive summary
7. An issue that was raised with the Review Team was why the Councillors’ auditors did not highlight many of the problems that have recently come to light in auditing its long term plans and annual reports. The Review Team recommends that commissioners seek legal advice on the perceived failures of the auditors.

Performance of Audit New Zealand
57. Several people raised with the Review Team whether the Council’s auditors, Audit New Zealand, should have identified some of the issues that have only recently come to light in completing audits of the Council’s long term plans and annual reports. The people expect Audit New Zealand to accept liability for these failings. For example, in his financial health and sustainability audit, Phillip Jones notes that the Council’s 2009–19 long term council community plan received an unqualified audit opinion. However, he

identified that the Council did not comply with section 100 of the Local Government Act 2002 as the Council was shown to be operating deficits in at least two of the years. Similarly there is a question about whether the invalid rates and lack of a clear development contributions and internal borrowing discussed above should have been identified by the auditors – issues that have created significant problems for the Council.

58. The Review Team therefore recommend that commissioners, if appointed, seek legal advice on the perceived failure of Audit New Zealand in auditing the Kaipara District Council’s long term plans and annual reports to identify any of the issues that have contributed to the current financial problems of the Council.

In spite of these strong recommendations the commissioners have taken no steps in relation to the liability of Audit NZ or the Auditor-General

Why not?

Because the government has an easy target in the ratepayers of Kaipara. They can be easily pressured into paying for the mistakes of everyone else.

And because any attack on the competence of the Auditor-General in this area would open the lid on the Pandora's Box of local government and the whole precarious edifice of local government in New Zealand would come tumbling down.


Nicola White, the Assistant Auditor-General Legal, advised recently that the OAG adhered to the principle of natural justice in that those “affected persons ” criticised in an OAG report were given the opportunity to view the report in advance and make comments on the findings. In respect of the EcoCare report ratepayers will not be afforded that opportunity.

This deference to the principles of natural justice and fairness made me reflect on a point that I have made many times in these blogs, that the OAG is very selective when it comes to abiding by the rules of natural justice.

I make the following points:

1. The rules of natural justice (which are binding on the courts but apparently not on the OAG – except for the ones it selectively chooses to adhere to) do no allow a body to hold an inquiry into its own actions (in sua causa nemo judex etc).

The OAG was and is the Auditor for the KDC, and the OAG is also holding the inquiry into its own auditing competence. (Note that Audit NZ is simply the agent for the OAG but the OAG remains the principal auditor and is responsible for the shortcomings of its agent.) That breaches one of the basic rules of natural justice. In a court of law any findings from such an inquiry would be set aside.

2. The appointment of an “independent” firm to carry out the audit inquiry (which is what the OAG has done to gain some veneer of independence) does not pass muster. First, the appointment is on terms set by the OAG. That is sufficient to destroy any element of independence. Second, virtually every audit firm in NZ has some relationship with the OAG or is beholden to the OAG for on-going work. An audit firm is scarcely going to bite the hand that feeds it.

Even if true independence were to be achieved the fact that the relationship could be seen to be tainted is enough in law to defeat any claim of independence. Justice must not only be done but must be manifestly seen to be done is one of the basic principles of natural justice (backed up by a heap of case law), and the OAG has hopelessly compromised itself.

3. If a body is under a cloud and there is an inquiry into its performance then common sense and fairness demand that that body should be suspended from its role until the findings of the inquiry are available. It is an absolute insult to the principles of fair play and to the people of Kaipara that during the inquiry into. amongst other things, the auditing of the Council, the OAG and Audit NZ were allowed to continue the audit of the KDC in the same questionable fashion as they had done in the past.

The OAG has fallen at the first hurdle and its findings are already compromised without a word being written.

4. I also point out that an increasing number of ratepayers consider the OAG and Audit NZ to be primarily responsible for the illegal actions of the KDC and the ultra vires debt. The failure to audit the accounts and the various plans appropriately, and the cavalier attitude to compliance (which Helen Curreen, John Dickie and myself experienced first-hand) created an environment in which all legal constraints could be ignored.

I have little doubt that the excess of Jack McKerchar and the Councillors would not have happened if the OAG had audited the Council appropriately and if it had carried out its role as watchdog.

5. I also believe that the court would have no difficulty reaching the same conclusion.

It therefore makes it somewhat of a farce for the OAG to be holding this inquiry when it is emerging that the OAG may be in fact largely responsible for the current situation and may be held primarily responsible by the court for the payment of the illegal and ultra vires debt.

If the OAG wants to know who is responsible for the Kaipara fiasco and who are the “affected persons” then it should take a long look in the mirror.

Legal Eagle believes that the decision to extend the EcoCare project and to almost double the debt was illegal and ultra vires (outside Council's legal powers) because Council failed to go through the decision-making process specified under the LGA and because it failed to meet he requirements of the LGA in respect of consultation with ratepayers. It was obliged to issue a new statement of proposal and go through the special consultative procedure with ratepayers before making a decision on the scheme and the debt..

Not only did it not satisfy any of those compulsory requirements, it did everything in secret and hid all the details of the extended scheme and the increased debt from ratepayers for many years.

This was a deliberate breach of the law and a breach of trust by the Council.

So, who is legally responsible for the illegal debt?

The government, according to John Robertson, has made it clear that it is not going to bail out the Council. That may well be its stance. It may deny any liability . But, as in any case where liability is disputed, it is for the court to decide who is to be held legally responsible. The government is not exempt from liability. More of that later.

The ratepayers also state that they are not going to bail out Council. Of all the parties involved they were the innocent party. They were the victims of a cynical, deliberate fraud and deception that should have landed the perpetrators in jail.

The court will be asked to confirm that:

• Council acted ultra vires in incurring the debt, and

• Under the LGA Council has no power to charge rates to pay for ultra vires debts, and

• As a fiduciary (trustee) of the ratepayers, councillors or commissioners must always act in the best interests of ratepayers and not third parties (the government or the banks). A fiduciary cannot bill a beneficiary for debts illegally incurred by the fiduciary.

One of the basic misconceptions about local government in New Zealand is that the ratepayers of a district are responsible for all the debts of the local authority no matter whether those debts are legal or not. Ratepayers are the scapegoat and the easy target for incompetent councils.

This misconception is based on a superficial reading of a section in the LGA which states that debts entered into by a local authority are deemed to be valid and enforceable even though they were secured in contravention of the requirements of the Act, or even by fraud. It is true that the bank can appoint a receiver who has special (but limited) power under the LGA to set a rate to cover the repayment of the debt.

The problem is that the LGA is very loosely drafted and the special power to charge a rate to repay the debt is only granted to a receiver. The Council itself - whether operating through councillors or commissioners - has no such power. When setting rates it is still bound by the principles of the LGA - the four well-beings - and by its fiduciary (trustee) obligations.

This means that a council cannot set draconian rates to repay an illegal debt that effectively destroy the communities in the district simply to appease the government and the bankers. The ratepayers best interests come first.

The commissioners and the government are not going to acknowledge the legal situation because it puts at risk the whole basis of ratepayer liability, and if Kaipara ratepayers manage to reject liability for illegal debts then the flood-gates will open, and the whole of local government in NZ will be turned on its head.

That is why ratepayers need to file proceedings in court to ensure that they are not made the scapegoats for the fraud that has been committed on them.

If ratepayers are not responsible for the debt, then who is?

Quite clearly those who were negligent, incompetent and were responsible for the massive and illegal blow-out of borrowings and the illegal actions.

If you want to know who the suspects are then simply look at the crime scene and see who was involved in the fiasco. The forensic boys then need to examine the role played by each participant to see what responsibility they carry for the losses.

The commissioners have already acknowledged in the recent letter from John Robertson that Council (the former Chief Executive and the elected Councillors) were negligent, so that is a good start.

The former Chief Executive, Jack McKerchar, who was employed by the Council for 12 years, has to bear the major responsibility for the ruination of our beautiful district. The impact that his incompetence and his illegal forays have had on our communities and individuals is immeasurable. It may take generations for the district to recover and many lives will have been ruined by his arrogant disregard of the law and correct procedures. It is my personal view that his behaviour was so bad, and the effect that he has had on the whole community so great, that he should be serving a term in prison.

Jack McKerchar should have insurance to cover his negligent acts, and he should be the first target.

Councillors may well be uninsured but they are still liable, in the same way as company directors, for the breach of their duty of care. Jack McKerchar could never have got away with what he did if he had not had a bunch of dopey councillors who abdicated all responsibility for decision-making and allowed him total latitude to wreak his special type of havoc. There were of course some Councillors like Bruce Rogan, Bill Guest, and Jonathan Larsen who did what they could to counter the excesses of the McKerchar dictatorship, but by and large the councillors failed miserably in their legal obligations.

They should be sued individually for breach of their duty of care and the Auditor-General should recover from them losses suffered by Council because of their negligence under the special powers in the LGA

The role played by consultants and advisers also needs to be scrutinised. You have to ask yourself how the Council could spend the vast sums of money that it did on consultants and legal advisers and yet get itself into such a financial and legal pickle. It looks as though there may be some negligence lurking there.

In respect of the EcoCare, the ultra vires extension of the scheme, and the ultra vires debt, it is essential that the roles of the financier, the contractor and Council's consultants and legal advisers need to be examined.

I find it hard to believe that all of those competent and experienced people (and experienced in dealing with local authority projects) were party to an arrangement to build a sewerage scheme for a local authority that involved massive costs and debt, yet not one of them appeared to know that the LGA required specific decision-making and consultation processes before any decision could be made or any contracts signed.

Did they all suffer from John Key's brain-fade?

As a lawyer myself I understand the obligations that a lawyer has when advising a client on a project and a debt, and the liability that a lawyer faces if he fails to advise a client on the appropriate legal processes. That is why clients use lawyers.

A cursory glance at all the various reports that the consultants used to persuade Council to undertake the EcoCare project and to extend it seem to me to be riddled with assumptions and financial models that have little solid basis, and it is appears to me that the whole scheme was a massive financial gamble based on flimsy figures and projections.

Experts need to examine the role of consultants, advisers and lawyers to see if there was any evidence of negligence on their part. If there is then action must be taken against them.

What of the contractor who built the plant? From the information available to ratepayers it seems that the EcoCare plant is not what we contracted for. The expression "not fit for purpose" is being bandied about. Were we sold a dud? Steve Ruru has acknowledged that the plant can cope with no more than the current 1200 connections (out of a promised 4,500) without massive further expenditure. The discharge farm also appears to be unsuitable for soakage even though a report from a consultant recommended it.

The Bicknell report that was commissioned by Greg Gent to ascertain the status of the EcoCare plant appears to have disappeared into the mists.

The valuations for the plant seem to support the view that there is a short-fall in value. That seems a fertile area to inquire into to see if Council has a case to recover a substantial sum from the contractor in an action for breach of contract.

The big question of course is the role of the Office of the Auditor-General and whether that Office is liable for the financial and legal problems facing Council.

The OAG has two basic roles. One is that of auditor to the Council to ensure that the Council's plans and accounts meet the audit requirements and satisfy legal and accounting requirements. The second is a general role to act as a watchdog to ensure that Council acts appropriately and to protect the best interests of ratepayers.

It has been my view for some time that the OAG has failed miserably to perform both those roles. I suggest that if the OAG had performed its roles satisfactorily then Jack McKerchar and his complicit Council would not have been able to get away with years of incompetence and flouting legal requirements.

Several years ago John Dickie, Helen Curreen of the MRRA, and Legal Eagle filed complaints with the OAG about the dreadful performance and illegal actions of the KDC. I personally made detailed legal submissions on the persistent failure to comply with the requirements of the Rating Act when setting rates. (Those submissions have all been subsequently vindicated by the Salter report.)

Our complaints were dismissed by the OAG. I got the distinct impression that the Office was not the slightest bit interested in reining in local authorities that were clearly operating outside the legislation. I also suspected that the legal people at the OAG had no understanding of the law relating to rating and setting rates. Either that or they simply did not care if rates were set incorrectly.

It is interesting that last year the Deputy Auditor-General Legal came to Kaiwaka to meet with us and apologised on behalf of the Auditor-General for her failure to pursue the matter when we first complained. We were then advised that there would be a full inquiry into EcoCare. However, that inquiry only came about because, in spite of the OAG's indifference, we had continued to press Council until it obtained the Salter report which confirmed our submissions on the legality of rates, and because Legal Eagle made further submissions to the OAG on the illegality of the decision to extend the EcoCare scheme and double the debt.

If ratepayer representatives had not taken the initiative and kept up the pressure it seems that the OAG that would have been happy to sweep the whole debacle under the carpet.

This has been a dreadfully shoddy performance by the OAG and the legal experts need to have free rein to see if legal action should taken against the OAG.

We finally come to the Minister of Local Government and the government itself.

Rodney Hide, as Minister, played for time and did very little to bring Council to account even though he was fully advised of the problems and illegalities. He put the Council "on watch" but little else. The Minister' Office only took decisive action after mounting pressure from ratepayers and far too late to salvage anything from the destruction of Kaipara.

The government has a broader role in this debacle. The government has a constitutional obligation to ensure that the powers of local government (which devolve from central government) are exercised appropriately by local authorities, that they act within the law, and that the rights of citizens are protected.

The government failed miserably to perform its obligations. It is blaming the obvious short-comings of local government on the deficiencies in the legislation but it is clear that the problem lies in the way the government performed its own obligations.

The watchdogs that it appointed - the Ombudsman and the OAG - are underfunded and toothless and do not have the necessary powers or, apparently, motivation to police their areas of responsibility. They are very much like the old Securities Commission which sat by while renegade finance companies pillaged the life savings of New Zealanders.

The Office of the Minister, which should be a back-stop to pick up missed balls, went AWOL.

The government's attempt to dump liability for local authorities' excesses and illegalities on innocent ratepayers is shameful. It relies on ratepayers not having the financial backing or the courage to stand up to the government and seek redress from the courts.

That is a serious misjudgement on the part of the government. Kaipara ratepayers are not going to lie down and accept this debt. If the government refuses to listen to them and to act fairly within the law, they will reluctantly, but steadfastly, take the legal action that is appropriate to ensure that those who are truly responsible for the fraud that was perpetrated on the people of Kaipara are held responsible in law.



John Robertson, chair of the commissioners, recently sent out a letter to ratepayers with the third rates instalment in an attempt to put his side of the story.

The letter starts with the grand gesture:

We are also aware that there has been much public comment - some of it misinformed - about issues the district is facing. This letter aims to provide some accurate information .....

But then goes on to misrepresent the situation and is full of propaganda and misleading information.

In the past Kaipara District Council has been poor at both planning and budgeting. It has not managed ratepayer's money well at all.

This is quite amazing. It is a clear acknowledgement of incompetence and negligence on the part of Council. In law a chief executive owes a duty of care to the council, and the elected councillors owe a duty of care to the ratepayers. If they breach that duty of care and the council suffers losses then they can be held accountable for those losses in a court of law. The Auditor-General also has the power under the LGA to recover any losses from councillors.

The commissioners are effectively publicly acknowledging that both the Chief Executive and the Councillors of the KDC breached their duty of care. That being the case, why are the commissioners not taking action against those whom they acknowledge did not comply with their legal obligations? They are repeatedly restating the mantra that ratepayers must accept responsibility for the debt when in fact they acknowledge that other parties are responsible for the mismanagement of the KDC's affairs.

It also follows that if Council was poor at budgeting and planning then there has to be a very large question mark over the advice received from the expensive consultants and advisers and lawyers who allowed Council to wander to drift from the path of competence. Is there going to be an inquiry to allocate any possible blame for financial losses to those parties?

Likewise, it appears that Councils' descent into financial and legal chaos was completely overlooked by the Council's auditor, the Auditor-General. Was the failure of the Auditor-General - through its agent Audit NZ - to appropriately audit Council's accounts and plans the fundamental reason for the Council's failures and massive debt. If so, is Council going to take any action against the Auditor-General and Audit NZ?

The quote above is something of an understatement. Council has already acknowledged, and apologised for, the setting and collection of nearly 18 million dollars of illegal rates. It is also aware that many millions of dollars of development contributions have been legally charged but is seeking to bury that fact. It also aware of, but refusing to acknowledge, the illegality of the "unit of demand regime" that the previous Chief Executive used to suck monies from Mangawhai ratepayers to pour down his bottomless dunny. The Chief Executive is aware of the situation but refuses to admit the situation publicly.

The commissioners are also aware that there is a serious question mark over the legality of the decision to extend the EcoCare Scheme and almost double the price. Their own lawyers have acknowledged the likelihood that the debt is ultra vires and this is the main reason why the Auditor-General is holding an inquiry into Council's decision-making.

So, Mr Robertson, why the shybness in revealing these facts and where is the accurate information you promised?

Historically, it has also set its rates very low.

Absolute rubbish. Rates in parts of the District may have been on the low side but rates in Mangawhai have always been high. Most absentee ratepayers have always paid more in rates for their modest baches in Mangawhai than their superior properties elsewhere.

The rates have not even covered the Council's day to day operating expenses, forcing Council to borrow.

That short sentence says everything there is to say about the good faith of the commissioners. It is a total misrepresentation of the facts. The rates paid in the past were more than enough to cover the day to day expenses of Council. It was Council's incompetent financial management, its pandering to consultants and contractors, its total ineptitude in managing the EcoCare project and other major projects such as Hakaru and the swimming pool, its obsession with a Proposed District Plan (where the costs have spiralled out of control) that have caused the financial shortfall.

As a result, and also because of some very poor management around the Mangawhai community waste water scheme, Kaipara District Council is now $79.1 million in debt.

There's that admission of negligence again. The figure given for debt is totally misleading. If you include Council's internal borrowings, the debt that it owes ratepayers for illegal rates, the debt that it owes for illegal "unit of demand" charges, the debt that it owes for illegal development contributions, then it is estimated that the total debt is in the region of $110 to $120 million. In addition there is the $20 million facility just arranged with the BNZ some of which has already been spent.

We are working with the banks to develop a plan to reduce the debt from $79.1 million down to $60 million over the next ten years.

How? Any massive reduction can only be achieved by imposing draconian rates that will bring about the destruction of our communities. A $19 million decrease, if it could be achieved (and this Council has never kept its word) would still leave a debt of around $100 owing million after 10 years - if the correct figures are used. For generations Kaipara is going to be plagued with this debt. It is going to be a burden on our generation, on our children's generation and on our grandchildren's generation. No one is going to stay in the district and accept that burden. No one is going to move into the District and willingly take on a the burden of such a massive debt.

Some people believe the government should (and will) bail out Kaipara District Council by paying off its debt. On your behalf, we have spoken directly to the government about this specific issue. We have been advised, categorically, that this will not happen. The government will not pay off Kaipara's debt.

I have yet to meet anyone who suggests that the government should pay off the debt. However, just as the government is saying that it will not pay off the debt, the ratepayers of Kaipara are also saying that they will not pay off the illegal debts of Council. They are also saying that they have no legal obligation to do so.

Who then should pay the debt? Quite clearly those who were negligent, those who were incompetent, those who acted outside the law, and those who were responsible for the massive and illegal blow-out of borrowings. If you want to know who the suspects are then simply look at the crime scene and see who was involved in the fiasco. The forensic boys then need to examine the role played by each participant to see what responsibility they carry for the losses.

I will go into detail about the list of suspects in another article. At this stage it needs to be made absolutely clear that those responsible for the illegal debt must be held accountable. Ratepayers are not going to foot the bill.

The chances of government acting fairly are minimal.  Ratepayers are an easy target and generally do not resist being dumped with payments they are not responsible for.  That is what the commisioners are doing at the government's behest.  It is unlikely that government will listen and it will almost certainly be necessary to file proceedings in court to establish that the EcoCare debt is ultra vires and not the responsibility of ratepayers.

A few people in the community have also said that they wish to bankrupt the council believing (mistakenly) that this will mean that the debt will be written off. They are wrong. Under such a scenario, a receiver would be appointed and would set new rates to recover the funds owed by Council the receiver would pursue ratepayers who failed to pay.

There is an element of truth in this comment. However, it is a scenario that is not going to happen. Any receiver appointed does have the power to collect rates to cover the debt (even though the debt is illegal). At the same time the council continues to collect the normal rates pursuant to the principles of the LGA. The receiver is not constrained by the principles of the LGA and can simply set rates at a level to recover the debt. He can carve off his pound of flesh without any ulterior consideration of well-beings or fairness. Kaipara would be pillaged by the bankers. No government is going to allow that to happen. To allow the banks to destroy a community to recover a debt from ratepayers which is not their responsibility would mean the end of any government that countenanced such an outcome.

What the commissioners fail to add is that although a receiver has the power to charge rates to repay an illegal debt, the Council itself does not have that power under the LGA. It is constrained by the general principles of the LGA (and by the fact that it is a fiduciary for the ratepayers) and needs to base any rating decisions on the four well-beings of the community. Destroying the community to pay for illegal debts is simply not within its power.

We do not believe it fair that some Kaipara ratepayers pay their way and others don't Nor do we believe it is fair that the property values of some people in the district are being negatively impacted because of the actions of a few.

Joseph Goebbels, Hitler's propaganda Minister would have been proud of John Robertson. This comment has incensed many ratepayers in the district and driven some to join the rate strike. For Mr Robertson to plead "fairness" when the his Council (a council is a continuum) is responsible for a crime sheet of illegalities, incompetence, misleading behaviour, and has had a total disregard for fairness in its operations both past and present, is an insult to honesty and to ratepayers.

Ratepayers are not paying their rates because they are illegal. Council has acted outside the law for some years now and has acknowledged that its rates were illegal. The current LTP and the current rates are also illegal. No matter what weasel words the Chair utters, ratepayers are not going to be fooled into pouring any further monies into the commissioners' Ponzi scheme.

As for property values..... John Robertson knows full well that property values have been destroyed in Kaipara because of the debt of $120 million that his Council has run up, because developers have been driven away by an arrogant and incompetent Council, because the district will be burdened with debt for generations to come, because people will be forced off the land, because businesses will be forced to close, and because Council continues to be run by a dictatorship that is operating in contravention of the law of the land.

That will do for now. Other comments from ratepayers on John Robertson's appalling letter can be seen here.


Is the current long term plan (LTP) invalid?

Are the rates for this rating year invalid?

These are important questions for ratepayers wondering whether to join or continue the rate strike.

Council has a set response to all allegations that the LTP and the rates are invalid. Steve Ruru's response goes like this:

For this claim to have merit, the claim would need to be supported by a judgment from the High Court. If such action was taken against the Council, we do not believe that it would succeed.

The Kaipara Lifestyler reported the following comment from the meeting between Grey Power and commissioner Colin Dale:

Upon querying commissioners issuing rates demands based on an illegal Long Term Plan, Grey Power was advised that the commissioners have legal advice that until the current long Term Plan is declared illegal it must be accepted as legal.

Council has clearly adopted the strategy of maintaining that any action that it takes is valid until a court decides otherwise.

Ratepayers will recall the illegal and ultra vires EcoCare rates. Council obtained an opinion from lawyer Jonathan Salter, an expert in rating law, who Council employed as their own solicitor. He found that the rates were invalid and indicated that the court would agree with him. Initially Council agreed with the findings but then changed its position, stating that, in spite of the Salter findings, it considered the rates were valid until a court decides otherwise.

We have also had the 'Unit of demand" charges on separate units that were completely outside the Rating Act and utterly illegal which Council has chosen to ignore for many years, on the basis that they have not been challenged in court.

Council is now adopting the same strategy in respect of the invalid LTP and the invalid rates for the current rating year.

You don't have to be a rocket scientist to realise that this is a complete abuse of power. What the Council is saying in effect is that it can do anything it likes, break the law, ignore the LGA and the LGRA , and that everything it does is perfectly legal until a ratepayer dips his hand in his pocket and takes them to court. It is effectively thumbing its nose at the rule of law.

Imagine if the criminal law was like that. Criminals would be free to do whatever they wanted and would not be responsible for any crime unless their victims applied to the courts for an order declaring the action illegal.

That does not happen because in respect of the criminal law we have the police to ensure that citizens are law-abiding.

The police are not involved with enforcing administrative law (which controls central and local government). However, there are supposed to be two checks on the abuse of power by central or local government.

First, it is fundamental to our type of democracy that central and local government are obliged to act fairly in exercising their statutory powers. This obligation is enshrined in the NZ Bill of Rights Act1990:

27 Right to justice

(1) Every person has the right to the observance of the principles of natural justice by any tribunal or other public authority which has the power to make a determination in respect of that person's rights, obligations, or interests protected or recognised by law

Natural justice means effectively that a public authority must act fairly in everything that it does. It must ensure that all of its actions comply with the law.

If there is a serious claim that one of its actions is illegal then it must respond fairly and appropriately and take legal advice, and make that legal advice available, so that the legal advice can be open to scrutiny. It cannot do what the commissioners and the Kaipara Council have been doing. They are denying their legal responsibility under the Bill of Rights, but more than that they are shifting the responsibility and the burden of proof unfairly onto the complainant. They are effectively saying: "We are right. If you disagree then take us to court."

They are also abusing their power because they know that any complainant is going to suffer financial hardship, delay and stress in challenging any illegal action in court. They are using the short-comings of the court system to reinforce their unlawful stand.

This is a clear breach of the Bill of Rights Act.

Second, central government is under an obligation to provide a regulatory framework to ensure that local government operates in compliance with the law, and that the rights of citizens are protected.

The government has failed dismally in this area. The two watchdogs, the Office of the Ombudsman and the Office of the Auditor-General for various reasons have proved to be ineffectual and many local authorities are out of control and flout the provisions of the LGA and the LGRA without any sanction.

The Kaipara Council is one of many that has operated outside the law for many years and even with government appointed commissioners is still doing the same.

Whether an action taken by a local authority is illegal or not is usually a simple matter to determine. The suggestion that there has to be a decision from the court before any action is deemed to be illegal is absurd. Simple criminal acts like stealing, or attacking someone are clearly illegal. Exceeding a speed limit is illegal. Not paying your tax by a certain date incurs a penalty. Even intercepting the communications of a NZ resident is illegal, as John Key discovered, and there was no need to apply to the courts for a decision. It was clear to everyone that the law had been broken.

There are instances where there is some doubt whether the law has been broken or not, perhaps because of the ambiguity of the law, or uncertainty as to the facts, and in such circumstances legal advice is ought to resolve the issue. It is incredibly rare that parties have to resort to the court to make a decision on the matter.

That is, of course, unless you are the Kaipara Council and you deny your obligations under the Bill of Rights Act, and you ignore the opinions of your own legal experts.

The issue of the illegality of the LTP and the rates is a very simple one that does not involve any legal complications. Let me explain the steps in the legal argument:

1. Section 5 of the Local Government (Rating) Act defines "rate" as follows:


(a) means a general rate, a targeted rate, or a uniform annual general charge that is set in accordance with subpart 2 of Part 1(of the LGRA)

 2. Section 23 in subpart 2 of Part 1 of the LGRA states:

23 Procedure for setting rates

(1) Rates must be set by a resolution of the local authority.

(2) Rates set by a local authority must

(a) relate to a financial year or part of a financial year; and

(b) be set in accordance with the relevant provisions of the local authority’s long-term plan and funding impact statement for that financial year

3. Section 5 of the LGA states:

long-term plan means a long-term plan adopted under section 93

4. Section 93 states:

(3) A long-term plan must be adopted before the commencement of the first year to which it relates, and continues in force until the close of the third consecutive year to which it relates.

Note the must. This provision sets the limit of a local authority's power. Thus the Kaipara Council only had the power to adopt the LTP if it did so before 1 July 2012, the date of the commencement of the plan. It does not have the power to adopt the plan later than that date. Because it adopted the LTP several weeks after the deadline its action was ultra vires (outside its powers), and the plan is invalid.

In summary, because the LTP has not been adopted under section 93 it is not an LTP as defined by section 5 of the LGA. Council is unable to set its rates "in accordance with" its LTP under section 23 LGRA because it has no valid LTP. Which means that the purported rates are not "rates" as defined in section 5 of the LGRA.

Council, of course, points to section 60 of the LGRA and maintains that ratepayers are obliged to pay rates even if they are illegal, unless they have filed proceedings in the High Court. That provision is very poorly drafted and I have yet to find a lawyer who understands it, but it is still used by councils as a weapon to beat ratepayers into submission and make them pay illegal rates. The reality is that if the rates have not been set as required by the LGRA then they are not deemed to be "rates" as defined by the Act and ratepayers have no obligation to pay them.

This is a situation where the law is very unclear and the Kaipara Council cannot rely on section 60 to enforce payment unless it has a ruling from the court to support its interpretation.

Finally, a very important point. At the end of the day Council cannot require any actual payment from ratepayers unless it has an order from the court. It can add penalties to the account and send letters of demand and use every trick in the book to persuade you to pay, but a ratepayer is not obliged to make any payment at all until the Council takes legal action and the matter is heard by the court. And when such an action comes before the court it is the Council that has to prove that the rates have been set in accordance with the legislation and can be validly charged.

As we have seen, that is going to be a very onerous task.

Meanwhile the commissioners, wearing their standard-issue Kaipara legal-blinkers, are digging themselves deeper and deeper into a massive legal hole.


The long suffering ratepayers of Kaipara have reason to be disappointed with the commissioners who have been appointed by the Minister to get Kaipara out of the dire legal and financial chaos created by the McKerchar/Tiller/Geange circus.

After many years of utter incompetence, impoverished governance and a complete disregard for legal compliance, we ratepayers hoped that government appointed commissioners would have the relevant financial and legal experience to cope with the issues, would have some respect for the law, and would comply with their legal obligations to put the best interests of the ratepayers first.

None of that has materialised. The commissioners are part-timers who do not appear to have any of the skills that are needed to crack this nut. They appear to have little idea of what the problems really are and are only being briefed by the staff that worked for the disgraceful regime that has been ousted.

It is ironic that in times of financial crisis, when costs have to be pared to the minimum, it is the wages of the commissioners that are tipping the financially strapped Council over the edge.

Getting experts to fix problems is never going to come cheap but having a bunch of part-time amateurs is never going to cut the mustard in resolving problems. It is simply going to add to the debt and perpetuate the existing problems.

In the weeks that the commissioners have been there little has emanated from fortress Dargaville, except of course the flow of spin, all in the best traditions of Jack McKerchar and Neil Tiller. Here we are, desperate for honesty and integrity, and an expert and independent investigation of the financial and legal problems, and all that we are getting is the same smoke and mirrors that we have become so accustomed to over the years.

John Robertson, the Chair of the commissioners, is clearly the spin-meister. He is a smooth operator, well-versed in the dark arts of local government and politics, and his public utterances resonate with practised dissimulation. Take for instance his recent comments in the Lifestyler (here).

John Robertson, is reported as saying:

“No-one’s ever happy with a rates increase but most recognise that it’s important to pay as rates provide for services such as roads and wastewater".

The fact is that the increase has nothing to do with providing basic services. The massive increases are to fund an illegal debt that was incurred by an out of control Council acting illegally and with the blessing of the Auditor-General.

He babbles on:

“In the past few years, operating costs have been higher than rates income resulting in debt — we need to ‘tie down’ expenditure and remember the important principle of not borrowing to pay for day-to-day running costs."

Again he makes out that we ratepayers have been living beyond our means. The insinuation is that it is our fault. No mention at all of the illegal behaviour of Council and the self-interested antics of advisers, consultants and contractors.

He then gets carried away with his own rhetoric and reaches the heights of absurdity

“Our goal is to resolve financial and governance issues but we would also like to develop a model for the whole of New Zealand — a council with great services and a well-engaged community.”

Develop a model for the whole of New Zealand? This is the Council that has set a record for being the most incompetent council on record, and, in the hands of the commissioners, it is still blundering on without any direction or appropriate investigation, and is now operating totally outside the provisions of the Local Government Act.

The man clearly lives in gaga land and has absolutely no idea of the complexity of the problems that he and his mates are facing.

The remedy for the Kaipara problem is glaringly obvious for those who are used to such situations, and who do not have a vested interest in protecting those responsible for the rort. Try this:

Step 1: Sack the commissioners

The Minister appointed the wrong sort of people. Spin-merchants are exactly what we do not need. Give us a couple of competent experts experienced in liquidation and forensic investigation who could, with a specialist team, get to the bottom of all the problems within a couple of weeks.

Step 2: Financial assessment

You need to get the experts in. Forget Steve Ruru and his staff. They are tarred with the brush of the previous regime. We need independent, forensic accountants who turn the place upside down, and do it quickly.

We need to know the financial position of Council and whether it is capable of survival. The feeling amongst those with knowledge of the situation is that the real debt is so large that it is way beyond the capacity of the district to cope with without destroying the whole financial fabric of the various communities and destroying the lives of many ratepayers. (Note that the debt is probably $100 million and with debts to ratepayers for illegal rates and charges it may be $120 million)

If that is the case then we need to know that as soon as possible so that some sort of liquidation can take place. Pouring more and more monies into a bottomless colander without knowing if the whole thing is salvageable is an exercise in futility.

Step 3: Legal assessment

At the same time there has to be an independent legal assessment of Council's legal situation. It is clear beyond any shadow of a doubt that Council is now operating outside the provisions of the LGA and is effectively an "outlaw" council. None of is actions are valid and it has no power to set and collect rates.

That must stop immediately and remedial action must be taken to ensure that the council complies with the law and sets its rates legally.

Step 4: Legal liability for the debt

There has to be an independent legal assessment of the liability for the outstanding debts. The Minister and the commissioners are hell-bent on making the ratepayers pay and are refusing to consider any other option. They are even prepared to act outside the law to ensure that this end is achieved.

That is never going to happen. Very soon the illegal actions of the Minister and the government are going to be exposed. Not only that, ratepayers will, if necessary, ask the court to decide if ratepayers are responsible for the illegal and ultra vires debts of Council.

The point is, that, sooner or later, the Council, the Minister, the government, or whoever wields the big stick, is going to have to look at the liability of those who were truly responsible for the financial carnage in Kaipara and pursue them for their share of the debt.

Better to get that underway now.

The only way that ratepayers are ever going to get some honesty and integrity back into Council, and to make it comply with the law, is ,quite simply, to starve it to death by not paying rates. Council then has a choice. Either buckle down and start doing things properly, and within the law, and gain the support of the ratepayers. Or, carry on with the farcical pantomime and be faced with a rate strike like New Zealand has never seen, and legal action that will expose the fallacious assumptions on which local government law in NZ is delicately based.

Not paying rates does not come easily to most of us. We are brought up to respect the government and local government. The tragedy in all this is that local government, and now central government, have both betrayed the ratepayers of Kaipara and are now acting outside the law to make us pay for a debt that is not legally our responsibility. it is all a very fundamental breach of the NZ Bill of Rights.

We are left with no choice but to dig our toes in and refuse to pay the rates. That is the first step in getting justice and making the Council and the government act within the law.  Unpalatable?  Yes.  Necessary?  Yes.


The financial accounts of the Kaipara Council for the last 6 years have been a complete sham thanks to the previous Chief Executive and his staff, the Councillors and their pathetic acceptance of their exclusion from any involvement with financial matters, and the blind indifference of the auditor, the Auditor-General.

That is how we ended up with a sewerage scheme costing twice as much as we were told, and why it took nearly six years to find out the truth.

We now know that the Tiller-McKerchar-Geange regime was fundamentally dishonest and completely misled ratepayers. But what most ratepayers do not understand is that things have changed very little.

The new regime under the commissioners does not have a clue what the amount of the debt really is and they have little idea how it is to be paid. The commissioners are faced with a legal and financial mess that is so complex that it may be beyond any solution.

The LTP contains projections based on make-believe figures that have no basis in reality. The whole thing is a complete sham.

In an article here Auckland Planner Joel Cayford questions the figures in the illegal LTP and can make little sense of them.

The rates that have been charged do not even meet the interest payments to the bank. The interest not paid is being capitalised so that the debt is increasing annually.

The saviour, according to the LTP, is the prospect of development contributions and rates levied on new properties that are going to be developed in the future. This is the same scenario that formed the basis of the extravagant fantasy-like projections of the original scheme - masses of future development which would bring the monies tumbling in to Council coffers. And, like that previous fantasy, this new version is not going to happen either. The high development costs and an aggressive, arrogant and vindictive Council has long driven developers away.

The end result is that ratepayers will never be able to meet even the interest payments on the debts - if rates are set so that they are within the budget of ratepayers.

Paying off the principal is an impossibility without monstrous rate increases that would effectively wipe out the district economically.

One of the major concerns for ratepayers is who is to be held responsible for the financial mess. However, perhaps the most pressing matter is to ascertain with some precision the exact financial status of Council and an accurate assessment of its financial future.

Forget the commissioners and Steve Ruru and his staff. They are all tainted with the incompetence and the attitudes of the past. What we need is a totally new bunch of forensic experts who are completely independent who can go through Council like dose of salts and give an honest appraisal of its financial status and prospects.

Blindly stumbling on with an illegal LTP full of make-believe figures, accompanied by large doses of spin and smoke and mirrors, and little truth, is not going to get us anywhere.

And that is another good reason for not paying rates. Ratepayers need to have an honest and independent appraisal of Council's financial situation, and until they get one it would not be prudent to pour more monies into a local authority that is clearly teetering on the edge of insolvency.


Legal Eagle is adamant that ratepayers are not responsible for the illegal and ultra vires debts of a council.

For years both the government and the banks have presumed that the Local Government Act (LGA) gives banks who lend to local authorities absolute security for the loans. The loans are secured against the power to rate, and even loans entered into illegally or by fraud are still deemed to be valid.

Looks pretty good on the surface, and that is why banks are queuing up to lend to local authorities.

The problem is that no one has ever looked closely at the actual provisions of the LGA to see if in fact the protection and the security is as good as banks think it is. This has not been necessary because there have been no defaults for a long time and there have been no legal proceedings relating to the issue of security for a debt. There has been nothing to shatter the illusion that the security that banks have is rock-solid.

Kaipara has changed all that. The Council, the Minister, and the government are trying to dump the clearly illegal debt of probably over $100 million on the innocent ratepayers. The ratepayers were totally conned and misled by an out of control Council that was allowed to wreak financial and legal havoc whilst the government watchdogs sat and watched, and did nothing.

The word from the Minister, from the commissioners and from the government is absolutely clear: ratepayers are responsible for the Council's debts. Full stop. No dispute. They are not going to look at the liability of other parties because that would detract from the official mantra that ratepayers are always responsible.

And they are certainly not going to question whether the liability of ratepayers is actually a reality or whether it is a myth. To do so would be to question the whole basis of local government in NZ.

But Kaipara ratepayers are not so gullible. If the commissioners, the Minister, and the government are not going to hear their concerns then they will file proceedings in court to challenge the validity of rates that in effect are charging them for the illegal debts. The court can then examine the provisions of the LGA and decide if in fact ratepayers are obliged to pay the illegal debts of a council.

At this stage I am not going to go into the full legal arguments but if my submissions are upheld by the court then Council will still be responsible for the debt. However, it will not be able to use the power to rate to satisfy the debt.

So how will it repay the debt? An excellent question, and it is one that the government and the Minister and the commissioners should be considering now.

Council has very few assets that it can sell. The only access to any reasonable dollop of money is its power to sue those who are responsible for the EcoCare and debt debacle. That includes the individual Councillors who ignored their legal obligations. The roles of advisers, lawyers and consultants have to be closely scrutinised to see if they misled Councillors and failed to give them appropriate advice. Likewise the actual contracts need to be examined to see if parties to those contracts failed to meet their obligations.

However, the most obvious target for legal action and damages is the Auditor-General and its agent, Audit New Zealand. The Auditor-General was the auditor for the Council through all the relevant year and it was Audit NZ that actually performed the audit as agent on behalf of the A-G.

It is generally accepted that the audit was not carried out to the appropriate standards, and it is possible that a lot of the illegalities and incompetence would not have occurred if the auditor had done its job properly. Even the Office of the Auditor-General has accepted that the concerns have validity and has extended the scope of the EcoCare inquiry to include an investigation into the auditor's role in auditing KDC.

The problem is that nothing relating to the KDC is done openly, transparently and with due regard to the basic principles of law and equity. It is an absolute disgrace that the inquiry into the role of the Auditor-General in auditing the KDC is being carried out by the Auditor-General. It is something that should not be tolerated.

What should happen is that an expert lawyer should be consulted to assess the liability of the auditor and the likelihood of a legal action securing worthwhile damages. And if the lawyer gives the nod then proceedings should be filed.

As an indication as to how this should proceed, have a look at Tim Hunter's article (here) about the liquidator of Capital + Merchant Finance suing the firm's auditor (BDO Spicers) for damages, because its negligence in auditing the firm resulted in a huge loss to investors.

That is what the new commissioners should be doing. Forget the Auditor-General's inquiry and get some really grunty legal advice about making the real guilty parties legally responsible for the debt and illegalities that their negligence brought about.

Picking on ratepayers and dumping them with a debt that they are not legally obliged to pay, is an easy option that is seriously going to back-fire on the commissioners, the Minister, and the government. It is just a question of time.



Ratepayers will have received their rate demands by now and will be reeling at the massive increases. The rates bomb which was to hit Mangawhai has now been spread over the whole of Kaipara.

For those ratepayers who live outside Mangawhai it needs to be explained that the rate increases are not because of some gold plated Mangawhai sewerage system that everyone is now having to pay for. The sewerage plant that was delivered does not come within cooey of what was promised.

The reality is that the Kaipara Council misled ratepayers as to the capacity of the plant, the cost of the plant, and how such an expensive capital item would impact on rates. More than that, the Council acted in breach of the law in not issuing a statement of proposal and consulting with the people before making a decision to go ahead with the project and the massive new loans.

Having done it all illegally, the Council then kept all the information secret from ratepayers.

The whole thing was a rort from start to finish.

Ratepayers are now faced with a quandary: pay the rates or continue the rate strike.

There are those who want to give the commissioners a fair chance to see if they will resolve the outstanding problems.

To me it is a no-brainer. There are seven good reasons why I will not be paying any more rates until the commissioners acknowledge the illegalities of the past and start acting within the law.

1. No valid Long Term Plan
All rates charged by the Council for the current rating year are invalid because the Council does not have a valid Long Term Plan. The plan that was "adopted " by the outgoing Councillors, virtually at the point of the Minister's gun, is invalid because it was adopted outside the time-frame stipulated in the Local Government Act. The legal situation is absolutely clear and the LTP is as illegal as the phone-tapping of Kim Dotcom.

[There are also several other reasons why the LTP is invalid: Failure to adopt the prior annual report within the statutory time frame to allow ratepayers the opportunity to assess Council's financial situation. Failure to meet the decision-making and consultation requirements of the LGA in the plan itself. Failure to reconsult on the plan when fundamental amendments were made that were not contemplated in the draft plan and resulted in some ratepayers paying more rates than indicated in the draft plan.]

Because the underlying plan is invalid it means that the Council is operating outside the LGA, and outside the law, and cannot carry out any of the powers granted to it under the legislation or the LTP. Local government in Kaipara is in a legal limbo.

2. A council cannot charge rates to pay for illegal debts
The rates would be invalid anyway because a local authority cannot set and charge rates to for the purposes of paying illegal and ultra vires debts. The Minister and the government will insist that ratepayers are responsible for the debts of a local authority even if they are illegal. That is not correct. A receiver appointed by a bank has certain powers set out in the LGA to collect rates to meet commitments under illegal debts, BUT the provision does not extend to cover the situation where there is no receiver appointed. There is clearly a gaping hole in the legislation.

In such circumstance a council has no special powers in relation to illegal debts and must comply with the provisions of the Act. That means promoting the four well-beings. Section 10 of the LGA states that one of the purposes of local government is:

to promote the social, economic, environmental, and cultural well-being of communities, in the present and for the future

Destroying communities, and imposing immoral and unaffordable rates which are beyond the capacity of many ratepayers to pay, simply for the purposes of repaying illegal debt that was recklessly and illegally incurred, without any consideration of the four well-beings, is something that is totally alien to the LGA and to local government in New Zealand.

More than that, a local authority and the commissioners are in a special position under the common law . They owe a duty of care to ratepayers and they must also act as fiduciaries. This means that they are like trustees and must put the best interests of ratepayers first and ahead of their own interests. Having a council in a fiduciary position dump illegal debt on beneficiary ratepayers is not something that the High Court is going to tolerate.

3. Rates assessment is invalid
Under section 45 of the Local Government (Rating) Act a rates assessment (which is what you have just received in the mail) must include all the information set out in that section. Quite amazingly, after four years of defective rates assessment and with a new legal adviser on board, the KDC has managed, yet again, to make a dog's breakfast of the rates assessments.

The problem that Council faces is that if the rates assessment is defective a ratepayer has no legal obligation to pay the rates. Under section 44 a ratepayer is only obliged to pay rates when the local authority delivers a rates assessment that contains all the obligatory information.

So, even if the rates were valid, the rates assessment can still be non-compliant and ratepayers receiving a non-compliant assessment have no legal obligation to pay the rates.

[I am preparing an article on the defects in the rates assessments.]

4. Setting-off debt for illegal rates
The Council owes me thousands of dollars in rates that it has illegally charged me over the past four years, and which it has now acknowledged to be illegal. In law I have the right to set-off what they owe me against what I owe them.

5. How much is the debt?
The glossy Project Information Booklet of November 2007 set out all the liabilities of ratepayers under the EcoCare scheme. This was the "contract" between the Council and ratepayers. Ratepayers met their obligations under this contract by paying the annual rates and the capital levies set out in the document. We completed our side of the bargain.

Council has now come back to ratepayers saying that it got all the figures wrong, it is reneging on the agreement, and charging more annual rates and capital charges to cover the debt.

That's already two bites at the cherry. How many more is it going to take?

The debt that Kaipara has is so massive that it is going to literally take generations to repay it. And that is the debt that we know about. The truth is that Council still does not have any idea what the real debt is, and if it does it is hiding it so that in subsequent years it can reveal more debt and take more and more bites at the cherry.

They will bleed us dry for decades.

The commissioners are not going to investigate the past or tell us what the real debt is. They will just keep billing us year after year, tell us that it is our responsibility, keep the banks happy, whilst all those genuinely responsible for this gigantic rort are sniggering on the sidelines.

Ratepayers would be crazy to be part of this scenario. We didn't light the fire. We are not responsible. The only way we are going to get any independent appraisal of the situation and an assessment of legal liability is to stop being victims and stand up for our rights.

And the only way that we can effectively do that is by refusing to pay our rates and show that we are not going to be bullied into paying the debt.

6. Capped rates
How is that Nick Smith, when he was Minister, said that a 6% increase was unacceptable for rates, and we are being charged many, many times more than that?

How is that Auckland City is capping its rates increases to 10 per cent?

Would the government endorse 50 percent and 100 percent increases in Auckland and risk voter backlash?

Does John Key's government give a fat rat's about Kaipara? It has already deprived us of the rule of law and now, quite symbolically, it is partially closing down our District Court. It is condemning an area that is already struggling financially to a future of economic depression and stagnation.

7. Personal liability of councillors
Putting aside the question of illegality, why should ratepayers pay for the financial excesses of a council? The LGA places huge obligations on councils to undertake any commercial transactions in accordance with sound business practice, to take a sustainable development approach, to ensure prudent stewardship etc.

Quite simply that means fundamentally that any council, like any business, or any household, is obliged to live within its budget. And the budget available to it can be readily calculated from the rates intake.

It should therefore be impossible for a council to land itself in any financial strife IF it complies with its obligations under the LGA. That is what prudent stewardship is all about.

If a council exceeds its budget and incurs massive debt, as Kaipara has done, then it is clear that the councillors must have breached their obligations under the LGA.

Why should ratepayers have to foot the bill when they are innocent parties? Surely it is the councillors, who have been entrusted with ratepayers' monies and have breached both their trust and their statutory obligations, who should be personally responsible for any overspending.


In my view the only way that Council and the Minister and the government are ever going to acknowledge the illegality of the past, and of the present, and of the future, is if ratepayers make a mark in the sand and say, with a united voice: "No more illegalities".

The only way that we can effectively make them listen is to deprive them of their life-blood - money. We need to stop paying rates

And to back that up it is looking more and more likely that we will have to issue legal proceedings to bring back the rule of law to Kaipara.

The aim is not to bring the Council down but to make it face up to its legal responsibilities. If the commissioners moved quickly, acknowledged the illegalities and agreed to an investigation of the past, then they could have an interim LTP and interim rate in place in a very short time, with the full cooperation of ratepayers.

Civil disobedience , which is what a rate strike is, does not come easily to most people. We live in a civilised society and it is part of our psyche that we need to pay our dues to the government, whether central or local.

The problem is that in this instance we have been badly let down by both central and local government. They have got themselves into an incredible complicated legal and financial mess because of their incompetence and non-compliance with the law. The way out, as they see it, is to ignore the law and bully us into paying for their mistakes.

That is something that we have to resist. We are legally in the right, and we are morally in the right. If we are united and staunch then we have a good chance that justice and fairness will return to Kaipara.


Paul Holmes column in Saturday's Herald (here) echoes the feelings of many in Kaipara about the tendency in New Zealand for investigations to be carried out by those being investigated. And, what is even worse, the government gets away with it. Kiwis just roll over and accept it.

The Holmes article is about the Dotcom affair and Russell Norman's complaint to the police about the illegal actions of the police and the GCSB. This is what Holmes says:

A senior policeman will "assess Mr Norman's complaint", and the police have engaged their pet QC to see if any action needs to be taken from her review of what the officer finds. She is none other than Kristy McDonald. Kristy McDonald and the police are tight as a drum. Kristy McDonald has acted for the police on lots of occasions and was even their lawyer in a commission of inquiry into police conduct in 2007.

She's even had some curious role as patron of young police officers. And while she might protest her independence, I simply don't believe it. She's a really safe girl, Kristy.

So once again, the cops will investigate the cops.

The situation in Kaipara is identical. First we had the Auditor-General recommending an independent first principles review of the EcoCare rates, and then turning a blind eye when Council appointed its own solicitor to do a review that was neither independent nor first principles.

Having finally decided to wake from years of slumber, the OAG then decided that there should be an inquiry into the whole EcoCare project, including an inquiry into the role played by the auditor, Audit NZ.  Audit NZ was acting as agent for the Auditor-General, who in law is the official auditor and bears responsibility for any shortcomings in the audit. And who is going to hold this inquiry? You guessed it, the Auditor-General.

Legal Eagle has been very critical of the role of the Auditor-General (being judge, jury and the accused) and has pointed out the fundamental breach of basic principles of law, namely that one can not be a judge in one's own case, and that justice must not only be done it must be manifestly be seen to be done. (The article can be viewed here or scroll down to THE ROMANS SHOW THE A-G THE WAY.)

Such concerns have fallen on deaf ears in respect of the OAG and the government because that is how things are done in New Zealand. Those responsibe for illegal acts and those responsible for instigating inquiries or reviews that are less than independent, do so because they can get away with it.  The media scarcely raises any issues of this nature and the general public simply does not care, unless of course a particular section of the community becomes the victim of such illegalities.

Holmes goes on to say:

I received an overwhelming amount of mail from my column last week in which I said that the whole Dotcom saga is part of a long history of incompetence and corruption which has characterised the history of this country. Many agreed. Many seemed overjoyed to hear me say it.

I am sure that many Kaipara residents are begiinning to realise that the incompetence and corruption did not start and end with the Kaipara Council but are far more deeply engrained in local government in New Zealand.

Any hope that we had that the new commissioners would act cooperatively, and fairly, and within the bounds of the law are fast fading.  As we all examine our rates bills in horror we realise that it is more of the same, more of the same............  Our generous approach to the commisioners, to give then "a go", is fast disappearing as we start to realise that they are just here to quell the rebellion, protect the banks, bolster the crumbling edifice of local government, and, most importantly, to get us to pay the illegal debt one way or another.

With the media alerted to the government's prediliction for illegal actions, John Key has to be very careful that the KDC (Kaipara District Council) saga does not become another KDC (Kim DotCom) saga.  That is especially so as John Key, and all his Cabinet, have received formal notice from Legal Eagle that the Kaipara Council is acting outside the scope of the LGA because its underlying LTP is invalid.  When Kaipara hits the headlines in a big way, there will have to be an awful lot of brain-fade for the Prime Minister and his Cabinet to state that they did not know of the illegalities.


WORZEL WISDOM   03.10.12
A few weeks ago I read an interesting letter from Worzel in the Mangawhai Focus that seemed to put a few issues into perspective. He is a regular contributor to the Focus with folksy, homespun articles.

Worzel referred an article in the Focus which quoted KDC Chief Executive Steve Ruru as saying that by restructuring unsustainable debt "We estimate council will save in the order of $250,000, $350,000 a year".

Worzel added:

It saddens me that our CEO does not understand the word "saving". Monies paid in usurious interest charges is money unproductively wasted. Ask any of the many bankrupted farmers or former home owners in the district. I’m sure they will back me up on this. Rearranging loans so that less money is unproductively wasted does not equal savings It merely represents less money thrown away. If I cannot afford to buy a new BMW and consequently do not buy one I cannot boast of saving $85,000 can I?

I agree. What is the relevance of saving $250,000 a year when ratepayers have been dumped with liabilities of close to $100 million, mostly of it illegal debt, and those responsible for the rort have been let off scot-free?

Are we supposed to ignore six and more years of sheer incompetence and illegal shenanigans, ignore the fact that we are being held responsible for a debt that will destroy our communities, and yet be grateful that Council is now finally doing its sums and saving a few coppers?

The real issue is : How did all that money get lost in the first place and who is going to be held responsible for it?

Whichever way you look at it, the illegal debt is too large for Kaipara ratepayers to bear. No matter how much we scrimp and penny-pinch the debt is simply too big for our small community. Steve Ruru is simply rearranging the deck chairs on the doomed ship and allowing those really responsible for the situation to escape without any liability.

Worzel makes another point that I feel very strongly about. The fact that those in power maintain that an illegal action does not become illegal until the courts declare it to be illegal. Until that happens it is deemed to be legal.  Which effectively means that Council can do as it wishes and ignore the requirements of the LGA and the LGRA with impunity on the basis that all of its actions are deemed legal until the court decides otherwise.

That is the argument that that Council has used in respect of the EcoCare rates. Although declared by their own legal expert to be invalid and ultra vires, Council maintains that they are valid until the court decides otherwise. Knowing of course that the cost to a ratepayer of going to court is prohibitive.

It was therefore refreshing to see Prime Minister John Key acknowledging that the interception of Dotcom's communications was illegal. No ifs, no buts. No excuses. No need for lengthy court proceedings to establish that the act was illegal. With the whole of NZ media putting the Prime Minister under the laser light there was no chance of him pulling the stunt that the Council gets away with.

Worzel makes the same point when he criticises an editorial in the Focus:

In your editorial you are dismissive of admitted and alleged illegalities surrounding actions of KDC, the Auditor General and Central Government. The implication is that something becomes illegal only if prosecuted and found guilty. This is incorrect. If I commit fraud, burglary or assault I have committed an illegal act whether or not I am caught and subjected to due legal process. Current police clearance rate on burglary is 22% This means that 78% of burglaries are unsolved, there are no charges laid and nothing is proven in court. By your definition these then are not burglaries at all and the Police may as well claim a 100% clearance rate.

Well put.  Apply that to the Long Term Plan.  It  is clearly illegal because it was not adopted within the compulsory statutory time frame.  Time for the government to 'fess up, admit its mistake, and actually do something to remedy the invalidity rather than trying to bully ratepayers into submission.

Worzel also refers to Jo Roberts comments in the same newspaper where she quotes from the report of the Minister's review team:

"that it expects members of the community to engage in such processes, if established, in good faith and approach them with a spirit of reciprocity and as an opportunity for a new beginning’’

Worzel responds:

By definition there can be no ‘’new beginning’’ until such time as the reported $85 million debt is defaulted on or discharged. If the members of the community were to truly respond in’’ a spirit of reciprocity’’ then we should be endeavouring to waste several hundred million dollars of counsellors and council staff’s money. This would hardly help the situation.

It is impossible to have a’’ new beginning’’ until previous and ongoing unresolved problems are solved. No counsellor, staff, review team, Auditor General, Minister for Local Government, newspaper, consultant or ratepayer has been able to yet clearly identify the causes of the problems. Until this is done a solution will not be possible and any Good Faith would be misplaced.

Words of wisdom indeed.

Like Worzel I am genuinely amazed that some ratepayers in the district are so generous at turning the other cheek and accepting liability for a debt that is not only not theirs but which has come about as a result of illegal and highly questionable behaviour.

Would those same people be so conciliatory if the builder of their own house ignored the signed contract for $350,000 and billed them $700,000 for a structure that failed to meet specifications?

Would they approach the builder with a "spirit of reciprocity" and see it as an opportunity for a new beginning?

I think not. So what is the difference?

The circumstances are virtually the same. However, because we are dealing with a council debt we are being conned by the powers-that-be into believing that in some way we are responsible for the debt and must pay for the incompetence and illegalities of others.  We are told that this is the way that local governemnt works in New Zealand, with the ratepayer paying all the bills, irrespective of their legality.

We are such an obedient lot.

Let me make it perfectly clear. We were conned in the first place over the scope of the EcoCare project, and we were misled over the cost of the scheme and the size of the debt, and the financial viability of the whole project.

We are now being conned again into believing that ratepayers must always bear the responsibility for Council debts, even though they are illegal and those responsible for the debts breached just about every rule in the book.

We are also being conned into believing that those responsible for the financial and legal carnage should be allowed to escape without any liability.

As a community we need to yell out loud and clear one word: BULLSHIT.

We should tell the Minister and his men to get their own house in order, to start acting within the law, to make the assessment of liability for the debacle a top priority, and not act like Mediaeval tyrants dealing with a bunch of disenfranchised serfs.

And, until they do, we should stop paying rates and prepare ourselves for legal action. That is an expensive undertaking but it seems that it is the only way that we can bring some sanity back into the situation, and re-establish the rule of law in Kaipara.


With thanks to Worzel (Chris Sellars)


The new Kaipara Commissioners might be forgiven for believing that because they have been appointed by the Minister of Local Government in consultation with the Department of Internal Affairs to do the Minister's bidding in Kaipara, that they are immune from any personal responsibilities for the actions that they might undertake.

Such a suggestion is wide of the mark.  Appointment by the Minister gives no immunity by itself.  The commissioners have to be very careful to ensure that they comply with the law, otherwise they might find themselves added to the list of those legally responsible for the Kaipara debacle.

Legal obligations of commissioners
Under clause 17 of Schedule 15 of the LGA a commission has and may exercise all the functions, responsibilities, duties, and powers conferred by any Act or otherwise on the local authority.

This means that the commissioners are bound by the provisions of the relevant statutes, principally the LGA and the LGRA.  They only have only the powers set out in those acts, and no more, and they have the responsibilities and duties specified in those acts.

The words "or otherwise" indicate that they are also bound by the principles of the common law, which consists of unwritten rules based on principles of justice and case law.

Thus they are obliged to comply with the duties inherent in the common law duty of care that they owe to ratepayers. They must also must act at all times as fiduciaries, like trustees, which means that they must act in the best interests of ratepayers, and not in the interests of third parties.

In the open letter to ratepayers (here) the commissioners acknowledge their legal responsibilities:

We are to govern the Council in a way that stabilises and then strengthens the Council organisationally and financially. In doing so, we must comply with the Local Government Act 2002 and other statutes which impose duties and obligations upon Council. 

Conflict of interest
We immediately run into the problem of a conflict of interest.  The conflict is between the legal responsibilities and duties that they owe to ratepayers and the instructions that they have received from the Minister.

Under section 255 of the LGA

(4) The Minister may appoint a Commissioner on such terms and conditions as the Minister thinks fit.

However such terms and conditions are limited by the primary obligation:

to perform and exercise a local authority's responsibilities, duties, and powers

This means that the Minister has no power to set terms and conditions that override the legal obligations and duties that commissioners have under statutory enactments or at common law.

If there is a conflict between the terms and conditions set by the Minister and the legal obligations then the latter must always prevail.

Minister's instructions in respect of the LTP and collection of rates
The gazetted terms of reference for what is called the first phase state:

- work through issues raised by the Council's 2010/11 annual report and the Council's 2012-22 long-term plan that relate to the financial risks faced by the Council;

- undertake actions to enforce the payment of 2012/13 rates and any unpaid rates from previous years;

The first difficulty that the commissioners face is that it is clear beyond any doubt that the LTP and the annual report referred to are both invalid.  They were not adopted within the statutory time-frame in the LGA which immediately makes them invalid.  However they are also invalid because of failure to comply with the requirements of the LGA and because of procedural defects.

This means that there is no valid LTP.  Which means that the Council has no power to set and assess rates.  The issue facing the commissioners is not , therefore, to examine the issues raised by the LTP, but the more fundamental problem of not having an LTP at all.

The second part of their instructions is also problematical.  The commissioners are instructed  to:

- undertake actions to enforce the payment of 2012/13 rates and any unpaid rates from previous years;

However, Council has acknowledged that many of those rates are invalid or ultra vires.  And now, because the Council has no valid LTP,  it has no power to set, assess and collect rates because it is operating outside the provisions of the LGA.

Effectively the Minister is therefore instructing the commissioners to enforce the collection of illegal and ultra vires rates, which is outside the legal powers of the Council.

It is also implicit in the instructions from the Minister that the LTP must be treated as valid and the validity of that document must not be challenged. 

In correspondence the Minister emphasises that the LGA states that a local authority must have an LTP at all times (section 93)and that this was the reason a less than perfect LTP was adopted.  According to the Minister, any shortcomings in the LTP will be identified and an amendment will be made in due course.

The problem that the commissioners face is that the previous LTP expired at midnight on 30 June 2012.  The new LTP was not "adopted" until 29 August 2012.  So for nearly two months the Kaipara Council was in breach of a fundamental requirement of the LGA.  So fundamental that any actions or decisions made by the Council during that time may be regarded by the courts to be ultra vires because the Council was no longer operating as a local authority under the LGA.

It may also be that, having stepped outside the law in such a fundamental way, special legislation may be needed to validate Council's status for the future.

However, the most compelling point is that even though the LTP was finally  "adopted" it is still an invalid LTP for the reasons mentioned above. 

An invalid LTP is no LTP.  It is like the Hans Christian Anderson fairy story about the King's magic clothes.  It does not matter how many times the Minister states that the Council must have a valid LTP at all times and that the adopted LTP is valid, the simple reality is that the LTP is not valid and the Council has no LTP.

The motive behind much of the Minister's insistent approach is the fact that the Council has breached its banking covenants and the banks are yapping at the heels of Council.  The only thing that is stopping the banks calling up the loans is that the Minister has given assurances that the commissioners will ensure that the LTP will be treated as valid and all outstanding rates will be enforced.  That means that the Council will be able to meet its interest payments under the loans.

Whilst that may be a pragmatic solution to the financial crisis facing Council on the political level, it is not a solution that can be pursued by the commissioners if it means ignoring the patent invalidity of the LTP and the rates, and relegating the best interests of ratepayers behind those of the banks and the Minister.

Resolving the conflict of interest
In their open letter to ratepayers the commissioners state:

While we essentially assume the responsibilities of previously elected councillors, we also work under the specific requirements of the Minister.

The Minister cannot state in those specific requirements the parameters and the basis on which the commissioners must act.

As mentioned earlier, the Minister cannot set terms and conditions for the commissioners that conflict with the powers, responsibilities and duties that they have under statute law or the common law.  So any specific requirements of the Minister must be secondary to their own personal compliance with their legal obligations and duties.

The burden on the commissioners is great.  They have to exercise their own good faith judgment as to the legal status of Council's past actions and their own proposed actions.

They personally are responsible for making all the decisions in good faith.  They cannot plead in their defence that they were acting under set instructions from the Minister.

The commissioners therefore have to take great care that they assess the situation for themselves and do no blindly follow the dictates of the Minister, and overstep the limits of their statutory powers and breach the obligations and duties that they have under the LGA and common law.

Personal liability of commissioners
The element of good faith is absolutely vital.  Commissioners have a limited indemnity from legal liability for actions they commit in the performance of their functions.  Clause 18 (2) of Schedule 15 of the LGA states:

No person appointed as a commission or as a member of a commission under clause 14 is liable for any act done or omitted to be done by him or her in good faith in the performance or intended performance of his or her functions, responsibilities, duties, or powers as a commission or as a member of a commission

I have highlighted the requirement of good faith.  As we have seen with the trials of company directors the threshold for establishing good faith is extremely high, especially where professionals are involved.  Mere ignorance is not sufficient, and the commissioners have to be absolutely certain that the course of action that they are undertaking is in step with their legal obligations and duties.

If the commissioners are put on notice of clear irregularities in their proposed actions, or their assessment of the state of affairs they are faced with, then they have a clear obligation to satisfy themselves as to the appropriateness and the legality of their actions. 

If they fail the good faith test then they may find themselves facing liability for actions if they subsequently turn out to be illegal.

The LGA makes it clear that the limited indemnity in subclause (2) does not apply to illegal acts:

!8 (5)  This clause does not exclude or affect any other remedy available against a local authority, the members of the local authority, or any other person in respect of any illegal act or omission done or intended to be done by the local authority or the members of the local authority or any other person.

Issues that commissioners need to resolve
The commissioners are now on notice of the irregularities in the rates and the invalidity of the LTP.  They cannot proceed until they have resolved the legal issues that immediately block any actions on the financial front.

Those legal issues are:

• The validity of the 2010/11 annual report and the 2012/22 LTP have to be resolved.

• The legality of the rates, both past and present, must be resolved immediately.

• The commissioners have to assess the status of the decisions to construct the EcoCare plant and take out the loans to pay for it. If those decisions are deemed to be ultra vires then the commissioners need to assess if they have the power to assess rates to pay for ultra vires debts under the provisions of the LGA, with special regard to their duty of care and fiduciary obligations to ratepayers.

• The commissioners also need to investigate the dealings of Council over the past few years and assess the liability of those responsible for illegal actions and losses, and take the action against those people where appropriate.

The commissioners might argue that such matters are not part of the brief that was given to them by the Minister.  They may have been assured by the Minister that the annual report and the LTP are perfectly valid and that they can take that advice at face value.

Unfortunately they cannot do that.  They are compelled to act in the best interests of ratepayers and the best interests of ratepayers must come before their own best interests and the best interests of third parties such as the Minister or the banks.

This may come as a surprise to the commissioners, and perhaps to the Minister, because statutory duties and common law principles have long been ignored when dealing with such issues.  Political pragmatism has always won the day. 

The problem is that very few case have come before the courts.  There is little doubt that if this matter were to be litigated then the courts would zealously enforce the obligations of a council or councillors or commissioners towards ratepayers under statutory enactments and the common law.

The best interest of ratepayers can only be served by the commissioners taking the actions set out above.   That is what ratepayers want and those difficult legal problems must be confronted and resolved. 

It may displease their master in Wellington, and it may have all sorts of other ramifications but they have very little legal choice in front of them.

They ignore their legal responsibilities to ratepayers at their peril.

To resolve this matter needs a paradigm shift.

The commissioners need to abandon the approach dictated to them by the Minister - that the ratepayers are responsible for the illegal debts, that the LTP is valid and that the rates must be enforced.

They need to face up to the reality of the situation and accept their legal obligations to ratepayers, and to take the actions set out above, immediately.  They cannot afford to wait for the report from the Auditor-General's inquiry.

If they take those steps and seek the cooperation of ratepayers then an interim rate could quickly be agreed to and a new interim LTP adopted.

Ratepayers are as keen as the commissioners to resolve the issues and put the Kaipara back on the road to recovery.  But they are adamant that sweeping legal issues under the carpet, ignoring the legal obligations that commissioners owe to ratepayers, and basing any recovery on the best interests of the Minister, the government, and the banks, and ignoring the best interests of the ratepayers, is doomed to utter failure.



The initials KDC seem to present a real problem to the John Key government.

Firstly, there is Kim Dot Com, the larger than life megaupload cartoon character who is giving the Prime Minister sleepless nights. It now looks as if both the police and Key's Government Communications Security Bureau (KGB for short?) have fallen foul of the law by intercepting Dotcom's communications.

But the story is very similar to that of the other KDC, and likely to cause as much embarrassment to the government. The other KDC is of course the Kaipara District Council.

The similarity is that in both case there is a clear and deliberate breach of a law by the government or its agencies for political ends.

In the KDC Dotcom case the police and the GCSB failed to comply with a very simple piece of legislation under the Government Communications Security Bureau Act.

Section 14 of that Act states that no one employed by the Bureau or acting on behalf of the Bureau can take any action to intercept the communications of a person who is a New Zealand citizen or a permanent resident.

The GCSB did exactly that. It intercepted the communications of Dotcom and his mates and chose to overlook the fact that they are New Zealand permanent residents.

With the proverbial having hit the fan and having been cast far and wide the only question that remains is who is going to carry the can for this blatant legal faux pas.

The Kaipara District Council case is similar. Here we have both the Minister of Local Government and the Department of Internal Affairs who have instructed the newly appointed commissioners for the KDC to enforce the collection of rates under its 2012/22 Long Term Plan.

The only problem is that under subsection 93 (3) of the Local Government Act an LTP "must be adopted before the commencement of the first year to which it relates". In other words for the plan to be valid it had to be adopted prior to 1 July 2012.

The problem is that the plan was not in fact adopted until several weeks later. The LTP is therefore clearly invalid. No ifs, no buts. The wording of the section 93 is quite clear. This means that the KDC has no legal power to collect any rates.

So, in both case we have simple laws, clearly and unambiguously drafted, which the government or its agencies have chosen to ignore.

Presumably in the Dotcom case the election to ignore the law came about because of an overwhelming desire to please the US government and nail Dotcom.

In the Kaipara District Council case there is clearly a desire to give comfort to the banks which are owed in excess of $80 million by the Council by keeping the cash-flow flowing, to salvage the Local Government funding Agency that threatens to be still-born, and to keep the bulging lid on the Pandora's Box of local government.

But there is a difference. In the Dotcom case the Prime Minister has admitted that the agencies acted illegally. In the Kaipara Council case the government agencies are still trying to bluff their way out of the hole that they have dug for themselves.

The Minister is side-stepping all allegations of law-breaking and responding to such charges by restating his mantra that a failure to adopt the LTP would have resulted in cash flow problems and a reduction in services to the people of Kaipara. He carefully avoids any question of illegality

The Minister, and for that matter the Department of Internal Affairs (which is the engine room in this affair) are standing on the edge of a cliff. They know full well that the LTP is invalid but hope and pray that they can bluff their way through the charade. Whilst the matter is not in the public gaze they stand a chance of getting away with it. After all they have been getting away with such illegalities in the past without any complaint.

Meanwhile John Key must be seeing those letters K-D-C in his nightmares, and be wondering how long it will be before the Kaipara version is going to come and bite him on his posterior.



The press release relating to the commissioners and their open letter to ratepayers can be viewed here.

Looking back
It is clear from the terms of reference and the press release that the commissioners have no brief from the Minister to look back at past illegalities and irregularities. That is a matter that is being deferred until the report of the Auditor-General is available sometime next year.

This is what the Chair John Robertson says about this in the media release:

We know that in looking ahead, we will also have to look back. We know that some of the decisions made in the past may need revisiting, and possibly repairing. We acknowledge the work that is being done by the Office of the Auditor General into the Mangawhai community wastewater scheme and accept that that issue will also require our attention.

Effectively this means that there will be NO investigation of the past until later next year. By then, of course, it will be much too late to take any effective action. 

All part of the grand design?.

Legal responsibilities
The commissioners acknowledge that they are obliged to comply with the duties and responsibilities of a local authority and those of councillors:

In doing so, we must comply with the Local Government Act 2002 and other statutes which impose duties and obligations upon Council.

Loyalty to Minister or to ratepayers
One of the biggest problems that the commissioners face is the question of divided loyalties. Are they working in the best interests of ratepayers or in the best interests of the Minister, and perhaps the government, and the banks?

The open letter acknowledges this conflict:

While we essentially assume the responsibilities of previously elected councillors, we also work under the specific requirements of the Minister.

However, the commissioners need to understand that in law they have statutory and legal obligations to put the well-being of the community first and act in the best interests of the community. That is part of the fiduciary duties that they owe to ratepayers. The interests of the Minister or the banks run a distant second.

They hit the nail on the head when they say:

As the governing body, Commissioners must follow due process and then finally make decisions based on what we believe is in the best interests of ratepayers.

However, all the indications are that, in spite of such reassurances, that the commissioners will be hell-bent on enforcing the dictates of the Minister and the interests of the ratepayers will run a poor second.

Take for instance the question of the invalidity of the LTP that was adopted recently. These are the comments of John Robertson in the press release:

He acknowledged that there was concern from some people in the District about the adoption of the 2012/2022 Long Term Plan. “Commissioners wanted to review the Plan to ensure it was financially viable" he said.

With respect, the Chair is asking the wrong question. The LTP is clearly invalid because it was adopted outside the statutory time-frame. There is no question about it. As the LTP is invalid it means that there is effectively no LTP, which means that Council has no power to collect any rates.

The question that the commissioners should be asking is whether the LTP is valid, and, if not, what urgent steps should be taken to rectify the situation.

Paradigm shift
Those appointed as commissioners are well-versed in the politics of local government and understand where the balance of power sits. They all know that whilst the best interest of ratepayers is paramount in legal theory, the reality is that political and financial pressure applied by other parties is what wins the day in local government. Ratepayers are there just to pick up the tab.

It would take a massive paradigm shift for this group of commissioners to ignore their past experience of local government, reject the Minister's political agenda, and actually comply with what are clearly their duties and responsibilities under the law.

It would be refreshing for them to actually do what they are obliged to do, and that is put the best interests of ratepayers first and sort out the legal shambles that they have inherited.

And while they are at it they should ensure that those who are responsible for the legal and financial debacle that Kaipara has become are made to accept responsibility for the debts and the losses.

But don''t hold your breathe.  The pressure from the top to placate the bankers, and to control the Kaipara disease so that it does not spread, is too great to resist.  The commissioners will almost certainly ignore their legal obligations and act strictly on the Minister's instructions.

[In a subsequent article Legal Eagle will put the commissioners on notice of their legal obligitions and point out how they are opening themselves to legal liability if they blindly follow the dictates of the Minister.] 



The Kaipara community has been startled by the blunt directions of the Minister to the new commissioners in the terms of reference that have been gazetted (here).

The instructions for what is called the first phase are:

- work through issues raised by the Council's 2010/11 annual report and the Council's 2012-22 long-term plan that relate to the financial risks faced by the Council;

- undertake actions to enforce the payment of 2012/13 rates and any unpaid rates from previous years;

The fact that both the annual report and the long term plan (LTP) are both clearly invalid appears to carry no weight with a government intent on making ratepayers pay for the illegalities and the blunderings of an out of control Council.

The government also seems to be blinded to the fact that the EcoCare rates for the past four years have been acknowledged by the Council to be illegal, and any current or future rates are illegal because Council does not have a valid LTP and is therefore operating outside the law.

The instructions are clear - to enforce the payment of rates - which suggests the use of all enforcement tools at the government's disposal, irrespective of the legality of those rates and the underlying plan.

This somewhat belligerent approach was not quite what the community expected. The comments of the Minister's review team in its report were far more conciliatory and contained a warning to the Minister:

38. Restoring this relationship between the Council and the community is fundamental to addressing the problems the Council is facing. It is arguable that no solutions to any of the Council’s problems, regardless of how technically sound they are, will be tenable unless there is buy in from the community.

There appears to be very little evidence in the terms of reference for the commissioners of a Ministerial desire to have "buy in" from the community. The Minister appears to prefer the big stick to the carrot, and has seemingly chosen to ignore the advice of his review team.

Bankers are government's priority
Clearly the brutal fiscal approach of the government is a public response to the concerns of the KDC's bankers that the Council is already insolvent and that that the $80m or so is at risk.

The KDC has already defaulted under its mortgage - the appointment of commissioners was an act of default - which means that the banks (ANZ and BNZ) can immediately call up the loans and place the Council in receivership if it does not stump up with the money.

The only thing that is stopping them doing that are the assurances of the government that they will take all steps to ensure that the Council does not collapse financially. The banks have responded to the government's blandishments and have agreed not to take any action to call up the debt - for the time being at least.

To achieve that end the government has had to ride rough-shod over patent illegalities, and ensure that the ratepayers meet all the obligations of Council to the banks, irrespective of whether they are legally obliged to.

The government has just launched the Local Government Funding Agency which is founded on the principle that local authorities are solid investments. The spectacle of a local authority going into receivership because of persistent incompetence and illegalities is not the best publicity for the new Agency. Especially if the other local authorities that have signed up for the Agency were called upon, almost on day one, to bail out Kaipara.

House of cards about to tumble
The worry that the government has, as well, is that what is going on in Kaipara has the potential to expose the ugly underbelly of local government throughout New Zealand.

Local government is in a mess. There are dozens of local authorities that are running out of control and operating outside the law. Many are on the edge of insolvency. Local government is a pack of cards that is threatening to teeter and crumble, and the government is pulling out all the stops to shore it up.

The Kaipara disease, if it takes hold, will spread and infect the whole of the country. Like some uprising in a distant dissident Russian province it must be dealt with quickly and efficiently expunged before the message it is conveying spreads through the whole country.

Conflict of interest
Local government in New Zealand is fundamentally flawed in that it is based on conflicting legal principles. We have already seen how a local authority can thumb its nose at legal compliance and get away with it for many years because central government has breached its obligations to ratepayers by failing to provide the machinery of government to enforce compliance with the law.

Local authorities have almost absolute power because both the government and the so-called watchdogs have turned a collective blind-eye to statutory restrictions. The only access ratepayers have to any fair-dealing or adherence to the law is through the courts, but the "powers that be" ensure that access to the courts is totally illusory in modern New Zealand.

The government has not only allowed local authorities to get away with serial non-compliance with legislation but it has also entombed all the principles of natural justice that are embedded in the common law, and which should be playing a major part in the functioning of local authorities.

Thus, the fact that Councillors are in a fiduciary position in relation to ratepayers, like trustees, and that they breach that duty if they do not act in the best interests of ratepayers at all times, is a fundamental principle that the government in New Zealand keeps well under wraps.

Only one of the Kaipara Councillors had any concept of his common law obligations to ratepayers, and there would be very few councillors in the country who would be aware of their fundamental obligations to ratepayers.

Likewise, the conflict of interest principle has been completely ignored throughout this whole debacle. And we now have the amazing situation where the Office of the Auditor-General is holding an inquiry into its own competence and blameworthiness for the KDC's dire situation, totally contrary to the fundamental principles that no one can be a judge in his own cause, and that justice must no only be done but must be seen to be done. (See article immediately below for more on this subject.)

Commissioners' conflict
The appointed commissioners have a basic conflict of loyalties. Under section 255 of the LGA the Minister appoints the commissioners "on such terms and conditions as the Minister thinks fit".

To that end the terms of reference contain clear and definite instructions from the Minister to the commissioners:

The Commissioners are required to perform the following tasks as outlined below.

In other words they are compelled to act on the instructions of the Minister.

However, clause 17 of Schedule 15 of the LGA, which sets out the powers of commissioners, states that commissioners have and may exercise :

all the functions, responsibilities, duties, and powers of the local authority

Note that both responsibilities and duties are included. That means that commissioners are in exactly the same legal position as elected councillors and miust comply with their responsibilities and duties set out in statutory enactments such as the LGA and the LGRA.

Note the purpose of local government in section 10 of the LGA:

10 Purpose of local government

The purpose of local government is—

(a) to enable democratic local decision-making and action by, and on behalf of, communities; and

(b) to promote the social, economic, environmental, and cultural well-being of communities, in the present and for the future.

Note that the four well-beings of the community are absolutely paramount.

There is no suggestion in the LGA that the purpose of local government is to protect the interest of the banks and raise rates to a sufficient level to pay for the illegal activities and debts of the previous Councillors.

There is no mention in the legislation that the purpose of local government is to pander the best interests of a beleaguered government desperately trying to shore up the pack of cards which is local government in NZ.

The problem is not just with statutory enactments. Under clause 17 of Schedule 15 of the LGA the commissioners are also obliged to comply with the responsibilities and obligations of councillors under the unwritten common law, and under the principles of natural justice.

This means that they are obliged to comply with the duties inherent in the common law duty of care that they owe to ratepayers. They must also must act at all times as fiduciaries, and in the best interests of ratepayers, and not in the interest of third parties - such as the Minister or the government.

Clearly there is a fundamental conflict here.

On the one hand the commissioners are instructed by the Minister to act in the best interest of the banks and ensure that ratepayers repay the banks' debts, and in the best interests of the government in keeping the illegalities of the annual report and the LTP under wraps, and ensuring that ratepayers alone are made responsible for the illegal debts of Council.

But on the other hand ratepayers will be insisting that the commissioners comply with their statutory and common law obligations and open up the whole can of worms, which is the KDC, to expose the full extent of the rorts and illegalities that the ratepayers of Kaipara are being solely held responsible for.

Commissioners' intentions
At this stage all that ratepayers have to go on to judge the intentions of the commissioners are the rather blunt terms of reference. I understand that this coming week the commissioners are meeting with various community groups for an exchange of views. As a result there may be some public clarification of how the commissioners see their role.

No doubt ratepayers will be patient and reserve their decision on the commissioners until we have some more feedback.

So, in a short space of time we will know if the commissioners are going to be the Four Horsemen of the Apocalypse, as they have been dubbed, pursuing the best interests of the Minister, the government and the banks, to the detriment of the community, OR whether the sweet airs of the Kaipara Harbour might exert some influence on them and persuade them to follow a direction that is rather more in keeping with their legal obligations, and in keeping with the wishes and the best interests of the community.


Legal Eagle has been surprised at how some of the basic principles of law and justice have become casualties in the chaos that local government has become in New Zealand.

We have seen a council completely out of control, ignoring legal compliance, ignoring governance, ignoring fiduciary obligations and doing so with absolute impunity.

The so-called watchdogs have sat on the side-line and for years they have ignored the obvious, and by their default have encouraged the very behaviour that they are supposed to prevent.

The Office of the Auditor-General has finally succumbed to ratepayer pressure and has instigated a broad review of the problem areas. That includes a review of the performance of Audit NZ as the auditor of the Kaipara Council.

That is well and good, BUT the auditor of the Kaipara Council is in fact the Auditor-General.  Audit NZ acts as the appointed agent of the Auditor-General. Which means, in law, that the Auditor General, as principal, is responsible for the actions of its agent.

So, effectively, the Auditor-General is holding an inquiry into the competence of her own Office.

That does not seem to worry the Auditor-General. But it should. There is a basic and universal principle of law and natural justice which the Romans stated as follows:

Nemo judex in causa sua

It means, literally, that no-one should be a judge in their own cause. No person can judge a case in which they have an interest. The rule is very strictly applied to any appearance of a possible bias, even if there is actually none: "Justice must not only be done, but must be seen to be done".

That maxim is one of the most famous quotes relating to legal principles. It comes from the English case of R v Sussex Justices, ex parte McCarthy in 1924. It is worth considering the facts of the case:

In 1923 McCarthy, a motorcyclist, was involved in a road accident which resulted in his prosecution before a Magistrates Court for dangerous driving. Unknown to the defendant and his solicitors, the Clerk to the Justices was a member of the firm of solicitors acting in a civil claim against the defendant arising out of the accident that had given rise to the prosecution. The Clerk retired with the Justices, who returned to convict the defendant.

On learning of the Clerk's provenance, the defendant applied to have the conviction quashed. The Justices swore affidavits stating that they had reached their decision to convict the defendant without consulting their Clerk.

The application for judicial review was heard by Lord Chief Justice Hewart. In setting aside the conviction he acknowledged that the Clerk may not have had any effect on the decision made by the Justices, but added:

Nothing is to be done which creates even a suspicion that there has been an improper interference with the course of justice.

He then went on to state the very famous lines:

A long line of cases shows that it is not merely of some importance but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done.

Another famous case was the Pinochet case which arose because of the failure of one of the Law Lords, Lord Hoffmann, to declare links to Amnesty International in the the previous House of Lords judgment on the immunity of former Chilean dictator General Augusto Pinochet.  The House of Lords decision was set aside because of the mere suspicion of bias.

It seems pretty clear to me that the Auditor-General's inquiry is fundamentally legally flawed. She is acting as judge in her own case. Not only will she be examining the question of her own Office's competence in auditing the Kaipara Council, there is also the suspicion that the failure of her Office to perform its obligations as watchdog, and its failure to act on well-founded warnings from ratepayers, contributed hugely to the culture of legal non-compliance and the persistent incompetence of the Kaipara Council.

Aware of the conflict of interest, the Auditor-General has advised that an independent firm of accountants has been instructed to investigate the audit. Even that offends legal principles because all the major accountancy firms in New Zealand are instructed from time to time to act as agents for the OAG in auditing matters. In other words they have a finacial relationship with the OAG.  That automatically creates the suspicion of bias because of a possible reluctance "to bite the hand that feeds it".

And there still remains the problem that, when assessing liability for the Council's debacle, the Auditor-General is going to be sitting in judgment of her own Office.

Perhaps the offices in the Auditor-General's building have very thick Chinese walls.


I have delivered a lot of brickbats in the direction of the Minister's review team over the last couple of months, principally because the Minister had no power to appoint such a team, and because the terms of reference were forward-focused rather than looking at the historical incompetence and illegalities of Council.

As many of us suspected, the review team was a Trojan Horse. It was a means of circumventing the laborious requirements in the LGA for appointing a review authority. One it had gained access to the Council stronghold it became a review authority in everything but name.

The report from the team is impressive. Those of us who have battled the Council for several years have often wondered how such an inept and incompetent group of people could hijack the local government process, ignore the legislation, commit illegality after illegality, make an art-form of incompetence, ignore all concepts of governance, squander tens of millions of dollars, ignore their common law duty of care and their fiduciary obligations, and do so with utter impunity.

We felt at times that we were in some third-world country rather than New Zealand in the 21 Century.

To cap it all, when we acted as whistleblowers the so-called regulatory authorities, the watchdogs, ALL dismissed our concerns. Even though the incompetence and illegalities were blatant and persistent the watchdogs all ran for cover and hid behind predetermined lists of reasons why they could not get involved.

The Ombudsman's office was arrogant and dismissive. The OAG showed, initially, a complete lack of interest in the matter, and an alarmingly poor grasp of the relevant law and fundamental legal principles. Only when we scored some success did the OAG machine show some response.

The Minister of Local Government was an impenetrable brick wall, more concerned with protecting the House of Cards, which is local government in New Zealand, rather than taking action against blatant rorts on ratepayers.

The review team were not encumbered by any of these negative attitudes. They got stuck in and undertook a quick and brutal analysis. Within a couple of months they had analysed and assessed, and Council was gone.

The report from the review team (here) highlights the breakdown in governance, the community's loss of trust in Council and the precarious nature of Council's finances.

It also itemises issues that need to be resolved by the commissioners and the community such as the illegal rates. It also acknowledges (for the first time) that the legality of some of the development contributions charged have to be examined, and some of the "unusual rating practices" ( presumably the illegal unit of demand regime) will have to assessed and resolved.

The report states that the review team has not had time to consider all concerns and suggests that the commissioners continue to inquire into these matters.

That signifies some hope for the future. As does the initiative in commissioning a review of some aspects of EcoCare from engineer Alan Bickers. Whilst having no authority for such an action, the decision of the review team to go down this road illustrates what can be achieved by decisive and appropriate action.

That is the sort of no-nonsense analytic laser-light that ratepayers want to be applied to all aspects of Council's activities and undertakings in the past.

The fact that it overlaps the OAG inquiry is irrelevant. We need speedy resolutions to ratepayers' concerns. It is impossible to plan adequately for the future unless we can quickly resolve the issues of the past.

It is also pleasing that the review team has listened to the concerns in the community about Audit NZ. One of its recommendations is:

Commissioners seek legal advice on the perceived failure of Audit New Zealand in auditing the Kaipara District Council’s long terms plans and annual reports to identify many of the issues that have contributed to the current financial problems of the Council.

What is needed now is an acknowledgement that the liability of ALL parties responsible for the KDC debacle must be investigated, and action taken if appropriate.

The report also has a lot of comments about building bridges with the community, and restoring the trust and confidence that has been destroyed by Council. The recommendations in the report include:

Minister of Local Government, in specifying the terms and conditions of the commissioners’ appointment, have (sic) specific regard to mechanisms to ensure thecommunity has input into decisions of the commissioners.

A comprehensive plan is developed for engagement with the Kaipara community at all levels (commissioners/elected representatives and staff). This should include such things as regular meetings with stakeholders and regular clinics at which ratepayers can discuss issues with the commissioners (if appointed) or Councillors.

To balance this up the report states:

The Review Team notes that it expects members of the community to engage in such processes, if established, in good faith, and approach them with a spirit of reciprocity and as an opportunity for a new beginning.

Fair enough.  There is an awful lot of good will in the community to move forward and get Council back to where it should be. However, the commissioners need to understand that the community is deeply hurt and offended by what has happened in the past and that the skeletons of the past must be confronted. There has to be an analysis of what went wrong and an assessment of who is to bear the responsibility for the losses and illegal debts of Council.

If that does not happen then the Commissioners are not going to win the trust and cooperation of ratepayers. As the report says:

Restoring this relationship between the Council and the community is fundamental to addressing the problems the Council is facing. It is arguable that no solutions to any of the Council’s problems, regardless of how technically sound they are, will be tenable unless there is buy in from the community.

Words of wisdom indeed. Ratepayers are suspicious that the promises of the commissioners are all flannel and spin. Let us hope that they are not. The review team has laid some good foundations. All we have to do now is to build on them.


WHAT RULE OF LAW?   02.09.12
The rule of law and its stable-mate legal compliance suffered another serious beating at the hands of the Auditor-General when her agent Audit NZ allowed Council to adopt its 2010/11 annual report last week.

The LGA states that an annual report must be adopted within four months of the end of the year being reported on. Section 98 uses the word "must" so the meaning is patently clear.

The KDC adopted the annual report nearly ten months after the end of the relevant year.

There is absolutely no doubt that Council failed to comply with the Act and had no power to adopt the report outside the statutory time-frame.

That is reinforced by clause 34 of Schedule 10 of the LGA which states:

34 Statement of compliance

• (1) An annual report must include a statement that all statutory requirements in relation to the annual report have been complied with.

(2) The statement must be signed—

• (a) by the mayor or chairperson of the local authority; and

• (b) by the chief executive of the local authority.

Note that the provision states that ALL statutory requirements have been complied with. That of course includes the statutory deadline.

Mayor Tiller was happy to sign the statement of compliance even though it was clearly incorrect. Steve Ruru as Chief Executive refused - no doubt aware that his indemnity insurance only covers negligent acts but not deliberate misstatements.

There was an impasse. The statement of compliance had to be signed by both parties for the audit to be signed off.

A deal was brokered. The statement of compliance was to be amended so that Steve Ruru could sign the document. This is the final result:

The Council of Kaipara District Council hereby confirms that all statutory requirements in relation to the preparation and publication of information required to be included in the Report, except as stated in Note 29, as outlined in the Local Government Act 2002 have been complied with.

Note the highlighted exception. Note 29 states:

For the current reporting period the Council did not comply with Section 98(3) of the Local Government Act, which requires the Council to complete and adopt its Annual Report within four months after the end of the financial year to which it relates.

Other than this, Council has complied with all other statutory requirements in relation to compilation of the Annual Report.

The problem is that clause 34 of Schedule 10 requires that the statement must confirm that ALL statutory requirements have been complied with. There can be no exceptions.

So, not only has the Council failed to comply with the statutory time-frame, it has also failed to provide a statement of compliance in the required format.

The annual report is therefore clearly invalid. And that means that it is another nail in the coffin of invalidity for the LTP. An LTP cannot be adopted unless the prior annual report is adopted.

The Auditor-General has no power to waive these strict requirements of the law and one can only wonder why she so readily abandoned her role as watchdog and upholder of the rule of law and legal compliance.

(With thanks to Graham Jones of the KCRA and Financial Consultant Larry Mitchell)


Governance in Kaipara became an even bigger farce lat week when Greg Gent, the Council's ex officio adviser, herded the wayward Councillors back on to the right track. Or so it seems.

At the meeting of the 21 August Councillors Linton and Sutherland showed some surprising back-bone and declared that the Council was not a going concern. With Councillor Larsen they managed to persuade the rest of Council to defer any decision on endorsing the annual report and the LTP.

The numbers were looking good. Three against, and, with Councillor Wade reinstated, there was the possibility of a close vote. Ratepayers were elated to think that Councillors might have finally got the message, were looking at their legal obligations and voting on the facts, rather than being shepherded like lemmings towards the precipice

But, as we know, things took a turn for the worse. Cr Wade was excluded by the Mayor on the basis that his reinstatement as a Councillor may not be legal. And then Greg Gent was invited into the public excluded session to advise Councillors.

Greg Gent is part of the review team that was appointed by the Minister to advise Council on the future and to report to the Minister on Council's problems. I have criticised that appointment for being outside the Minister's powers and Greg Gent has acknowledged that.

Greg Gent had no place in the public excluded meeting of 23 August when Council had to make one of the most important decisions that it has been faced with. Councillors are governed by the LGA and they are the elected representatives of ratepayers who must act in the best interests of ratepayers. In making their decisions they are entitled to receive advice that is truly independent.

Greg Gent is the Minister's man. He and his team persuaded Councillors to appoint commissioners and it is his job to smooth the takeover by the commissioner. The Minister has made it clear that the Councillors would stay in office for a few weeks and adopt the LTP.

We do not know what Greg Gent's advice was to the Councillors in that secret meeting but we do know the outcome. We can only presume that he was persuasive in convincing most Councillors that both the annual plan and the LTP had to be adopted.

Even if that was not the case and Greg Gent was fair and balanced in his advice, the point is that he should not have been there. As the Minister's man he cannot be seen to be independent, and he more than anyone else should have been aware of that.

The fact that he was invited was irrelevant. He should have declined the invitation and perhaps suggested to Steve Ruru that it was his responsibility to ensure that the Councillors had independent and competent legal advice before making their important decisions.

From what I read in the Chief Executive's report tabled at the first meeting, Steve Ruru totally abandoned the Councillors and left them to rely on their own very hazy knowledge of the situation. And, as I understand it there was no competent, independent person present to advise the Councillors of their broader legal obligations, as Bruce Rogan and I had tried to do in personal letters to the Councillors.

Steve Ruru is, of course, in an unenviable position. He survives and becomes the commissioners right hand man, and he understands how important it is to have the LTP in place for their arrival.

Councillors have not unsurprisingly bowed to the political pressure they have been subjected to. That includes the unbelievable attitude of the Auditor-General and her offspring Audit NZ. Audit NZ should have been suspended months ago pending the outcome of the inquiry into its performance and it is a travesty of fair play and justice that it is still auditing the Council.

I will write about this separately but I need to say at this stage that the relationship between the Council and its auditor is not what it should be. The auditor has gone beyond the role of clinical auditing and has developed a vested interest in the political outcome of Council. It has become almost a partner in trying to get the LTP through by the due date and is appearing to bend any rule or legal provision to do so.

Under this concerted pressure the bare simple facts have become totally irrelevant.

In its letter of 13 August Audit NZ set out the concerns it has about the LTP. These are reiterated by the A-G in Bruce Robertson's letter of the same date.

Quite amazingly, just over a week later Council decided that it had satisfied all the outstanding requirements. In other words, to quote from Bruce Robertson's letter, Council, according to the Councillors:

• is financially viable;

• has an appropriate and prudent financial strategy;

• is basing its long-term planning decisions on the right information; and

• has the capability to deal with the complex and compounding nature of the issues at hand.

This is what Council decided at the meeting with Greg Gent last week.

BUT, if that is the case; if the future is so good and rosy; if everything is in perfect order for the next ten years; if Council is financially viable and meets the going concern assumption, then WHY, oh WHY did Greg Gent and his team fire Council?

From what I have heard the report of the review team is scathing of every aspect of Council both past, present and future, and that Council is simply incapable of fixing the problems.

And yet Greg Gent, one of the members of that review team, has persuaded Councillors to adopt a position where they are publicly stating the complete opposite.

So which one is true?

I have offered Greg Gent an opportunity to explain his position and the startling contradiction on this website. So far I have heard nothing from him. That offer remains open to any of the review team.

I also question why the report of the review team has not been made available to the public.

From what I understand it is a very damning document. If it was made publicly available before the LTP is adopted on Wednesday it might raise a public outcry and expose the sheer dishonesty of Council's latest decision and make a mockery of the audit process.

In the meantime the Auditor-General can pull her blinkers closer to her eyes and pretend that the review team's report did not exist.


The KDC, according to the Minister, is so bad that it had to go. Ratepayers would endorse that view wholeheartedly. The comments by Deputy Mayor Julie Geange on yesterday’s Morning Report illustrated to the whole of NZ how a fine blend of ignorance and arrogance has reduced the Kaipara Council to financial and legal chaos.

If the Councillors are that bad why are they not, in the words of Don Brash, “gone by lunchtime”? Thirty minutes to pack their pens and personals, and that’s it. No more opportunity to wreak any further havoc.

This is what the government’s Q & A says about the situation:

Q: What does the appointment of commissioners mean for the striking of rates for the 2012/13 year?

A: The Mayor and Councillors will remain responsible for carrying out the Council’s functions until commissioners are appointed, which is likely to be in early to mid-September. Subject to audit, the Council could still adopt its 2012– 22 Long Term Plan at its scheduled meeting on 29 August and strike a rate for the 2012/13 year.

This would enable a smoother handover to the commissioners.

If adopted by the Council, the Long Term Plan would be an interim measure that would enable the Council to maintain essential services. It would be a priority for the commissioners to amend the Plan to provide the Council with a sustainable and equitable funding base.

Note that the LTP is to be an interim measure. This of course is completely contrary to the LGA. The LGA makes it clear that a long term plan is exactly that. It is a detailed plan based on all the financial information available from prior annual reports setting out the financial plan for the next ten years. Nothing interim about that.

But what the Minister is saying reflects the reality of local government in NZ. The provisions of the LGA and the LGRA are optional and can be dispensed with by local authorities if they prove to be inconvenient. The Minister and the other watchdogs are only too happy to acquiesce in any non-compliance.

The KDC has in the past few years made a mockery of governance and of compliance with the legislation. The Minister has finally fired the Council because of that. Yet he still allows it to continue in power to adopt an LTP that is non-compliant with legislation, based on a fantasy of financial information and is nothing more than a deceptive charade.

The Minister needs to acknowledge that this Council is finished and that it should not stay in office for a day longer. It should not be allowed to continue to add to its litany of woes.

The commissioners need to start with a new, clean slate and do not want to be encumbered by more unworkable debris.

The interim rates that the Council is levying based on last year’s rates are clearly illegal and if the Minister allows such measures to proceed then it will only invite a broadening of the rate strike.

The absence of an LTP is not an issue. The Minister himself has shown that the provisions of the Act are irrelevant. What is the difference between the LTP being adopted two months after the legal deadline or six months after the deadline? And why have a an LTP at all? The reality is that you cannot plan ten years ahead when you don’t have access to the piggy bank.

The Minister and the commissioners have to start afresh and make decisions based on what they find when they start probing amongst the skeletons. The legal compliance situation can be covered by passing a special bill through parliament.

The Minister and the commissioners face the problem of interim rates until the mess is sorted out. Basing any rates on last year's rates, which are all tainted with illegality, is going to risk infection with that illegality. Some quick-thinking outside the square is going to be required so that any levies that are made are fair and are seen to be fair.

Ratepayers will be willing to cooperate provided that the Minister sets terms of reference that embrace their concerns. However, if the Minister tries to gloss over the past and avoids probing the responsibility for this fiasco then he is inviting trouble.

There are several major legal issues involved relating to ratepayers’ liability for ultra vires rates that must be explored by legal experts or tested in court.

There are also a lot of questions to be answered about how all the experts and consultants, legal advisers, the auditors and the watchdogs allowed the Kaipara ratepayers to be dumped with a staggeringly overpriced and illegal sewerage system that apparently does not function as it should.

But more of that later.

Steve Ruru is making a lot of hoopla about his new Focus groups and getting ratepayers alongside to offer some advice on resolving the illegal rates issue and the $17.6 million debt (and more) that he has recently isolated and yet surprisingly excluded from the LTP.

This new figure – up from the Salter report’s $10.5 million - comes about because of new legal opinions received from Simpson Grierson, Council’s new lawyers.

Hoopla is one thing but reality is another. The Chief Executive kept the new legal opinions from Simpson Grierson very close to his chest for a long time. Councillors were slow to find out what those opinions said. Ratepayers have only seen a very brief potted version, but we have been denied access to the originals.

Legal Eagle requested copies of the legal opinions under the Official Information Act. It is now over two weeks since that request, but there has been no response so far.

The ink on the documents is still wet so this is not a matter of rifling through archives. The documents are sitting on Steve Ruru’s desk, or at least in his locked cabinet – perhaps joining all the other skeletons.

It is beginning to look as if Steve Ruru is trying to emulate Jack McKerchar who was noted for his reluctance to reveal legal opinions, even to Councillors, and simply released for consumption his own versions of what the opinions said.

Remember, also, that Council had an agreement with ratepayers eighteen months ago that the review of the EcoCare rates should be completely independent, that it should have broad terms of reference and that it should be binding on both parties, ratepayers and Council.

Note those terms. They were negotiated by Julie Geange and Jack McKerchar insisted that the decision of the reviewer should be binding.

Yeah, right, as they say.

Council reneged on that deal - just as it reneged on the EcoCare deal. With Steve Ruru’s arrival at the helm the terms of reference were cropped dramatically, and the so-called independent reviewer was appointed to act on behalf of Council, so his independence was completely shot. But more than that, Council did not like the findings of the review when they were issued and refused to be bound by them.

Council’s subsequent promise to extend the review to cover all other suspect rates not considered in the Salter report was also added to the litany of broken promises.

Only selected matters were to be part of the new review, ratepayers were denied any input into terms of reference, and were denied any right to make submissions. And, of course, the findings have been kept secret. Only the Chief Executive’s spin on the legal opinions has seen the light of day.

Steve Ruru has a lot to hide. These legal opinions establish beyond any doubt that Council’s debts are at least $17.6 million more than is stated in the LTP. It is absolutely essential that the illegal rates debts are kept out of the plan – from Council’s point of view, that is.

If the truth is told the whole plan would be based on totally incorrect financial information, and it would make a mockery of the figures and projections for the next ten years.

Council are quite happy to gloss over the truth. A few more fibs make no difference. After all the EcoCare fib was a really big one and they got away with that.

Where is the openness, Steve? Where is the honesty?

And what is the difference between you and Jack McKerchar?

And what does Audit NZ have to say about all this?


This is the third post on this matter.  Previous posts can be found by scrolling down.

First, I set out the Code of Ethics of the OAG, and then consider how the Code of Ethics applies to the current situation with KDC.

The Code of Ethics (COE) applies to all work carried out by the Auditor-General, or on behalf of the Auditor General. It is binding on all ASPs – Audit Service Providers, such as Audit NZ

The Code of Ethics establishes a number of Fundamental Principles that express the basic tenets of ethical and professional behaviour and conduct. The Fundamental Principles, set out in clause 7, which members shall abide by at all times, are:

(a) Integrity;

(b) Objectivity and Independence;

(c) Competence;

(d) Quality Performance; and

(e) Professional Behaviour

The cornerstone of the COE is the independence of the Auditor-General and the whole thrust of the COE is that that independence is not prejudiced in any way, especially in respect of the performance of ASPs. (Note that in the clauses taken from the COE that all underlinings and italics are in the original.)

13. A cornerstone of the role of the Auditor-General is independence, which is essential for any audit agency to function effectively. Any breach of the Code of Ethics, the Code of Ethics: Independence or AG-COE: Independence which may compromise the actual or perceived independence of the Auditor-General will be treated as a serious breach of the Auditor-General’s code of conduct that applies to staff of the Auditor-General or, if applicable, the audit contract.

The test for assessing any breach of independence is very demanding:

21. This Statement requires the Auditor-General, the Deputy Auditor-General and their staff and ASPs and their staff to apply a more stringent test than that set down in COE: Independence when assessing their independence. They shall assess whether there are any facts and circumstances that might cause a reasonable third party, informed only by publicly available information, to conclude that some aspect of independence has been, or may be, compromised.

22. The Auditor-General, the Deputy Auditor-General and their staff and ASPs and their staff shall ensure that, for any work carried out on behalf of the Auditor-General, they are both independent and are seen to be independent. The perception of independence (independence in appearance) is a vital component of independence that the Auditor-General, the Deputy Auditor-General and their staff and ASPs and their staff shall take into account when assessing their independence. Such an assessment requires consideration of the “look” of a particular situation from the perspective of a third party informed with publicly available information.

23. Further to the matters raised in paragraph 22 above, the Auditor-General is concerned that the definition of independence in appearance in COE: Independence is not appropriate to the public sector in two main respects (as detailed below). The Auditor-General, the Deputy Auditor-General and their staff and ASPs and their staff are required to take account of these matters when assessing their independence in appearance:

(b) The definition of independence in appearance also requires that a reasonable and informed third party “would be likely to conclude” that integrity, objectivity, or professional scepticism has been compromised. The “would be likely to conclude” test is a relatively low standard in that the facts and circumstances must be persuasive before those applying the test would conclude that independence in appearance had been impaired. The Auditor-General, the Deputy Auditor-General and their staff, and ASPs and their staff are required to take account of all facts and circumstances that might lead a reasonable and informed third party to conclude a firm’s, or a member of the assurance team’s, integrity, objectivity, or professional scepticism had been compromised.

Where an ASP perceives that there is a threat to the independence of the A-G then it must report this to the A-G:

29. Where staff of the Auditor-General or an ASP believe there is a possibility that an existing or potential situation could result in a threat to independence that is other than clearly insignificant, the fact shall be disclosed to the OAG. The OAG will provide a ruling on how the threat to independence is to be resolved.

Where the work is of possible media or political interest, or of a sensitive nature then any ASP is required to send a copy of the final audit report to the OAG sector manager for clearance.

It appears to me that many of the boxes relating to the breach of independence of the A-G have been ticked. There is clearly widespread public concern about the competence and Independence of the audit performance of the Audit NZ. This has been confirmed by the fact that the OAG has included the performance of Audit NZ as part of the EcoCare inquiry, and by comments made by the Assistant A-G Legal..

However, the question marks hanging over Audit NZ's performance are not related solely to EcoCare. There is substantial concern over the handling of the annual report of 2010/11. This report cannot be finalised because of fundamental problems with the accounts, and because the Chief Executive will not sign the letter of compliance that is absolutely essential to the report being adopted.

Essentially the report shows that Council's financial records have been a charade for many years, and that there are outstanding liabilities that have not been included in the accounts. Council does not comply with the "going concern assumption" which is an essential requirement for signing off the audit. In other words, Council cannot meet its commitments out of income in the foreseeable future. Quite simply, this means that Council cannot operate as a local authority under the LGA.

There are also massive concerns over the audit of the draft LTP. The audit appears to be so deficient in so many respects that it is leaving ratepayers with little choice but to issue legal proceedings to challenge the validity of the LTP.

These are matters that come within the ambit of the COE and should be triggering a huge amount of concern at the OAG. However the A-G seems unmoved by the challenge to her independence and the fact that the integrity of her Office is coming under increasing scrutiny. The inquiry into EcoCare offers little comfort as that is historic only. The concerns that ratepayers have are related to the current performance of Audit NZ and they are growing daily.

It appears to me that if the Code of Ethics means anything then the Auditor-General should be taking steps immediately to replace Audit NZ and publicly reassure the public of the independence and the integrity of the OAG.


This is the second of a series of posts on why Audit NZ must be replaced immediately as the auditor of the KDC.

The first post can be seen immediately below this one.

An earlier post can be seen here. Audit NZ   A litany of oversights can be seen here: 

I draw ratepayers attention to the following:

Annual report 2010/11
Council was obliged under the LGA to adopt the annual report for 2010/11 nearly nine months ago. It has, with the blessing of Audit NZ, the OAG and the Minister, completely ignored its legal obligations.

That annual report should be the basis of the 2012/22 LTP. A local authority cannot possible plan 10 years ahead in an LTP if it does not have the details of its own previous financial performance and its present financial status.

Only last year the A-G highlighted, in a special report, the importance of the annual report as a lead-in to the LTP. Clearly Audit NZ does not place any significance on that report. But perhaps more disturbing is the fact that the A-G allows her agent Audit NZ to ignore the fundamental auditing requirements that it is bound by. (More of that later.)

It is absolutely clear that the Council has no intention of releasing the 2010/11 annual report before it adopts the 2012/22 LTP.

The reasons for that fundamental omission are quite clear. The annual report would establish that the financial records and the plans for the past few years are in such a shambles that it is patently clear that the KDC can no longer operate as a local authority under the provisions of the LGA. It would therefore be impossible to issue an LTP that complied with the Act.

By burying the chaos of the past and forcing through the new LTP, totally illegally and based on completely artificial figures that bear absolutely no relation to the true situation, Audit NZ, the OAG and the Minister are hell-bent on keeping the KDC on life-support so that it can achieve its main objective, which is to inflict the obscene ultra vires debt incurred by an out of control Council on the innocent ratepayers.

Audit NZ has already signed off the audit on the draft LTP (and is now considering the audit of the final LTP) in full knowledge that the annual report for 2010/11 has not been adopted and also knowing that the draft report contains matters that would seriously influence the adoption of any subsequent LTP.

That is a total breach of auditing standards and Audit NZ must be immediately suspended as the auditor of the KDC.

LTP 2012/22
A recent Council resolution included the following comment:

7 Notes that the further rating irregularities identified will need to be disclosed as a contingent liability in the 2010/2011 and 2011/2012 Annual Reports.

That is all very well, but what about including the debt in the LTP that is now going through its final stages?

How can you possibly have a debt that is acknowledged in the annual reports for 2010/11 and 2011/12 but is totally ignored in the subsequent LTP for 2012/22, which under the LGA is supposed to be based on those prior reports?

And how can you deliberately overlook an existing debt acknowledged in the two prior annual reports when you are preparing an LTP which by law must plan for the following ten years?

The whole thing becomes a farce. And is the very reason why we have auditors. They are there to pick up fundamentally dishonest accounting - which is what this is.

The situation stands like this at present. The draft LTP excluded the debt for illegal rates (which stood at that stage at about $10.5 million), and Audit NZ accepted this in its audit of the draft LTP.

Steve Ruru knew that the total figure was much higher. He tried to carpet-lump it, was caught out, and has now come clean. He has acknowledged that the total debt for illegally collected rates is now in excess of $17 million. That is still well short of the true debt which I expect to be in excess of $20 million. That will only be ascertained once we get some truly independent review of the matter.

So if the now-acknowledged $17 million is good enough to be included in two annual reports why is it not good enough to be included in the final LTP?

The answer is quite simple. Steve Ruru knows that a further $17 million of debt would push the total indebtedness of the KDC to over $100,000. That is simply a bridge too far. The whole plan would have to be redrafted with even more draconian rates being struck. And the reality is that there is no way that such a debt could be inflicted on ratepayers. KDC would grind to a halt with its unsupportable debt burden

The only way for Council to survive is for Council to ignore the true debt and base the new LTP on incorrect figures (just like it has done for the past 7 years).

It is all a gamble for Council. It is its only chance of survival. And the odds look to be in its favour. For 7 years the watchdogs have turned a blind eye to the fundamental incompetence and dishonesty of the KDC. Council is now gambling that Audit NZ will give its blessing to this latest rort, and that the OAG and the Minister will conveniently look the other way.

Anyone want to lay a bet which way it will go?


Feltex serves as a useful comparison for assessing who was responsible for the illegal EcoCare debt debacle. In that case the directors were charged with the criminal offence of misleading investors but argued that they had relied on the assurances from the auditors that everything was in order. The liquidators of the company are now suing the auditors Ernst & Young arguing that the firm breached the terms of its contract, and the duty of care and skill that it owed the failed carpet maker.  See the full article by Tamlyn Stewart here

Ratepayers and Councillors alike are similarly concerned that Audit NZ failed to audit KDC appropriately during the six or so years when Council operated largely outside the requirements of legislation, with a startling incompetence, and with accounts that were deficient in so many respects.

It is argued that Audit NZ must bear a large responsibility for the illegal actions of the KDC and for the illegal debts that were incurred.

Liquidators and receivers have the power to issue proceedings against parties that they consider to be liable for losses. Ratepayers are demanding that the Minister appoint an Appointed Authority with the powers of a receiver to enquire into the liability for Council’s financial and legal situation.

However, the Minister, no doubt on directions from the government, is refusing to acknowledge that the KDC has acted illegally and is propping up an illegal regime with the intention of dumping on the ratepayers (who are the only innocent party in this matter) the sole liability for the illegal debt.

Appointment of a receiver type entity would open a proverbial can of worms for the government. Any inquiry would show what a farce local government is in New Zealand and how so many Councils operate outside the law with the blessing of the government and the so-called watchdogs.

It would also mean that the liability of Audit NZ as Council’s nominated auditor would be analytically dissected.

The role of the OAG would also be subjected to close examination, not just as Council’s auditor but because it turned a blind eye to many well-founded complaints about Council’s non-compliant and illegal activities.

Any independent scrutiny would also highlight the role of the Office of the Minister which has refused to take any effective action even though it has been made aware of incompetence and persistent legal non-compliance of the KDC.

The only acknowledgement of any liability is the Auditor-General’s admission that its appointed auditor, Audit NZ, has been universally criticised for its role as auditor of the KDC. The A-G has included an examination of its agent’s audit role as part of its general inquiry into EcoCare. It is going to appoint an independent audit firm to carry out that inquiry. 

Putting aside the fact that it is impossible to find an audit firm in NZ that is independent of the OAG, it is a total breach of every principle of law that an audit firm that is subject to an official inquiry because of allegations of incompetence in relation to the audit of a local authority, is allowed to continue as auditor of the same local authority. It should be stood down immediately.

But it is even worse that that. Audit NZ is carrying on the audit of the KDC, including the audit of the 2010/11annual report and the 2012/22 LTP, in a manner that appears to allow the KDC to ignore many of the obligatory requirements of the LGA

Audit NZ is bringing the reputation of the Office of the Auditor General into disrepute. There is now a widespread concern about the integrity of the OAG. That is totally unacceptable and the OAG is duty bound to take steps to ensure that this situation does not continue.

It is not my role to advise to advise the OAG, but to me it is a no-brainer that the OAG must immediately replace Audit NZ as auditor of the KDC with a totally independent auditor.


There are some amongst those who are vehemently opposed to Council who, for some reason that I do not fully comprehend, want the current Council to remain in power but with another authority superimposed over the top of Council with powers to run the day to day affairs of Council.  That authority would also have the powers of a receiver to inquire into the debts and the financial mess that the McKerchar/Tiller/Geange regime has created.

There seems to be an absolute mistrust of the Minister appointing a commission or commissioner as though this will spell the end of democracy in Kaipara.

My feelings are that democracy in Kaipara died many years ago when the Mayor and the Councillors surrendered their power and common sense and allowed the then Chief Executive total freedom to wreak his chaos on ratepayers. 

Whoever or whatever the Minister appoints must be light years ahead of the current crop of ineffective lost souls masquerading as Councillors who have absolutely no idea what they are doing.

 The reality is that only the Minister, in cahoots with the government, has the power and the tool box to fix the legal and financial shambles that the KDC has created.  There are no other options and if there are then I would like to hear what they are – contactus@kaiparaconcerns,co,nz.

The important factor about a commission or commissioner is that it takes the place of a council and is obliged, like a council, to comply with the provisions of the LGA. 

There is far more chance of compliance from a commissioner than from the present bunch of outlaws.

The idea of a parallel authority simply does not work.  If the Council remains in place then under the LGA it is the governing body under the legislation.  If you want another authority to wield the power then you have to get rid of Council.

May I suggest that we call the replacement authority the Appointed Authority?  It gets away from the C word and it reflects the Minister’s very wide powers to appoint such an authority either under the LGA or through special legislation

It is inevitable that the present Council will go.  It is continuing incompetence and illegal activities cannot be allowed to continue.  Sooner or later, and the sooner the better, the Minister, the OAG and Audit NZ will have to accept that there is no point in continuing to protect the Council from the fate that is awaiting it. When it does go, and the Minister acts, then it is important that ratepayers are part of the overall solution that the Minister triggers.

In the past the Minister’s Office has made a lot of involving ratepayers in the decision-making about Council’s future.  Those were merely words because effectively ratepayers have absolutely no say where a Council acts illegally and is protected by the very watchdogs that are supposed to be curtailing such activities.  In fact the Minister’s dictatorial appointment of a review team was totally over the heads of Councillors and ratepayers.  And, to boot, it was also illegal.

If ratepayers want to sit at the table when the big decisions are made then we need to ensure that we speak with a clear and reasoned voice and that we state clearly what our requirements are and articulate the legal basis for those requirements.  We need to get that message across to the Minister, and to the media, in no uncertain terms.  If we are successful then we may get a voice or voices on the Appointed Authority.

The Minister, as part of the National Government, knows from long experience that such rate revolts as ours peter out sooner or later.  We have to show that the KDC issue cannot be dismissed as a simple cost blow out.  It is a serious case of incompetence and non-compliance with the law.  We are dealing with a Council that has deliberately misled its ratepayers for many year, entered into illegal contracts and incurred massive ultra vires debts. 

We also have to show that this revolt will not peter out but will escalate unless the Minister takes the appropriate steps to resolve the issues and involves the community in seeking a solution. Going to court is a wasteful exercise but may become necessary if the Minister and the government remain in denial of the real issues and attempt to impose their simplistic solutions on unrepresented ratepayers .

I therefore urge all ratepayers to write to the Minister asking for the Council to be replaced immediately and urging the Minister to enter into a dialogue with ratepayer representatives to work out a frame-work for resolving the issues of the past and putting the KDC on a sound footing.

In addition, put the pressure on the Mayor and Councillors.  Write to them personally and tell them that they have outstayed their welcome, that ratepayers have no confidence in them and that they should all resign.

The Minister’s email address is:

Councillors addresses are:

Jonathan Larsen ;

John Blackwell;

Hal Harding  ;

Julie Geange

Andrew Wade

Brian McEwing

Neil Tiller    

Wayne Linton

Julia Sutherland

Send copies to your local MP, the PM and anyone else that you believe should be supporting our case.

Let us make our voice heard, strongly and clearly.



This is Legal Eagle's summary of the causes of the EcoCare fiasco that we are now having to face, and hopefully sort out.

Statement of proposal of 2006
Council issued a statement of proposal in 2006 (SOP) which set out the details of the proposed EcoCare scheme. It was to cost $35.6 million with the contractor being responsible for cost overruns. The complete scheme, which included the cost of household connections, was to cater for 3,300 connections.

The SOP also set out in some detail the rates and charges that would be levied to fund the project. These can be seen on page 24 of the SOP which can be viewed on the Council website here (Scroll down to MWWS - EcoCare from conception to handover - Attachment 2)

This SOP was effectively the founding document of EcoCare. It provided the facts and figures for the project and it was the basis on which the whole scheme proceeded. Whenever any ratepayer had a query about EcoCare Council would send out a copy of the SOP.

Original contract
he information in the SOP was based on the EcoCare Project Deed of October 2005 which was the contract signed between the Council and the contractor Earth Tech (later to be called Water Infrastructure Group) for the construction of the scheme.

The contract price was $29,811,496 and the capacity of the plant was stated to be 2,550 allotments. For some reason the price and capacity in the SOP differed from the figures given in the Project Deed.

New contract
The original contract never went ahead. Even before the SOP was adopted as part of the 2006/16 LTP, Beca, Council's consultant, was secretly suggesting to Council that the scheme was not capable of coping with the growth that Beca was anticipating for Mangawhai. Beca provided Council with a report (public excluded) on its recommendations for an extended scheme which increased the capacity of the plant and naturally increased the cost quite dramatically.

In September 2006 Council agreed (public excluded) that the original contract should be shelved and replaced with a new contract for a new extended scheme. The new contract price was to be nearly $43 million, but this did not include peripheral costs or the purchase of land for disposing of the effluent. This would bring the price to nearly $58 million. No capacity was shown in the new contract but the various reports suggested that the plants capacity would now be 4,500 connections.

The new contract was signed in October 2006 and was subject to resource consents. The final unconditional contract was signed in December 2007 once the consents had been obtained.

Illegality and ultra vires
This is where the illegality and ultra vires actions came in. For reasons only known to the parties involved, Council failed to comply with the clear requirements of the LGA in respect of this second contract.

Section 97 of the LGA states clearly that a local authority must not make a decision to commence a significant activity unless the decision is explicitly provided for in its long-term plan; and the proposal to provide for the decision was included in a statement of proposal.

Thus Council did not have the power under the LGA to enter into a contract for EcoCare (a strategic asset), and to raise a loan without including the full details in a long-term plan or without issuing a statement of proposal setting out the terms of the contract and the debt, and without going through a rigorous decision-making and consultation process.

The previous SOP could not be used because the scope of the scheme and the cost were significantly increased. This was a completely different proposition and Council was obliged to go through the decision-making and consultation process all over again.

Council's failure to observe the legislation is startling. The consequences of non-compliance are extremely serious and the courts are not hesitant in declaring that such actions are illegal or ultra vires (outside Council's powers).

It is surprising that none of the parties to the transaction - lawyers, consultants, contractors, financiers - raised the issue of legal compliance. They were all experienced in this sort of local authority contract and one would have expected that they would be well acquainted with the legal requirements of such an undertaking.

If they were aware of the legal situation then they all chose to ignore it.

However, it was worse than that. Not only did Council fail to issue a new statement of proposal, fail to go through the decision-making process, and fail to consult with ratepayers, it went even further. It kept the changes to the scheme and the massive increase in cost secret. Everything that Council did was in public excluded sessions. Nothing was revealed to ratepayers. Quite amazingly, all the information relating to the new contract was kept secret from ratepayers for almost 6 years.

Council spun a web of misinformation. In spite of the dramatic increase in the scope of the project and the virtual doubling of the cost, Council kept quiet about the extended scheme and the increased cost and continued to refer to the facts and figures in the original SOP even though they had been completely superseded by the figures in the new contract.

Not only that, the figures for rates and other charges to be paid by ratepayers were not changed and Council continued to quote the figures in the SOP even though it was clear that such payments could never meet the financial obligations under the debts that were being incurred.

For nearly six years Council misled ratepayers into believing that the EcoCare scheme was the one set out in the SOP.

It also misled ratepayers into believing that the rates and other charge that they were paying for the first four years of EcoCare, based on the figures in the SOP, were calculated by experts to meet all the financial obligations under the scheme.

Perhaps the biggest fraud was when the KDC and the contractor Earth Tech jointly put out a glossy Project Information Booklet headed Mangawhai EcoCare.

This was published in November 2007 over a year after the original contract had been abandoned and the new contract signed. And even though the scheme had been dramatically extended and the price almost doubled, it included a chart of rates and other charges payable by ratepayers that were exactly the same as the chart in the original SOP.

This was a deliberate and monstrous misrepresentation. There was absolutely no way that the ratepayer payments under the original SOP could ever be sufficient to meet the financial outflow of a scheme that ended up costing over twice the amount that was indicated to ratepayers.

Where to now?
The truth finally came out in late 2011 when Jack McKerchar left and the financial accounts and the secret reports and resolutions were made public.

The reality of the situation is now apparent. In those six years Council created a complete legal and financial shambles brought about by incompetence, an arrogant disregard of the law, and a fundamental dishonesty.

On top of that, every single rate or charge that it set in the past four years to fund the EcoCare debt has been declared illegal, ultra vires, or still has a big legal question mark over it.

We now see the same Council, protected by the very watchdogs that should have been protecting the ratepayers in the first place, acting in the same incompetent, non-compliant and dishonest way, trying to cover up the evidence of its past transgressions

Even the government is trying to put a spin on this matter and talks of cost blow-outs, and is working out ways to dump the cost of the fraud on the victims of the fraud - the Kaipara ratepayers.

We need to be absolutely honest. The bare truth is that this was a fraud of massive proportions that was visited on the ratepayers of Kaipara by their own Council.

Council fraudulently misrepresented the scope and the cost of EcoCare, and the cost to ratepayers.

It lied for nearly six years.

It also acted illegally and totally outside the scope of its powers. So much so that a decision of the court will be needed to assess the legal ramifications of Council's malfeasance.

The elected Councillors totally betrayed the trust of ratepayers. If they had been directors of a company and the SOP was a prospectus then there is little doubt that they would be before the courts facing stiff gaol sentences.

All the other parties to the transaction also need to look closely at their liability in this matter. This was a rort and all those who were involved in it need to bear some responsibility for the financial and legal mess that has been created.

I only hope that the Auditor-General, who is holding an inquiry into the whole matter, has the gumption to make a clear statement about where liability lies in this matter, and pursues Councillors under the LGA for the losses that Council suffered because of Councillors incompetence and breach of duty of care. I also hope that she spells out the liabilities of other parties to the transaction so that they can be pursued for their share of the loss.

The ratepayers of Kaipara are not responsible for the EcoCare debt. That was a debt that was incurred ultra vires by a fraudulent Council acting outside the law. If the government refuses to listen to the people of Kaipara and continues on its own illegal path in trying to foist this illegal debt on to ratepayers then we ratepayers will be left with little choice but to apply to the court and bring back the rule of law to Kaipara.

Legal Eagle

PS The Ecocare scheme was a lemon. At about 1300 connections it has reached its capacity and there are many reports of inferior workmanship and materials. Current knowledgeable estimates of value suggest a figure between $20 and $25 million.

The total cost was probably in excess of $70 million.


THREE WISE MEN  30.06.12
I have some serious concerns about the appointment of the three wise men, or the review team as the Minister of Local Government calls it.

The Minister's powers in respect of local authorities are set out in Part 10 of the Act and under Schedule 15. The powers of the Minister are limited to those statutory powers. In other words he has no residual power to act outside the parameters set out in the Act.

Such legal niceties do not seem to trouble the Minister, or Cabinet, or the government for that matter. In fact whenever any action is considered in relation to the Kaipara District Council then compliance with legislation, and adherence to strict statutory requirements appear to fly out of the window.

As I pointed out in a recent post (scroll down to MINISTER FAILS HIS FIRST TEST), the Minister only has the power to appoint a Commissioner or a Review Authority. There are strict statutory guidelines for those appointments that must be followed which are set out in the Act.

The Minister has no power to appoint a review team. So it looks on the surface that the Minister has acted outside his powers.

But there is a catch. There is a fiction that the Minister is not exercising his powers in appointing the review team. He is only responding to a request for help from the KDC. He is simply supplying Council with advisers on Council's request and those advisers have no powers beyond giving advice.

Well, that was the story when the review team was announced on 30 May 2012.

The Minister stated that the team was to assist the Council "with its consideration of critical issues". He also made it clear that Council would continue with the draft LTP and would set rates for the next year and that the review team would be involved in setting "appropriate rating levels for Kaipara ratepayers for subsequent years". The team was to be "future-focused".

By the time the three wise men were actually appointed on 14 June, things were changing rapidly. The advisory role had been superseded by a review role, and the team was to inquire into:

• the Council’s core governance processes;

• the Council’s communication, engagement and relationships with ratepayers and key stakeholders;

• the Council’s asset management planning practices and how they compare with industry good practice;

• the adequacy of the Council’s financial management including:

• such other matters as the Review Team considers desirable to assist the Council and the Minister to understand the current and future challenges the Council faces and the issues it must address to fulfil its statutory responsibilities.

Those areas of inquiry have now been confirmed in the finalised terms of reference which have just been released. They can be viewed here.

The government is clearly aware of the illegality of its action because it mentions that the review team approach is modelled on the Review Team provisions in the proposed amendment to the LGA which is going through parliament at the moment.

So it is not the law yet, but will be soon. Clearly that is close enough for the Minister. Only pedantic lawyers might see things differently.

As for the fiction of Council requesting this intervention, well, the Mayor and Deputy and the Chief Executive were summoned to Wellington and told by the Minister that they were to request help. They did so without any of the Councillors knowing about it.

Subsequently there has been a resolution floating around whereby Councillors agree to government intervention but I am not sure if it has been passed yet.

The whole thing has reached the farce stage when at the Council meeting this week Councillor Larsen asked for a copy of the terms of reference. He was denied access on by the Chief Executive on the basis that they were confidential.

That illustrates how ludicrous this whole thing is and shows how the Council and the LGA have been hi-jacked by the Chief Executive and by the Minister.

The whole basis of the LGA is that the elected members - the councillors - form the governing body of a local authority and that they make all the decisions relating to that local authority. The role of the Chief Executive authority is to implement the decisions and to offer advice.

So, how can it be that the Minister dealt with the Chief Executive in relation to the review team and the terms of reference without the Councillors having any say in the matter at all?  In fact the terms of reference were, I believe, available publicly before Councillors were allowed access to them.

The way that the Minister has acted in this matter trivialises legal compliance and shows what a charade the LGA and the whole structure of local government is.

Both the Minister and the Council have now stepped outside the law knowing full well, as all autocrats do, that they can do that at will, that there is no avenue of complaint for those who might object, and that access to the law to rein in unbridled power is totally illusory.

The aim of the Minister, the government and the Council is to ensure that the EcoCare debt, that was fraudulently entered into by a Council operating outside the law, is shafted home to the ratepayers of Kaipara in general and to the ratepayers of Mangawhai in particular, and those who were genuinely responsible for this rort will wriggle their way clear.

The sad thing is that once the local government and central government elect to ignore the law then they are inviting major problems. The rule of law goes both ways. You cannot insist on legal compliance by ratepayers when you yourself have persistently ignored the law for years.

That is a lesson that both local government and central government are going to learn very quickly in Kaipara.

Things must be getting serious if we made the NZ Herald. Wayne Thompson included a report in today's Herald about Sunday's meeting at Mangawhai. That is certainly progress given that the Herald (as opposed to the Herald on Sunday) has studiously ignored our problems so far.

The problem is that the article repeats the same old misconceptions that are doing our cause a huge disservice. This is not the fault of those being interviewed but points to a lack of written information that we provide to media outlets.

Journalists like to have information on hand and will always refer to news releases that they are given for any background information. The KDC has won this battle hands down. It regularly puts out media releases with its own special misinformation that then becomes gospel in the hands of the media. We do not counter it in any substantial way.

If we are to succeed and win over hearts through media articles then we have to ensure that we get OUR message across and ensure that stories about our fight are not diluted with Council's figures and spin.

The major cause of concern is that the problem is always described as a "blow-out" in costs. Blow-outs in local authority costs are ten a penny all across the country and nothing exceptional to complain about.

The essence of our problem is that the KDC acted completely outside its powers. It illegally entered into a massive sewerage project and incurred a debt without complying with the requirements of the law. The blow out in costs was only one facet of Council's illegal actions.

That is the message that we have to get across.

There are other misconceptions regarding the cost of the project, and of course we must all get sick of hearing that the average rate increase is 31%. That was a lie right from the start even across the whole district, but it certainly comes nowhere near telling the true story of what is going to happen to Mangawhai's rates.

I have always said that if we are to succeed we need to clearly articulate what our concerns and objections are in a clear and rational manner so that the rest of New Zealand understands what we are fighting for.

We are doing very well in our fight but we desperately need some expert help on the media front.

Is there anyone out there that has some experience and can help?

A few weeks ago I suggested to the various organisations opposing Council that it might be a good idea to have a petition against Council as a tool for showing the widespread lack of confidence of ratepayers in their elected representatives. This would send a loud and clear message - if the petition was signed by enough people - to the powers that be that the KDC could no longer continue to function with the support and confidence of ratepayers.

My suggestion was rejected on by both the MRRA and the KCRA because, at that stage, both organisations believed that Council should remain in power, for the time being anyway.

I think the pendulum has swung somewhat, and the overall feeling that I got from the MRRA meeting on Sunday, both from the MRRA and from the ratepayers present, was that Council had to go immediately. Full stop.

There was a brief consideration of the legal position and the consensus was that there were was no legal procedure for ratepayers to remove a local authority except through a three yearly election cycle.

Even the Minister only has powers to remove Council in very special circumstances.

Under section 254 LGA the Minister can appoint a commissioner to replace Council on the recommendation of a review authority but only at the end of a very protracted statutory procedure set out in Part 1 of Schedule 15 of the LGA.

Note that the review team appointed is not a review authority under the LGA and has no statutory powers. More of that later.

Under section 255 LGA the Minister can appoint a commissioner to replace a local authority if the authority cannot perform its functions because it cannot hold meetings owing to the lack of a quorum. Likewise the Minister can act if the local authority requests the appointment of a commissioner.

And that is the sum total of the Minister's powers.

As the KDC teeters towards self -destruction it is rather late in the piece for the Minister to go down the review authority route. That should have been done a year ago when there was clear evidence that the criteria boxes for that procedure had been well and truly ticked.

Council is not yet reached the state that it cannot muster a quorum. The majority of Councillors, isolated in their last stand bunker, are going through the farce of clinging on to power - and their salaries - as long as they can, but it cannot be long before the Minister's powers under section 255 are triggered one way or the other.

That is where ratepayers come in. The Minister has to get a clear message from them that they want Council to go. That has already been demonstrated with the unprecedented number of submissions made on the LTP, the number of people making submissions on the LTP in person, the number of ratepayers at the Mangawhai meeting with Council to discuss the LTP proposals, and the number present at the MRRA meeting on Sunday.

That pressure has to be kept up. I understand that the MRRA is organising a mass attendance at the Council meeting this Wednesday. That is excellent. It will send a message loud and clear to Councillors and the Minister that the KDC in its present form has done its dash.

What we now need is a petition signed by everyone in the district reinforcing that message, and making it clear to Councillors that the exit door is their only option.


Nicola White the Assistant Auditor General, Legal, made a good fist of winning over the very large crowd at Mangawhai yesterday.  She stated very clearly what the EcoCare inquiry was all about, how it would be carried out, who would be involved, and how they could call on outside experts. But at times her explanations became a little frayed around the edges and open to a little eyebrow raising.

Council initiated OAG inquiry
She persisted with the fiction that it was the KDC that initiated the request for an inquiry. Well that is true, sort of. That is how the system works. You have to ask for an inquiry. But there is s difference between asking for an inquiry of one's own volition, and having a gun held to your head and being instructed to ask for an inquiry, or else.

We do not know what happened in detail in this case but the KDC request for an inquiry was not the Road to Damascus moment that the OAG suggests, where the KDC put years of subterfuge and lying behind it and decided, suddenly, to ask the OAG to inquire into its wrongdoings.

What we do know is that, with Jack McKerchar's departure, Glennis Christie put on the Council's website all the public excluded resolutions and reports going back to the beginning of EcoCare. These were all secret documents that Jack McKerchar - with the cooperation of a fawning bunch of Councillors - had kept secret from ratepayers for all those years. (One of the many skeletons that Steve Ruru recently referred to.)

These documents were dynamite. They showed beyond any doubt that the EcoCare scheme was a rort from start to finish and was simply a risky get-rich-quick scheme for consultants, contractors and developers that was flossied up and disguised, and "sold" to ratepayers with the cunning of a circus snake-oil salesman.

It soon became apparent from reading the documents that ratepayers were fobbed off with a statement of proposal that misrepresented the true situation in respect of the size of the scheme, the cost of scheme, the risks associated with the scheme, and the amount of rates that ratepayers were to pay to fund the scheme. That fraudulent misrepresentation continued for nearly six years.

The whole scheme was a massive confidence trick from start to finish. It was utterly and totally illegal. It was about as legal as the Councillors going along to Sky City and using ratepayers monies to run up massive debts.

I immediately drafted very detailed submissions on the matter to he effect that in extending the EcoCare scheme and increasing the EcoCare debt Council had exceeded its statutory powers because it had failed to comply with he decision-making and consultation process in the LGA, and in particular had failed to put out a new statement of proposal which was absolutely obligatory for such actions.

In other words the Council had acted ultra vires - outside its legal powers - and the validity of the Council's actions were legally in doubt.

I sent my submissions to the Council and to the Auditor-General. Steve Ruru referred the matter to the Council's solicitors who confirmed that Council had a serious problem. As a result Steve Ruru was obliged to consult with the OAG to work out how the matter could be resolved. Clearly all parties were concerned enough with the situation for the inquiry to be mooted and decided upon, and the correct procedure was then put in place.

We need to be absolutely clear that the inquiry came about only because of the legal submissions that were made by a ratepayer. If Council had been left to its own devices then nothing would have happened.

Nicola White is also remiss in not pointing out that another trigger for the inquiry was the fact that for 18 months the OAG ignored the complaints and legal submissions of myself, Helen Curreen of the MRRA and John Dickie relating to the illegality of the EcoCare rates.

Our complaints were dismissed out of hand by the OAG, and with an indifference to clear breaches of the law that made one question the OAG's grasp of the law relating to rating, and also made one wonder if it really cared if local authorities were breaching the law.

All our complaints were subsequently substantiated by the Salter report, which, with the submissions on the extension of the EcoCare scheme, seemed to trigger a total change in the approach of the OAG.

Nicola White and her team travelled to Kaiwaka arlier this year to meet with the MRRA, John Dickie and myself. She apologised on behalf of the Auditor-General for the way in which our complaints and submissions had been handled, and at the same time announced the inquiry into EcoCare.

So, there is quite a bit of history behind the request for an inquiry and the picture painted by Nicola White of the Council pursuing the correct and appropriate course of action of its own volition, is not quite a reflection of what actually happened in real terms.

Powers of the OAG
I think that many ratepayers would have been somewhat deflated to hear Nicola White's clear explanation of the limited powers that the OAG has once the inquiry is at an end.

The OAG simply issues a report to Parliament with its findings and effectively that is it. It has no power to take any action, make any awards, grant monetary compensation or anything like that. Council is not even obliged to comply with any findings, and given its attitude to the findings of the Salter report (which it is refusing to accept) it appears likely that it will only be coerced into action by an order of the court.

The OAG hopes to find out, at least, what actually happened and what went wrong, but any action that is requited to fix things or seek compensation or remedy consequences are totally a matter between Council and ratepayers.

So after all that inquiring, the months of questioning and consideration, it is highly likely that ratepayers will be in no better position than they are at present. A sobering thought.

But at the end of the day, we will at least, hopefully, have some insight into what actually happened and what went wrong. That in itself will be a blessing and will no doubt be a major influence on any course of action, legal or otherwise, that ratepayers decide to take.

Related party
I feel very uncomfortable about Nicola White's comments in respect of the conflict of interest situation. The OAG is inquiring into the problems with EcoCare when in fact the OAG itself, and its off-shoot, Audit NZ, are both in the gun for failing in their responsibilities towards Council. So the OAG will be inquiring into its own behaviour and that of its subsidiary.

Nicola White skirted around the issue and talked of different departments and glass walls, but anyone associated with basic jurisprudence knows that justice must not only be done, but it must be seen to be done. Such a glaring conflict of interest is not a good look.

Apparently we have little choice in the matter because there is no other organisation that is prepared to step up to the mark and carry out such an inquiry, so it seems that we are obliged to lower our expectations and live with a certain degree of conflict of interest. Beggars can't be choosers.

That same conflict runs into other areas. Apparently the OAG will instruct an independent firm to assess Audit NZ's competence in the audit area and see whether it met the required standards in auditing the KDC.

I have some problems with that. Most of the large firms are employed by the OAG as its agent to carry out audit work on its behalf. They all therefore have a vested interest in remaining on good terms with the OAG and doing nothing that is going to put at risk any future appointments.

Auditors I am sure, like most other professional, have a very cosy relationship with each other and I find it hard to believe that there is a firm in New Zealand that will break ranks with it fellow auditors and pursue an independent assessment of Audit NZ's performance with the rigour that it requires.

Audit NZ
Nicola White also made it clear that the OAG that is carrying our the inquiry is totally separate from Audit NZ that is carrying out the audit (so ineptly yet again) of the current draft LTP.

Is it?

I think that she might have that wrong. The audit report in the LTP states quite clearly that the "Auditor General is the auditor of the KDC and that she has appointed Karen MacKenzie, using the staff and resources of Audit New Zealand to report on the LTP etc."

The Auditor-General is therefore the principal and has instructed Audit NZ to act as its agent in this particular matter.

Now, under the law, a principal is responsible for the acts of its agents. That is absolutely clear. So I find it a little disconcerting that the OAG should be distancing itself from the performance of Audit NZ in respect of the audit of the LTP when Audit NZ is the OAG's agent and the OAG is responsible for the actions of its agent.

One more concern. There has been a lot of concern expressed about the competence of Audit NZ's performance as auditor of KDC over the past six years with many fundamental errors being overlooked. That concern is so well founded that the OAG has specifically included the audit role of Audit NZ as part of its inquiry into EcoCare.

That being the case, I have to ask why Audit NZ is still continuing in its role as Council's auditor given that there is a huge question mark hanging over its performance over the past 6 years?

Surely it was appropriate for Audit NZ to be replaced as the KDC auditor until the findings of the inquiry in to its audit operformance are available?

Why did the Auditor-General not appoint a completely new auditor to audit this current LTP?

And why is the OAG distancing itself from complaints that Audit NZ is carrying its audit of the LTP in the same sloppy and incompetent way that it has in the past, when it is responsible for its agents short-comings.

My own view, for what it is worth, is that the audit over the past few years is such a shambles, especially with the audit of the annual report for 2010/11 not being signed off, that it would be impossible for any new auditor to understand what had gone before.  I suspect that no one will be able to explain fully the financial and legal mess that the KDC has manged to get itself into.

But, in spite of all that, the inquiry being undertaken by the OAG is the best that we can expect in the circumstances and we need to support it and provide as much information as we can.

More on that later.


There will be a few side-shows over the next week or so, as there always so are in any self-respecting circus.

One will be the battle by Audit NZ to contort the LTP to fit the requirements of the LGA. Audit NZ has to sign off another audit on the final LTP before it is actually adopted. It faces huge problems in doing that because quite simply the LTP and the whole consultative process carried out by Council fails miserably to comply with the requirements of the LGA.

But that is not all. Before the audit can be signed off, both the Mayor and the Chief Executive have to sign letters of representation confirming that pretty well everything relating to Council is in order and legal.

That, of course, is not the case. But no problems, Council and Audit NZ have had a special oversize carpet made and are shovelling major problems under that carpet as fast as they can.

There are problems relating to conflict of interest. There are problems confirming that Council has acted in compliance with the law. There are problems confirming the "going concern assumption". That assumption is based on Council being able to meet its commitments out of its income for at least a year.

We all know that Council does not have a clear idea of what its financial situation is, and is far more indebted than it lets on. As Steve Ruru has admitted, there are a lot of skeletons still in the cupboard.

There are of course the liabilities that we do not know about. Council's finances have yet to be investigated by anyone who does not have a vested interest in burying the "irregularities" that are clear to everyone, except of course the watchdogs who should be sniffing them out.

But make no mistake: the sudden appearance of the massive debt that has been sprung on us out of the blue is only the tip of a very large iceberg of debt and liabilities that is waiting in the wings.

Then there are the liabilities that we do know about. Such as the illegal rates and development contributions.

Council acted smartly in emasculating Jonathan Salter. It cleverly changed his role from that of an independent expert whose task it was to seek out the truth, to that of a Council adviser who was instructed by Council to act on its behalf and in Council's (only) best interests.

At the time that he issued the Salter Report and exposed the illegal underbelly of Council Jonathan Salter was set on doing the same with the rest of the rates across the district, the unit of demand rating regime, the defective rates assessments, and the illegal development contributions.

There was glaring evidence of illegalities, non-compliance and ultra vires actions in all of these charges, which an expert such as Jonathan Salter would have picked up during a very short breakfast.

I have no doubt that Jonathan Salter has since been employed by Council to rule on the festering cess-pit of illegalities and has responded to Council accordingly with an embarrassing list evidencing massive incompetence.

I am also confident that Jonathan Salter will have advised Council that in most instances there is little chance of the illegal or ultra vires charges being validated. In other words, the monies would have to be refunded to ratepayers.

I do not know how much this debt is but it must be at least $20 million.

I also have no doubt that Steve Ruru has done everything that he can, in collaboration with Audit NZ to bury that debt and ensure that it does not appear anywhere in the LTP. An extra debt of that magnitude in the books would push the KDC over the edge. Even Audit NZ could not bend the rules that far to accommodate such a debt.

In reality, what we are seeing is nothing more than a conspiracy by the powers that be (and you can define that term in any way that you see fit) to camouflage the true financial situation of Council in the hope that the KDC can struggle on and dump the liability of the illegal debt on to ratepayers.

That such a conspiracy to defeat the course of justice, fairness and everything else you can think of, could happen in New Zealand in 2012 under John Key's government is a matter that all New Zealanders should be very, very concerned about.


Minister of Local Government David Carter has failed his first major test.

Former Minister Rodney Hide put the KDC on watch for six months in September 2011. That six months probation period expired at the end of April 2012.

The former Minister set out about five areas of concern that had to be attended to by Council during that time. He stressed that the LTP for 2012/22 would be the big test for Council as it would illustrate that all concerns had been addressed.

The reality is that the draft LTP has been a mammoth failure. Council has failed dismally to address any of the matters that concerned the Minister. Not only that, it has continued on its spiral into chaos with a total disregard of compliance with the LGA and a complete failure to come to grips with its financial situation and its massive debt.

So, what action has the new Minister taken?

The Minister has elected to ignore the illegalities and the chaos, and the fact that Council was supposedly on probation, and is allowing Council to proceed with an LTP that is patently illegal, and will effectively make Kaipara ratepayers hostages to a bunch of incompetents who are operating outside the law and are hell bent on destroying the social and economic fabric of Kaipara.

The Minister has refused to taken any action pursuant to his armoury of statutory powers pleading that he has "limited options" and has provided Council with what he terms a "review team" on the basis of that is what Council requested.

The Minister has no power to create such an animal but can justify on it on the basis that he is not exercising his powers but simply responding to Council's request for help.

[As an aside it is amazing how "creative" both the Minister and the Council can be with the strict requirements of the law. From their positions of power they can treat absolutely rigid legal obligations as flexible guidelines and circumvent the intention of the legislation, whilst,at the same time, insisting that ratepayers comply with the law to the absolute letter.]

When it was announced, the review team was given very limited terms of reference. It had no power to interfere with the current LTP and the rates for the 2012/13 rating year. It had a "future focus" only. However, with the Council descending daily into chaos and dysfunctionality, the powers of the review team have been subtly expanded dramatically. It now appears that Council will not sign off the LTP until the Review Team has given its blessing. In other words, the review team is taking de facto control of Council.

Council is meeting again today to discuss the future of the LTP. Steve Ruru will be at his wits end wondering how he is ever going to extract himself from this quagmire.

Cr Geange will have spent many hours over the weekend mustering her sheep and corralling those who tried to separate themselves from the flock. That is when she is not reorganising her wardrobe so that there is room for the bulky Mayoral robes and the paraphernalia of power.

On the other side will be the Ministerial triumvirate frantically trying to get a handle on the chaos that Mayor Tiller and Deputy Geange have created so that they can be in a position to offer advice.

And in Wellington, David Carter will be praying for a miracle and hoping that the Rates Bomb is not going to back-fire on himself and his government.

An interesting week or so ahead.


The Minister's new review team appointed as a "minder" for the KDC is clearly the current approach of government to solving issues of incompetent councils and echoes the way in which the Christchurch Council was dealt to.

It is interesting that the Minister complains of his limited statutory powers and yet at the same time foists on the KDC an option which is not in his tool kit. The trick in that is that you put pressure on the council to ask for help. You are then not using your powers to intervene but merely responding to a call for help.

Like the KDC the Minister is not averse to a bit of smoke and mirrors to flossy up his intervention. Let's take a look:

Limited options to act
The Minister is right. the LGA has very few options. He has a no power to appoint a "review team". But he managed to do that. The truth is that the Minister can bring all sorts of pressure to bear and bring about the results that he wants.

In the present case the draft LTP clearly does not comply with the LGA and a simple word from the Minister to that effect means that Council can no longer function, because it has no plan in place and no rates to levy, and must therefore ask for government intervention.

If the Minister wants to act in Kaipara then he can.

The debt results from a blow out
Not true. This debt results from a completely illegal and ultra vires action of the KDC in entering into a contract to build a wastewater scheme without consulting with the community. This was a rort on a massive scale with the KDC misleading the community for 6 years as to the extent and the cost of the scheme.

Government will not bail out Kaipara
The Minister is clearly misrepresenting the situation. Kaipara ratepayers do not want a bail out from government. They are saying that an incompetent council has created such a legal and financial mess that can only be resolved by the government using its special powers to intervene and take appropriate steps to sort out the mess and work out who is responsible for the debt.

The government owes that to the ratepayers. Many of the problems stem from the poor drafting of the LGA and because of the failure of government watchdogs to rein in out of control local authorities.

Council's independence
The government's Question and Answer document (here) explains the reasons behind the Minister's actions and makes the following statement:

(Government) is not responsible for the actions of local councils. It is essential to local democracy that local councils have the independence to make decisions and are held accountable for those decisions by their ratepayers.

If that is the case then one has to ask why the government is now proposing to effectively control the KDC through its review team.

The concept of accountability to ratepayers is illusory. That happens every three years and ratepayers have absolutely no power in the interim.

In this instance the KDC has persistently operated outside the law, in secret and has incurred an illegal debt that will destroy the district. Ratepayers have no power to stop that. Only central government can ensure that sanity and the rule of law are returned to Kaipara.

The draft LTP must be adopted
The Minister states that the KDC must proceed to adopt its LTP and set rates for the commencement of the rating year on 1 July.

Now it may well be a requirement of the LGA to have an LTP and set rates etc, but it is a requirement that the KDC cannot meet.

The draft LTP is a travesty of what the LGA requires. It ignores just about every requirement of the Act and the principles on which local government is based and is simply a number-crunching exercise to grab enough monies to pay the illegal debts that Council has incurred.

Ratepayers are not going to accept the plan because it is invalid, because the rates are based on the payment of illegal debts, and because ratepayers simply cannot afford to pay that level of rates.

The Minister may be trying to call the bluff of ratepayers but that is a very dangerous game. The people of Kaipara are very determined that they are not going to allow the government to destroy their district. 

Perhaps it is time for the Minister to sit down with representatives of ratepayers and see if these problems can be resolved in a way that is acceptable to all sides.  If things continue as they are then chaos is going to result which will not benefit anyone, and the government is going to have to wear an awful lot of egg on its face.

The Minister may have missed the bus this time, but there will be another one along soon.  Let's hope he gets it right next time. 

Legal Eagle has had concerns about the Office of the Auditor-General for some time. Council has only been allowed to wreak its havoc because of the failure of that so-called "watchdog" to rein in out of control local authorities. In the case of the KDC there has been an abject failure by the OAG's side-kick, Audit NZ, to audit the accounts and plans of the KDC in compliance with the audit requirements.

Note that the Auditor-General is the Auditor for the KDC, and appoints her subsidiary Audit NZ to actually carry out the audit on her behalf.

Right from my first dealings with the OAG I sensed that it was not the slightest bit interested in any complaints relating to legal non-compliance by local authorities. I got the distinct impression that, rather than being a watchdog, the OAG had become a supporter and defender of councils and simply rebuffed all concerns and criticisms addressed to it by ratepayers.

Two years further down the track I have seen nothing to change my mind. In fact ........well, just a moment, rather than me telling you what I think, I will let readers decide for themselves. Read this and see what you think.

Northern Advocate report

The Northern Advocate reports here a meeting of Far North farmers and foresters to oppose the new ways that rates are being calculated by the Far North District Council. Sound familiar? The Mayor and Councillors declined to attend on the basis that they had received legal advice that it would be illegal for them to attend.

It turns out (not included in the web-site version) that the legal advice was given by a solicitor in the Office of the Auditor General who advised that:

Because the formal consultation process had been completed , attending another meeting outside the process would be contrary to the principles of transparency and accountability in the Local Government Act. Councillors could be seen to be giving undue attention to one sector of the community at the expense of the other.

There are two points that immediately leap out.

OAG offering legal advice
First. what is a solicitor from the OAG doing giving on-tap legal advice to a local authority? That is not the role of the OAG. It has no power to act as a legal adviser for local authorities.

Compare the treatment that several of us received when we lodged complaints and legal submissions with the OAG nearly two years ago. Those complaints - which were subsequently upheld 100 per cent by the Salter report - related to the illegal rates of the KDC. We were advised in no uncertain terms that:

"It is not the role of the OAG to determine the legality of the Council's actions"

It also advised that:

"Only a court could determine whether the Council has complied with the Local Government (Rating) Act 2002."

I am sure that you will agree that there is quite a difference in approach.

Legal compliance and the OAG
The second point is the alacrity with which the OAG, with a remarkable appreciation of the nuances of legal compliance, jumps in to advise the Council of its obligations when it is "protecting" a local authority. Compare that to its track record - together with Audit NZ - in respect of the KDC when it is supposed to be protecting the best interests of the ratepayers. Here are a few example that I have picked out:

• Non-compliant decision-making and consultation in respect of EcoCare second contract which meant that the EcoCare scheme and the EcoCare debt were all ultra vires. Failed to notice.

• Breach of all the conditions of the segmented debt policy. Failed to notice.

• Breach of borrowing ratios in Treasury Policies. Failed to notice.

• Made decisions on other "significant" matters without legal compliance in decision-making and consultation. Failed to notice.

• Complete failure of reporting process in financial accounts. Failed to notice

• Financial accounts a complete shambles for many years with many errors (see the Larry Mitchell and PJ Associates reports and the comments form the Minister about the accounts and errors). Failed to notice.

• The Ecocare scheme not included in the financial records for 6 years. (This is absolutely true and the reason why Audit NZ is having so many problems with the annual report for 2010/11). Failed to notice.

• The EcoCare rates were ultra vires for the first two years because there was no operative scheme as at 1 July in each year. Elementary stuff that Audit NZ failed to pick up and the OAG chose to ignore. Failed to notice. Chose to ignore.

• The EcoCare rates were invalid for the last two years because (a) they were unintelligible, and (b) they were riddled with errors, used the wrong terminology ,were totally inconsistent, and one of the major documents failed to mention one of the rates. Failed to notice.

• The development contributions which have been levied are invalid because Council failed to include a development contributions policy in the LTP.  A fatal error. Failed to notice.

• The forestry rate is invalid because of legal non-compliance. Failed to notice.

• The wastewater rate for the rest of Kaipara is invalid because it is set as a one-off payment when it should be an annual payment. Failed to notice.

• The Council adopted a unit of demand regime for separate units that was totally illegal and completely outside the parameters of the LGRA. Failed to notice. Chose to ignore.

• All the rates assessments for the four years of EcoCare were all non-compliant. (This was subsequently acknowledged by Council's lawyers Bell Gully.) Failed to notice.

• Council failed to comply with findings of the review of the EcoCare rates recommended by the OAG. Chose to ignore.

• Council failed to adopt the 2010/11 annual report by 1 November (obligatory) and is now 7 months late. The Auditor-General recently wrote an article stressing the importance of this document. Chose to ignore.

• Council adopted a draft LTP that is completely non-compliant with the LGA.   A complete revamp of the rating policies but no compliance with the decision-making or consultation requirements, no consideration of options, and a complete disregard for the four well-beings. Chose to ignore.

• In the 2012/22 draft LTP a huge debt has emerged "out of nowhere" without any explanation. Failed to notice or chose to ignore.

• Council's systems and procurement of goods and services procedures were highly questionable and ticked all the "irregularities and fraud " boxes, and warranted further investigation. Chose to ignore.

A pretty damning indictment of the competence of the ratepayers' watchdog when it comes to protecting our interests.

Compare the reality with what the OAG's website has to say:

Our Auditor-General Lyn Provost checks that public money is being spent properly and that what we pay for is working well. Often called Parliament's "watchdog", Lyn has the job of telling Parliament how government spending is going across the board and to speak out when she sees anything that needs fixing. She also keeps an eye on local councils' spending to make sure that local communities are being served as planned.

Now what does that Speights advert say ?

The matter of the Mayoral dunny which I have referred to in earlier posts.   Remember Steve Ruru is letting
the Mayor off the hook by ignoring the arrears for emptying his holding tanks over the past few years.

The statement of proposal is hidden away, as befits a "secret deal", but can be found here. Submissions close on 5 June at 4pm so makes sure that you send them off. You need to include the folowing:


I,   .............................................................................

of ..............................................................................................

Make the following submissions:           

+ I reject all the options in the statement of proposal.

+ The arrears and future charges should be recalculated to include all other costs relating to the collection and dumping of the waste and incidental costs arising from this. This includes any additional costs arising from treatment of the ponds because of the dumping of the waste, or any related matter.

+ The owners in the subdivision who used the collection service should pay all arrears of costs (as defined above) not as a rate but on a simple invoice basis pursuant to a contractual arrangement. There is no reason why the affected owners should refuse to pay all arrears in one sum as it is a debt for services rendered that they have failed to pay in the past. If an owner refuses to pay the arrears then access to the holding tank for that property should be immediately be denied.

+ For the future each of the properties actually connected to the holding tanks and using the collection service should be billed on a contractual basis . This should be done each six months. The total costs for that six months period should simply be divided between the number of properties connected. This was the original understanding when the tanks were installed and should be adhered to.

+ Setting a targeted rate would be difficult given the provisions of the LGRA. A simple contract would be much easier and more flexible.

+ I reject the idea of basing a charge on the usage of water or usage of any kind. If a house is connected then it pays the flat rate. Such owners would then have some certainty about the amount of the charge. To base the charge on usage of any kind would encourage unhealthy habits. Although the Mayor is extremely unpopular with ratepayers I am sure that they would draw the line at seeing the Mayor "holding on " for a week or so just to save on his sewerage costs.

+ The developers of the subdivision or the owners must be required to install an appropriate private sewerage system within a set time. All other developers are obliged to install such systems and it is important that the Mayor is not extended any further benefits, either directly or indirectly.

Signed:  .................................................................

Date:  .......................................................


Send to:

Today is the last day for lodging submissions on the draft LTP.

It is also the day when the Councillors receive a very strong message from ratepayers that they have long outstayed their welcome and that it is time to go. If they bother to read the submissions Councillors will receive the message loud and clear that they are incompetent, acting outside the law, and that they have totally betrayed the trust of ratepayers.

Meanwhile the Mayor and Deputy Mayor have been meeting with the Minister and the rumours are flying thick and fast of imminent action to pull the plug on a council that should have been put out of its misery a long time ago.

The Minister has to act within the next few days. The law requires (don't laugh) that the new rates are in place by 1 July so there is effectively only four weeks to go to get the whole thing sorted.

Council is stymied. Deputy Mayor Geange was very strident in her view that the draft LTP is not set in concrete ("It is only a draft.") and that Council would listen to submissions and change the plan if necessary. She has even come out with a media release to that effect. She has, however, a major credibility issue.  Last year she voted against amending the annual plan even though she knew that the rating documents contained blatant irregularities that would nullify the rates. This leopard is not going to change her spots. When has Councillor Geange backed down even when she is clearly in the wrong?

The other problem is of course that Council has run out of time. If it decided to amend the plan in a substantial way then it is obliged to reconsult with ratepayers under the special consultative procedure in the LGA. That means going through the 30 day process of advertising, consultation, submissions and hearings all over again. There is not enough time. [Mind you that is what the law says and what the Office of the Auditor-General says in one of its reports. But that does not mean that Council will comply with legal requirements. As we know, the KDC has been granted special dispensation by Audit NZ so that it is not bound by legislative obligations.]

It is time for the Auditor-General to pull the plug. She needs to rein in Audit NZ, and stop this charade of bending of the law to accommodate the Council's incompetence, illegal actions and its dire financial situation. She needs to tell Council that the game is up; that, as auditor for the Council, she can no longer sign off an audit report on the LTP.

One of the basic requirements is that Council has to balance its budget. Because Council's debts are so high the only way that it can balance its budget is by cheating and excluding as many debts as it can from consideration (which it has done with probably $20 million of debts) and by charging rates that are so high that ratepayers cannot pay them. Council does not have the power to do this. It cannot levy rates as a mathematical debt recovery exercise - which is what it is trying to do - because the LGA compels it to abide by the principles of the Act and the four well-beings of the community.

In addition, Council cannot comply with the "going concern assumption". That is one of the major reasons why the annual report for 2010/11 ha not been adopted. This is the relevant part of the letter of representation that had be signed by the Mayor and Chief Executive to close off that annual report.

We confirm that, to the best of our knowledge and belief, the Council has adequate resources to continue operations at their current level for the foreseeable future. For this reason, the Council continues to adopt the going concern assumption in preparing the financial statements and the statement of service provision performance for the year ended 30 June 211. We have reached this conclusion after making enquiries and having regard to circumstances that we consider likely to affect the Council during the period of one year from the date of signing the financial statements, and to circumstances that we know will occur after that date which could affect the validity of the going concern assumption.

We consider that the financial statements and the statement of service performance adequately disclose the circumstances, and any uncertainties, surrounding the adoption of the going concern assumption by the Council.

Steve Ruru refused to sign the letter and there has been month's of negotiating with Audit NZ to arrive at an amended wording.

If Council has such problems signing off for the 2010/11 year then imagine the problems for the 2012/13 year now that all the problems problems relating to massive debt, incompetence and ultra vires actions have finally been revealed.

Once Lyn Provost, the Auditor-General, pulls the plug, the Council can no longer function as a local authority under the LGA and the Minister must step in.

More of that tomorrow.

Before reading this it might be worthwhile to read the article MAYOR TILLER IN THE MIRE immediately below,

I have been mulling over the post that I wrote yesterday about the Mayor's wastewater problem.  There is a certain amount of humour to be extracted from the situation, but as I think more deeply about what happened I realise that this is a far more serious matter.  To me it looks like corruption, it sounds like corruption and it certainly smells like corruption.

Corruption is defined by the World Bank as the misuse or the abuse of public office for private gain.

So what happened in this case?  What are the simple facts? 


+  The conditions of the resource consent for all properties in the Sunset West subdivision at Baylys Beach contain the following provision:

"Where a raw sewage holding tank is provided, the tank will emptied by the Council and each owner connected to the system must pay to the Council that Owner's share of emptying the tank as determined by the Council acting reasonably."

+  There is no indication in the statement of proposal of how many years Council has been emptying the holding tanks. The statement of proposal simply refers to "the last few years". The application for subdivision was lodged in 2004 so the service provided by Council could go back many years.

+  No costs of providing the service are available for the past years but the statement of proposal states that "the costs for the 2012/13 year are estimated at $26,450."

+  If we suppose that the service has been provided for the past 5 years we could arrive at a figure of at least $100,000 as the cost of the service for that period of time.

+  There is a clear legal obligation on the owners to pay the costs of disposal. There is also a clear legal obligation on the Council to act prudently and recover all moneys owing to it.

+  Council has not billed the owners of the properties on the subdivision for the disposal service. No monies have therefore been paid.

+  The costs of the service have therefore been funded out of general rates.

+  No clear reason is given in the statement of proposal for the failure to bill the owners for the service.

+  Mayor Tiller and Corporate Services Manager Barbara Ware both live on the subdivision. It is unknown how long each of them has lived there.

+  Council is now proposing to start charging for the disposal service. The statement of proposal provides for five options. The first four propose new charges for the 2012/13 rating year but do not contain any element of recovery for the previous unbilled years. Option 5 is the only one that has an element of recovery but this is limited to recovering for only 6 months of the current 2011/12 year. It appears that Council,one way or another,  is going to write off the debt, or at least the major part of it, for all the previous years.

+  In the statement of proposal under Financial Considerations it states:

Other than additional administration there is no additional expense for Council as all options seek to recover the costs from property owners at the Sunset West subdivision.

This is clearly not correct. The first four options only collect the costs for the future. Only Option 5 collects any costs from the past, and then it is only six months. None of the options recovers the full costs of the past.

+  This means that Council is foregoing in excess of $100,000 that it is legally entitled to.


+  Council has clearly breached its legal obligation to act prudently.  That applies to its failure over many years to collect the monies that were due.  It also relates to its failure to include in the statement of proposal an option to recover ALL the arrears that are owed by the owners.  Owners on the subdivision received the service and there is no reason in law why they should not be billed.

+  The failure to bill in the past and the failure now to bill arrears is, at least, an example of favouritism and double standards.  Owners in the Sunset West subdivision have been looked on favourably and their legal obligations to pay waived, whilst other ratepayers have been pursued for all costs relating to their wastewater schemes.

+  The contrast between how Council has treated wastewater service in this subdivision and how it has treated the wastewater problem in Mangawhai is stark.

+  The question arises as to whether this state of affairs came about because of an oversight.  Even in a Council as inefficient as the KDC I consider that to be unlikely. 

+  A cost of $25,000 per year is quite substantial and it is hard to believe that accounts staff, and all the other staff associated with such matters, all failed to notice that the costs of disposal had not been recovered.

+  It is also hard to believe that the Mayor himself, and Barbara Ware were not aware of their legal obligations.

+  Whether the failure to bill the owners in the subdivision was a deliberate ploy to favour the Mayor and Barbara Ware, and incidentally all the other owners, cannot be established without a more detailed inquiry.  However, on the face of it there appears to be a case to answer.


+  I will lodge a formal complaint of corruption with the Auditor-General and forward a copy to the Minister of Local Government and the Serious Fraud Office.

+  Under the provisions of the LGA the Auditor-General has the power to recover from individual Councillors a loss incurred by the Council if it has "intentionally or negligently failed to enforce the collection of money it is lawfully entitled to receive."

+  I will suggest to the Auditor-General that she exercises her power to recover the monies outstanding directly from the Councillors

It is a fundamental principle of law (that you learn in the first year at Law School) that all dunnies are equal before the law. However, for the KDC there are some dunnies that are more equal than others.

While Mayor Tiller has been busy extorting incredible sums from Mangawhai residents in illegal tithes for their twice-paid sewerage system, he has been turning a blind eye to what has been going down in his own dunny.

He lives on Sunset West subdivision at Baylys Beach. Coincidentally, Barbara Ware from Council also lives on the subdivision.

It was intended that a sewerage plant would be built at Baylys Beach but, after the fiasco of EcoCare, wiser counsel (that sounds like a contradiction) prevailed.

For the "last few years" (not defined) all waste has been held in holding tanks and collected by Council and discharged at the Dargaville plant.

Pursuant to the resource consent conditions owners were to pay Council for this service.

It appears that for reasons unexplained Council forgot to bill the Tillers and the Wares and the other owners for "the last few years".

Perhaps Mayor Tiller was so busy rorting what he believes are the"affluent" ratepayers of Mangawhai with illegal rates that he overlooked his own effluent.

He has now been caught out and is being held to account. Well, sort of. Council has put out a statement of proposal (here) asking for submissions on what to do with the Mayor's effluent. It offers several options (I am sure that ratepayers could think of many more) and goes through an assessment of those options.

The amazing thing is that while Mayor Tiller and Deputy Geange have been happy to launch their Rates Bomb on the ratepayers of the District to fund the illegal expenditure that they are responsible for, they are very reticent when it comes to charging themselves. It appears that all the arrears are to be wiped. That is "for the last few years", whatever that signifies. Only one of the options includes payment for the current year, but not earlier. All the other options commence from 1 July 2013.

With respect, this little revelation just about sums up everything that is rotten about this Council.

The irony is that consultation on this statement of proposal is running in parallel with the consultation on the LTP.  In one, Mangawhai ratepayers are having to pay twice to dispose of their waste, and yet Mayor Tiller has been let off scot-free.

If you want another irony, have a look at the statement of proposal for the Mayoral waste. Given the subject matter, it is a monstrous document. It covers all the options, the assessments, all the figures, and the effect on the community (hello?)

Then compare the proposal in the LTP to completely change the rating base, bring in SUIPs , load up targeted rates to massive proportions and all the other draconian changes that are going to lay waste Kaipara and destroy Mangawhai.

Changing the rating base is classed as a "significant" decision - one of the most important that Council makes - and requires decision-making and consultation at the highest level.

Have a look at the analysis in the LTP for the changes in the rating base. Look at the consideration of all the options, the facts and figures for each option and look closely at the detailed assessment of those options.

Look also at the consideration of outcomes and the effect that such proposals are going to have on the community and individuals. Note the deep consideration of the four well-beings of the community which underpin this significant decision of Council.

Before you start looking, I have to tell you that I was only joking. You will search in vain. There is absolutely nothing in the LTP relating to decision-making in respect of the widespread changes to Council's rating policies. There is nothing, no figures, no options, no assessments, no consideration of outcomes. There is no information to provide a basis for consultation. It is a done deal.

It does not need to be said that there has clearly been a wholesale failure to consider any of the matters (obligatory under the LGA) that were so carefully considered in the Mayoral waste document.

But if that makes you feel like crying, have a read of the story of the Mayoral waste. It really brings out a wry smile. Perhaps all us ratepayers should get our revenge on the Mayor by making submissions to the effect that all waste collection should cease immediately. It would give us all an awful lot of satisfaction to summon up a picture of Mayor Tiller coping with the consequences of our exercise of our democratic rights.

"I do not believe the number-crunchers gave a single thought to the actual effects that their mathematical solution would have on the the the viability of the communities throughout the
district and on the lives and well-being of individual ratepayers."                                

Legal Eagle

"It was painful to see the Deputy Mayor Julie Geange at the public meeeting in Mangawhai side-stepping the illegalities of which she has been a major contributor, and bleating that the debt was a fact, and that we ratepayers had to pay it.

What she and the rest of her flock do not realise is that Council has incurred so much debt, much of it illegally, that it can no longer operate pursuant to the requirements of the LGA and to the principles of local government that are enshrined in that legislation."

Legal Eagle 

Legal Eagle has previously suggested that the KDC's new rating policies were put together by number-crunchers with the sole intention of sucking in enough money to cover the losses incurred by Council because of its incompetence and illegal activities.

Effectively they chose their targets by throwing darts at a board, blindfolded, to see which ratepayers were to cop the burden of their folly.

There is no indication in the LTP that this complete revamp of Council's rating policies had anything to do with the requirements of the LGA.

This is what the LGA says:

101 Financial management

(1) A local authority must manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community.

(2) A local authority must make adequate and effective provision in its long-term plan and in its annual plan (where applicable) to meet the expenditure needs of the local authority identified in that long-term plan and annual plan.

(3) The funding needs of the local authority must be met from those sources that the local authority determines to be appropriate, following consideration of,—

 (a) in relation to each activity to be funded,—

(i) the community outcomes to which the activity primarily contributes; and

(ii) the distribution of benefits between the community as a whole, any identifiable part of the community, and individuals; and

(iii) the period in or over which those benefits are expected to occur; and

(iv) the extent to which the actions or inaction of particular individuals or a group contribute to the need to undertake the activity; and

(v) the costs and benefits, including consequences for transparency and accountability, of funding the activity distinctly from other activities; and

(b) the overall impact of any allocation of liability for revenue needs on the current and future social, economic, environmental, and cultural well-being of the community.

The whole section is of fundamental importance, but it is subsection 101(3)(b) that encapsulates what the LGA requires, and what Council totally failed to consider.

I do not believe the number-crunchers gave a single thought to the actual impact that their mathematical solution would have on the the the viability of the communities throughout the district and on the lives and well-being of individual ratepayers.

Did anyone use the Council calculator to work out what some rate rises would be?  50 per cent, 100 per cent, 300 per cent.  Even one over 1,000 per cent. The average over the whole District, Council tells us, is 31 per cent.  But in Mangawhai it must be close to 100 per cent for residential with businesses much higher. How could such rate rises ever comply with the requirements of the LGA and provisions such as setion 101?

It was painful to see the Deputy Mayor Julie Geange at the public meeeting in Mangawhai side-stepping the illegalities, of which she has been a major contributor, and bleating that the debt was a fact, and that we ratepayers had to pay it.  What she and the rest of her flock do not realise is that Council has incurred so much debt, much of it illegally, that it can no longer operate pursuant to the requirements of the LGA and to the principles of local government that are enshrined in that legislation.

The other Councillors (Cr Larsen excepted) have absolutely no comprehension of what this is all about.  For years they abandoned their brains and any sense of duty to ratepayers and blindly followed the dictates of an opppressive dictator.  Now they are like a bunch of kindergarten kids trying to hobble together a financial plan which is beyond their capacity to comprehend. 

The failure to comply with the basic requirements of this section, taken together with all the other breaches of the LGA, is a matter that the courts would look at very seriously. If the government does not step in to put this outlaw council out of its misery then ratepayers need to be seriously looking at lodging proceedings for a judical review of the legality of the LTP.  The Auditor-General may turn a blind eye to the requirements of the Act, but the courts have a far more rigorous approach to the statutory obligations of local authorities.

The KDC has shot itself in the foot again. The final rates account for the 2011/12 year has just come out. For those on the EcoCare scheme it includes the EcoCare rates that have been held to be illegal.

Jonathan Salter, one of the country's most respected experts in rating law, was employed by the Council to give a definitive ruling on the legality of the EcoCare rates. In his report he made the following comment:

In my opinion if such proceedings were brought (to challenge the validity of the rates in the High Court) it is highly likely that all the rates identified would be invalidated. In a real sense, the rates cannot be regarded as enforceable by the Council. Therefore the situation is serious and remedial action is required, assuming the Council is not disposed to simply refund the rates received.

A complaint has already been lodged with the police alleging that Council is guilty of the crime of obtaining by deception because it issued the previous rates account for the EcoCare rates knowing that the rates were invalid, and knowing that it had no legal right to collect those rates. In other words it misrepresented that the rates were legal.

The police are obtaining a legal opinion on the matter to see if Councillors are to be charged.

Council has now gone and done it again with the last instalment. This is great news for the Rates Strike because it gives ratepayers another justification for withholding the last instalment of rates.

Council has a "record" of illegal acts as long as your arm. It is a serial offender. and yet the enforcement agencies continue to turn a blind eye to its blatant transgressions.

RURU REGRETS  17.05.12
Will Steve Ruru the day when he threw in his lot with the KDC? Some think so.

You have to feel sorry for Steve. At the meeting on Saturday he looked like a man who has backed the wrong horse, or like an engineer on a rusting old hulk racing around fixing all the holes in a vain attempt to stop the ship sinking.

He coped well in a very difficult situation. But Steve is used to all this. He went through a very similar process in the 13 years he was with Thames Coromandel District Council. He oversaw the implementation of a sewerage scheme that spiralled out of control cost wise, with claims of council not complying with the LGA.

Ring a bell?

But Steve left Thames Coromandel with a lot of respect. See the comments here.

Steve's big problem is that he inherited the throne of an autocratic, incompetent Chief Executive who had left skeletons in every cupboard. Steve should have ripped into the place with independent forensic examinations of every aspect of Council. He could then have established a cut-off point to show the shambles that existed before he arrived on the scene. By not doing that he has muddied the waters and put himself at risk.

He also needs to be straight up, not embellish or mislead. That, of course, is hard when you are trying convince ratepayers that they have to foot the bill for Council's incompetence and pay twice for a sewerage scheme.

Steve has clearly adopted the view of most Chief Executives that the Council is always right, even though it is incompetent or acts illegally, and that ratepayers always have to end up paying regardless of the legality or the equity of the situation.

But this time the ratepayers of Kaipara have a lot more ammo up their sleeves. The KDC has acted outside the law for years and got away with it. It is still doing it. It is over 6 months late adopting the annual report for 2010/11. That is a fundamental breach of the LGA and undermines the legality of the draft LTP which is supposed to be based on the annual report.

The draft LTP is a complete farce. It makes a mockery of the requirements of the LGA, of the decision-making requirements, and of the four well-beings of the community that should underpin the plan. The LTP is nothing more than an extortion device that has no basis in law. It is put together by a bunch of number crunchers who basically, blind-folded, threw darts at the board to see who would cop the burden of making up the 31% deficit.

In addition the proposed rates are so high that it will be impossible for ratepayers to pay them.  Politically that cannot be allowed to happen.  Kaipara may appear to be irrelevant to the rest of NZ, but any government that ignores what has gone on in Kaipara, turns its back on the rule of law, and allows individuals, families and communities to be destroyed by an insolvent and desperate Council, does so at its peril

Steve knows all that and I am sure that he feels very uncomfortable with it. The problem that he faces is that he has no room to manoeuvre. There is a tight deadline to get everything through by 1 July and any substantial amendments to the plan are not feasible. Likewise, if Council is to balance its budget, which it is required to do by law, then any concessions in one area will mean that someone else has to pay.

Steve has dug his toes in and refused to sign the letter of compliance for the 2010/11 annual report. He has to confirm things about the status of Council that he is not comfortable with. I believe that it is now the time that Steve takes another step forward. He knows that Council is dead in the water and that it is just a question of time before it folds altogether.  He needs to take a bold step and tell Councillors that the game is up, that Council is insolvent, that it cannot operate any longer in compliance with the LGA, and advise Councillors to resign and call on the Minister to take over under his statutory powers.

That is the only possible way out of this situation.  Ratepayers are adamant that the Mayor and Councillors should go but we would be very happy to see Steve Ruru stay and be reponsible for running a stripped-down Council whilst the Minister's men and the forensic boys get stuck into sorting the mess out.

Perhaps it is time for Steve to talk to ratepayer representatives about options that we could present to the Minister.

What do you think, Steve? 

This was a magnificent day for Mangawhai. It brought back memories of 1991 and the Spirit of Mangawhai when the residents joined together to save the harbour from the effects of cyclone Bola and the ravages of nature.

That Spirit of Mangawhai has to be rekindled. This time we are fighting for much more than our harbour. We are fighting for the very existence of our village, and the lives and livelihood of our people.

We are fighting an incompetent Council that has been, and is, operating outside the law.

We are fighting Councillors who are utterly incompetent, who combine ignorance with arrogance, and who, to use that age-old legal term, couldn't give a fat rat's about the people of Kaipara and Mangwhai. Their only motivating factors are the pay that they receive and the need to cover up the evidence of their total incompetence and their illegal activities.

We are also fighting a government that has allowed the watchdogs to be captured by consultants and contractors and has sat and watched while ratepayers are being systematically pillaged. Just like they did when the finance companies were on the rampage..

The Minister of Local Government has closed his eyes and ears and turned his head away.

The Ombudsman has run for cover.

The Auditor General has disgraced her Office with an incompetence that is quite incredible. She has given Council total freedom to act outside the law with total impunity.

She has made a mockery of the Rule of of Law.

ECOCARE - THE TRUTH (This is the presentation at the meeting of 12 May 2012)

The story of EcoCare goes back to the 1990s. There were all sorts of proposals but In 2005 the scope of the scheme was finally agreed by Council and Earth Tech the contractor.

A wastewater project of this size cannot be approved by Council without consulting with the community. In February 2006 Council issued a statement of proposal setting out the terms of the contract with Earth Tech and explaining to ratepayers what the scheme meant to them and how the scheme would be funded.

That statement of proposal was adopted as part of the Long Term Plan for 2006/16.

• The project cost was $35.6 million.

• The contractor was to be responsible for all cost overruns.

• Because of concerns about substantial growth the scheme was to cater for 3,300 connections.

• This was for a complete scheme.

It included provision for:

• Reticulation of the current urban areas.

• Connection of established households.

• Establishment of the sewer transfer network between Mangawhai Heads, MangawhaiVillage and the Treatment Plant site in Mangawhai Park.

• Establishment of Treatment Plant in Mangawhai Park, and

• Disposal and or reuse of treated wastewater and biosolids.

The only thing that had not been finalised was the final disposal site for the effluent.

• This document encapsulates the agreement between the Council and ratepayers.

• It is "contract" based on trust.

• It is the founding document of EcoCare.

• It was set in concrete and could not be changed unilaterally .

I say that because the EcoCare scheme is deemed to be a "strategic asset" and any decision relating to it is a "significant decision". Under the Local Government Act (LGA) this requires decision-making and consultation at the highest level.

Not only that, under section 97 of the LGA a decision to alter significantly the intended level of service provision for any significant activity MUST NOT be taken without the decision being included in a Long Term Plan and in a statement of proposal.

This meant that Council could not make any significant changes to what was in the original statement of proposal without a formal consultation process and issuing a new statement of proposal.


We did not like the EcoCare scheme.

We felt that we were bulldozed into it.

We felt that there were better and cheaper alternatives for protecting the harbour.

But we finally accepted it.

We performed our part of the bargain

We paid our capital rates - even though they were illegal.

We paid our annual charges - even though they were illegal.

Developers paid their development contributions - even though they were illegal

We even paid the unit of demand levies - even though they were illegal and ultra vires. (Council had no power or right to levy them.)

For four years we have performed our obligations to the letter.


Now leap forward 6 years to where we are now.

Council is telling us that the contract that we had is meaningless.

That all the figures were wrong.

Council tells us that the EcoCare debt is $58 million and that the total costs was $62,268,855. There are suggestions that the true cost is as high as $80 million.

We thought we had a sewerage scheme at a fixed price of $35.6 million and we thought that we had already paid for it.

Council is now telling us that even though we have already paid for the scheme we now have to pay for it again.


So what happened?

Clearly there were massive changes to the scheme.

That is fine. All schemes need fine tuning. But these were changes on a large scale with a corresponding increase in costs.

Council was obliged to comply with the LGA and consult with ratepayers.

Council was obliged to issue a new statement of proposal.

Council did nothing. Council kept everything secret.

All resolutions were passed in public excluded sessions.

None of the subsequent plans, annual or long term, mentioned the amendments to the scheme or the increase in costs.

For all those years Council kept the matter secret from ratepayers.

What Council did was a fundamental breach of the law.

Councils only have the power to act if they comply with the requirements of the Local Government Act.

Council failed to do that.

Council was therefore acting ultra vires (outside its powers).

Council had no power to enter into any new contract or incur an increased debt.

But more than that, Council misled the ratepayers of this district.

Council completely misrepresented what the EcoCare scheme was going to cost.

That is why we have absolutely no trust in the Councillors, and why they should all resign immediately.

And that is why the Auditor-General is holding the inquiry.


Ratepayers would not have known the true story, but in November last year Glennis Christie at Council opened up one of Jack McKerchar's secret drawers and released on the Council website all the public excluded resolutions and reports relating to EcoCare.

Those documents show how Council hid the true facts and the true costs of EcoCare from the ratepayers.

In May 2006, before the statement of proposal and the LTP had been adopted, Council was already secretly changing the scheme. On 24 May 2006 it resolved to buy the Lees property as an effluent disposal site for $4.75 million plus GST. The deal was confirmed by resolution on 23 August but the price had gone up to $5.113 million. (Council omitted to include a price in the option to purchase!)

The resolutions were both made in public excluded session.

On 26 October 2006 Council, in public excluded session, considered a report from Beca on the sizing and growth presumptions of the EcoCare project. The Chief Executive summarised the report and stated that:

• There had been substantial growth in population,

• The current model of 3,300 connections appeared conservative.

• Capacity was to be increased to 4,500 connections.

• The plant was to be upgraded.

• That the reticulation area was going to be extended to capture more properties.

• That Council would apply for a Plan change to get denser housing in the reticulation area.

• That the Lees farm was to be used for effluent disposal with an 11km pipeline to connect it to the plant.

The Chief Executive commented that the changes: Basically doubled the original scope.

An amended Project Deed was prepared and a motion to sign this was passed by Council on 28 November 2007. The motion was moved by Councillors Sutherland and Smith and approved by all Councillors, including current Councillors Tiller and Geange.

In other words the original proposals were scrapped and replaced by new proposals that substantially altered the scope of the scheme and increased the cost. The new contract price was almost $43 million but that did not include the cost of the Lees farm.

All done without any consultation and without any statement of proposal.

Ratepayers were kept completely in the dark

It was completely illegal.

The price has blown out to $62 million or $70 million or $80 million. Nobody knows the true figure.

So where has all the extra money gone? I don't know. The Councillors don't know. The only person who knows is Jack McKerchar.

Council are holding meetings to explain the worrkings of the Rates Bomb as follows:

Friday 11 May Mangaturoto Centennial Hall 10 am - 12 pm

Friday 11 May Kaiwaka Memorial Hall 2 pm - 4 pm

Saturday 12 May Mangawhai Recreational Centre (by school) 1.30 onwards.

Note that the march will commence from the Hub at 1 pm.

Bring your placards and attitude. There will be hundreds there so make sure you allow plenty of time to get there. Parking will be at a premium so walk if you can.

Some placard suggestions can be seen in Rants

A new page has been opened called Rates Strike with advice on the proposed Rates Strike. There is a connsideration of what we are aiming for and Legal Eagle's ideas on how the KDC problem can be solved. A guide to the legal situation is also included.

In an article in the Kaipara Lifestyler (here) Deputy Mayor Geange has finally responded to the concerns of ratepayers.

Councillor Geange is known as a staunch team member. Somewhat surprisingly she has now abandoned the team approach and is trying to excuse herself personally from liability for Council's past illegality and incompetence by suggesting that she had no part in the EcoCare decision-making

She points out that you don't have to be a rocket scientist to realise that she couldn't have voted to sign the EcoCare contract in 2005 (not 2006) because she did not become a Councillor until October 2007. Absolutely right.

But that is not the end of the story.

The contract that Deputy Mayor Geange mentions was never pursued. It was abandoned. It was superseded by an amended contract that extended the scope of the scheme and increased the cost dramatically.

Council approved the signing of that amended contract by resolution on 28 November 2007. The resolution was moved by Councillors Tom Smith and Julia Sutherland. The other Councillors at that time were the Mayor Neil Tiller, Deputy Mayor Richard Alspach, and Councillors Brian Burnett, Brian McEwing, Julie Geange, Bill Guest, and Graham Taylor.

No abstentions are noted on the resolution so that it is presumed that Councillor Geange, as she was then, voted for the signing of the amended deed.

This amended deed is in fact the one that has caused all the legal turmoil and resulted in the Auditor-General's inquiry into the legality of EcoCare. Councillors, including Councillor Geange, approved the signing of that document in breach of the requirements of the decision-making and consultation requirements of the LGA.

Because the amended deed made fundamental changes to the EcoCare scheme - designated as a strategic asset and a significant matter - Council was obliged to issue a new statement of proposal, and to consult with ratepayers before signing the document. Not only did Council fail to do that, it also kept the whole matter secret from ratepayers.

Ratepayers did not find out about the illegal changes to the scheme until late last year.

Under sections 44-46 of the LGA if there is a loss resulting from a liability that has been unlawfully incurred by the local authority, which is the situation in this case, the Auditor-General may recover that loss from the individual Councillors.

There are defences to such a claim but these depend on not voting on the issue and acting in good faith. Councillors would struggle to establish that they acted in good faith when they breached one of the most fundamental requirements of the LGA.

Councillors may not realise that they are liable for their decisions under the LGA and they may also be sued for breach of their duty of care, just like company directors.

The Auditor-General has so far turned a blind eye to Councillors' transgressions but it is unlikely that the courts will be so generous.

See the latest Rates Bomb Rant here.

See the latest Rant to see the effect that the Rates Bomb has had on new purchasers in Mangawhai.

Please let us have your stories. Real names or pseudonyms. This website is read by the media, all the watchdogs, MPs, and the government is keeping a close eye on it. Even Councillors are having a secret peep. (Everything they do is in secret). Let's get our stories out there.

In a damage control exercise Steve Ruru has added the following note to the Council's on-line rating information database that is causing so much distress amongst Kaipara ratepayers.

Mangawhai targeted rate for Capital: - Please note the annual rate needs to be reduced by 1/10th of the capital payments that have already been made.

Council has introduced a targeted capital rate on properties connected to EcoCare of $19,720. This is payable in ten annual instalments of $1,972. It has also introduced a rates remission policy whereby ratepayers can apply for a remission on each yearly payment calculated as one tenth of the total amount already paid in rates for capital costs and any share of the government sanitary subsidy credited against that property.

Council has advised that following the application of a remission the average capital rate will be reduced to around $1,344 per annum.

So, according to Council, to work out your rates accurately you simply have to deduct from the figure in the rating information database one tenth of the amount already paid by you in previous years in capital rates, and one tenth of the share of the government sanitary subsidy that was applied to your property.

Pretty straightforward, eh?


+ Average means nothing. How do property owners find out what remission is available for their particular property? How can the average ratepayer find out what capital rates have been paid and how much of the sanitary subsidy was applied?

+ How does someone who has just purchased find out this information?

+ The remission policy states in the LTP "that for the avoidance of doubt" the remission relates to "rate types 67, 68, 69, 160 and 161". Hello? The avoidance of doubt? What the heck does all that mean?

+ This is not a reduction in the rate. It is a remission. The full amount of the capital rate will be charged against the property and the remission will only be applied at a later date IF it meets all Council's requirements.

+ It appears likely that the rates will have to be paid in full and the remission will be applied as a credit at a later date IF it is approved.

+ Each ratepayer has to make an application for the remission. Many will not understand this. Many will not be able to do it. Many will not be aware of it. How many of those who are entitled to a remission will miss out on it because of the hurdles set by Council?

+ Council will have to handle several thousand applications for remissions. How will it be able to cope? How long will it take to action remissions and credit the monies?

+ We have no idea what the application will entail. For instance Council may require that each application must state the exact amount of remission that the ratepayer is entitled to. Very few ratepayers would be able to apply.

+ Ratepayers will have to apply for a remission every year. Because rates are set yearly any remission will have to be granted each year.

+ The granting of any remission is at the discretion of Council. In respect of remissions the Rating Act states that a local authority "may remit" rates if it is "satisfied that the conditions and criteria in the policy are met".

Do ratepayers have any confidence in this Council applying its discretion fairly? The LGA and the Rating Act are full of "musts" that the Council has completely ignored. What confidence do ratepayers have that Council will apply a "may" fairly.

Council has a track record of making things difficult for those ratepayers who stand up for themselves. That is why many people are reluctant to have their names attached to complaints. They do not want to invite any come-back from Council. (Yes, this is New Zealand not a third world country, but it is true.) Are those who have opposed Council in any way going to be "punished" for their sins and denied a remission on some technicality?

In short each ratepayer will be legally obliged to pay the full amount of $1,972 in ten instalments. If you have the wherewithal to lodge an application for a remission and the gods smile on you then there is a chance that you might be able to score a remission. But don't count on it. Once this Council has got your money it is not going to let it go.

Would you trust Tiller, Geange and the rest of the crew?

This is a Rant (see Rants here.) that I have just received. It encapsulates everything that is wrong about the Tiller/Geange Council and the dreadful Rates Bomb that they have unleashed on the people of Kaipara.

We really don’t know where to begin or which direction to go in.

Having bought a humble property in Mangawhai in 2007 as a long term relocation / semi retirement option, we have watched our dreams being torn away from us by this dysfunctional council.

In short we are caught up in the SUIP fiasco and our rates will increase from $2832.40 in 2011/12 to a massive $8420.90 in 2012/13!!!!

Our weekly rates will go from $54 to $162. We have to find an extra $108/week to meet this highway robbery.

With 3 young children, this is completely unsustainable for us and leaves us wondering which way to turn.

We have thought about bailing out of the district all together but we shudder to think how much money we would stand to lose as the property prices inevitably tumble.

Not only will this council be responsible for tearing the heart out of the Mangawhai community they will also, I am sure, be responsible for the deterioration of people’s health and wellbeing.

We have withheld our last rates payment and wish we had commenced this action earlier. But this is cold comfort looking at the proposed LTP.

Finally where does the Northland MP, Sabin, stand on all of this? Or for that matter any of the Northland opposition MPs. Have any of them shown any interest at all?

Steve and Shelley Sosich

That is almost a 200 percent increase.

How does Mike Sabin feel about that?

How does John Key feel about that?

What the Council is doing is illegal, unethical and totally unconscionable. The government watchdogs have sat idly by and ignored Council's persistent flouting of the law. Ratepayers have only one avenue to stop this madness. Be brave, like the couple above, and STOP PAYING RATES IMMEDIATELY.

[Legal Eagle will be issuing a guide to the ramifications of not paying your rates in the near furure.]

Remember Minister Nick Smith saying just a few weeks ago that the average rate rise over the last few years of 6.8 per cent was unacceptably high.


"A 6.8 per cent rate rise is too high."

[Thanks to Bruce Rogan for the idea]

The Northern Advocate (here) ran an article yesterday on Legal Eagle's 100 per cent rate hike on his property in Alamar Crescent, Mangawhai Heads.

Mayor Tiller was quick to add his usual misleading spin on the matter. He suggested the property was one of the ''million-dollar places along the foreshore Golden Mile''. He chose to miss the point that an increase in rates of 100 per cent is an increase of 100 per cent wherever or whatever the property happens to be.

The Mayor went on to suggest that the rise in rates was due to an increase in land values:

''The council can't be blamed for increased land values - it's the people buying these places who push the values up,''

That of course is rubbish. Property prices have dropped dramatically throughout Mangawhai. The new rateable valuation on the land is almost 25 per cent down for next year but the rates have gone up by over 100 per cent.

It will be interesting to see what spin Mayor Tiller puts on the Sosich example above.

* "Tillerism" definition: A lie. A twisting of the facts to present a better picture. Usually employed to draw attention away from the speaker's own culpability.

In the same Northern Advocate article Mayor Tiller makes some statements about the rates on his own house. The figures he gives do not tally with what he said on National Radio a few weeks ago. Here is what he said on Morning Report:

But hang on. I live by the coast, Baylys Beach, right, and my house, 750 square metre section, valued at $400,000. My council rates are $759 including GST.

Well, where in New Zealand can you live 300 metres from the beach and $759 in annual rates?

However, the article in the Advocate reveals that the Mayor's current rates are in fact $908. They will rise by about 25 per cent to $1141.

Not only that the Mayor revealed that he paid an additional $2,800 annually for wastewater disposal through a private scheme.

So, the figure given on National Radio was a lie. This is the man that we entrust with tens of millions of dollars.

John Dickie has made some interesting submissions about the new rates and the rating of SUIPs. Legal Eagle has also made comments about SUIPS and has pointed out that Council has yet again failed to comply with the LGA by failing to go through the appropriate decision-making and consultation process under the LGA before deciding to change its system of rating.

There are many cases on similar situations where the courts have held that the decision was invalid.

Go to LTP submissions to read the full comments.

In last weeks article in the Rodney Times mentioned below, Mayor Tiller was up to his usual tricks. Referring to his Council's refusal to refund $9.5 million of rates declared to have been illegal:

Mr Tiller has been told it is not a crime under the Crimes Act and the rate is valid unless a High Court judge declares it invalid.

Mayor Tiller has confused the criminal law (Crimes Act) and the theft of $9.5 million with the invalidity of the EcoCare rates under the Rating Act.

In respect of the Crimes Act it is the police who decide if there is a case to answer and whether prosecution should follow.

The question of the validity of the rates is a matter of local government law. To avoid the costs of going to the High Court the Auditor-General recommended an independent first principles review of the rates by an experienced lawyer.

When the terms of reference of the independent review of EcoCare were agreed on in early 2011, both Council and ratepayers agreed to be bound by the findings.

Council reneged on that deal. The Council appointed its own lawyer to run the review, and, as we know, the reviewer decided that all four years of EcoCare rates were invalid. The reviewer was Jonathan Salter, one of the most respected experts on rating law in New Zealand. This is what he said:

In my opinion if such proceedings (High Court) were brought it is highly likely that all the rates identified would be invalidated. In a real sense, the rates cannot be regarded as enforceable by the Council. Therefore the situation is serious and remedial action is required, assuming that the Council is not disposed to simply refund the rates received.

Mayor Tiller is now rejecting the findings of Council's own lawyer and betraying the whole basis of the independent review. He is insisting the rates are not invalid unless ratepayers get a ruling from the High Court. The reason is quite simply that Council is insolvent and cannot repay the monies.

This message is absolutely clear. This man cannot be trusted.

His comment also illustrates Mayor Tiller's abuse of power. He suggests that whatever the Council does is automatically valid unless the High Court decides to the contrary. Knowing of course that access to the High Court is not available to the average Kiwi.

That gives the Mayor and his crew the licence to ignore the law at will and to exercise unbridled power.

And that is exactly what they are doing. While the watchdogs - Audit NZ, the Auditor-General and the Minister - are fast asleep, Mayor Tiller is free to keep on pillaging Kaipara.

Who is going to put a stop to this surreal madness?.

In the same Rodney Times article the Mayor is reported as follows:

When the long-term plan was drafted three years ago it contained information about the sewerage scheme at Mangawhai, but the financial impact statements did not contain the monetary values. That is what made it illegal, Mr Tiller says.

Lies. The first two years of Ecocare rates were ultra vires. That means that Council had no power to levy the rates because there was no operating sewerage system at that time. For the next two years the rates were invalid because of multiple failures to comply with the very simple requirements of the Rating Act. One of the basic errors was that one of the rates was not even mentioned in the vital rating documents.

Let me say it again. This man cannot be trusted.

Lois William's report of last Friday can be heard here (Scroll down to Massive rate increase looms for Kaipara.) The Mayor acknowledges rate rises in Mangawhai of 100 to 110 per cent. It is called "the rate rise from hell" and the suggestion was made that it is the biggest rate rise in the history of local government in New Zealand.

Ratepayers will be pleased to know that Mister Plod has finally taken some action on the complaint of theft. It took 29 days from when the complaint was lodged in Kaiwaka for the complaint to be actioned in Dargaville.

The police are obtaining a legal opinion on the matter and will be in touch.

On the Morning Report segment mentioned above Ken Palmer from Auckland Law School suggested that a complaint of theft had little chance of succeeding unless there was some deliberate act of fraud. He clearly was not aware that the alternative complaint was that of obtaining by deception. Council sent out a rate demand knowing that the rates were invalid. It looks like a deliberate fraud to me.

Many ratepayers in Kaipara have some very negative views about Mayor Neil Tiller. I met him once and he seemed a nice enough chap, but clearly he has demonstrated time and time again that he is totally incompetent as the mayor of a local authority. There were times when I have felt sorry for him having to cope with the tyrannical Jack McKerchar. But what has troubled me most about Mayor Tiller, his incompetence aside, is his tendency to misrepresent the true situation, and feign ignorance of things that he clearly was aware of.

I had a run in with him last year when he alleged that the appallingly drafted rates resolution was prepared on the advice of Bell Gully and based on a standard precedent. Neither of these was true.

I have always given him the benefit of the doubt and suggested that he was prone to putting "spin" on most of his utterances.

However, this time he has gone too far. His comments in the latest Rodney Times (here) go beyond spin.

They are deliberate misrepresentations of the true situation.

They are quite simply lies.

This unethical behaviour comes at a dreadful time for a beleaguered Council that has a history of illegal and ultra vires actions, and a credibility that has been completely shot to pieces.

This is the final straw. The leader of Council has shown himself to be a man who simply cannot be trusted. He is a man who must carry a large responsibility for an incompetent Council, the destruction of Kaipara, and he is now confirming that he is willing to lie to cover up the devious past of his Council.

The Mayor's comments start with a fundamental disagreement with his Chief Executive:

Mayor Tiller:

There is no financial blowout over Mangawhai's community wastewater scheme, Kaipara mayor Neil Tiller says.

His council has been criticised for its financial management in the wake of the sewerage project.

Mr Tiller accepts there have been mistakes.

But he says the perception that the cost has escalated out of control is incorrect.

Steve Ruru:

Kaipara District Council chief executive Steve Ruru last night defended the proposed charges. He said a controversial Mangawhai sewerage scheme went over budget and had to be paid for.[The Herald on Sunday of 29 April 2012]

So, which one is right? Did it go over budget or not?

Mayor Tiller then gets into some facts and figures, clearly intending to put the record straight:

Mayor Tiller:

The original contract for the scheme was signed at $26 million in 2005 to service 2200 properties.

The following year that was deemed inadequate, so the project's scope was doubled to 4400 properties, and the cost rose to $46m.

That contract was only to put the pipes in the street, the pumping stations that were required and the treatment station, Mr Tiller says.

"At that stage the final disposal of the sewage had not been agreed to. That was a separate contract.

"There was another contract to take the sewage from the treatment plant 11km out to a farm that we'd bought.

"There was another separate contract to build a dam on the farm to hold the sewage for six months during the winter because we can't irrigate it, and there was another contract to irrigate the sewage on to the property. There was another contract again to connect the houses from the street.

"They were never ever in the original $46m contract."

The Truth:

The Mayor's analysis is a total misrepresentation of the facts and the figures.

Ratepayers do not have access to a copy of the original Contract Deed of 2005 with the contractor, but the Statement of Proposal for the EcoCare project of February 2006 (here), which was adopted as part of the LTP of 2006/16, encapsulates the "contract" between Council and ratepayers.

It has only recently been discovered that there were subsequent modifications to the EcoCare project, including its scope and the cost, but all of these were done in secret, without any proper decision-making or consultation, and in breach of the Local Government Act. The Auditor-General has instigated a review into the validity of these modifications.

Ratepayers only became aware of the illegal modifications in November last year.

The binding legal document that governs the scope and cost of the EcoCare scheme from ratepayers' point of view is therefore the Statement of Proposal of 2006.

That Statement of Proposal states clearly and unambiguously that the capital cost of the EcoCare project was to be $35.6 million.

It also states equally as clearly that the project was designed to cater for 3,300 sections after 25 years.

The Mayor alleges that the proposal was limited in scope and did not include extras that were the subject of later contracts. That is completely incorrect.

The Statement of Proposal sets out exactly what is included in the capital cost of $35.6 million:

• Reticulation of the current urban areas,

• Connection of established households,

• Establishment of the sewer transfer network between Mangawhai Heads, Mangawhai Village and the Treatment Plant site in Mangawhai Park,

• Establishment of Treatment Plant in Mangawhai Park, and

• Disposal and or reuse of treated wastewater and biosolids.

In other words, the original contract that was signed included every aspect of the project.

There is no doubt that amendments were subsequently made to the original project. The scope of the project was extended. A farm was bought. But these agreements were a result of a secret collaboration between Council, its consultants and the contractors. They were all done in secret, without any consultation with, or even advice to, ratepayers. They were all done illegally.

Because of that, the Statement of Proposal of 2006 remains the binding legal agreement between Council and the ratepayers. That is the only legal document that sets out the scope of the EcoCare project, the costs, and the rates and charges payable by ratepayers.

That is what ratepayers have relied on for the past six years.

Not only that, Council represented to ratepayers in the Statement of Proposal of 2006 that the costs of the project were set in concrete. This is what the Proposal had to say about price increases, blow outs or escalations:

Council has obtained a fixed price proposal where the private sector accepted risks associated with design, build, construction, commissioning and operation of the wastewater treatment system including collection, treatment and disposal in accordance with government regulations and consents.

This option was selected by Council as it did not want to accept the risk of cost over runs on the project and/or the system not working once it was completed. These and other risks have historically been borne by councils when they use the traditional design and construct methods which then leads to significant uncertainty in setting costs. Council is aware of issues and disputes arising between the Council, the designers, the builders, the operators or even the equipment suppliers as to who is at fault if something goes wrong or increased costs are incurred without prior approval when traditional methods have been adopted.

In this case Council and the community are protected from these risks by a single contract interface between Council and the one company (Earthtech). It is Earthtech’s responsibility to manage all the internal interfaces and be responsible for the obligations of all of them.

That pretty well says it all. Ratepayers were assured that, at an absolutely fixed cost of $35.6 million, they were guaranteed by Council that they would receive a state of the art sewerage system that would solve any pollution problems in the harbour, and would service up to 3,300 sections.

The fact that Council then decided to step outside the law and enter into a secret arrangement with contractors on the advice of its consultants is a matter between the Council, its consultants, its contractors, and its financiers. They will have to consult their lawyers and perhaps the govenment to find a way out of the legal and financial shambles that they alone have created. They will all have to share in the losses caused by their patently illegal actions. Ratepayers have absolutely no responsibility for the illegal acts, the ultra vires acts, or the malfeasance of Council.

The tragedy is that this inept Council has been allowed by the authorities to continue on the same dishonest course. Hiding the annual report (illegally) from ratepayers because of its unpalatable contents, producing a fundamentally dishonest document called the LTP to gloss over the past, and allowing the Mayor to tell his lies to try and cover up the shameful past, simply illustrate that the Kaipara District Council is dishonest to the very core.

The fact that it is still in existence and allowed to continue to perpetrate its deceitful and illegal regime is an indictment on the government watchdogs, and an indictment on the government itself.

Submissions on the new LTP have to be with the Council by 4 pm on 30 May. For those who are going to make submissions I suggest that you hold back for a while. There is a lot of discussion and clarification ahead and it would be better to hold fire until we have all the information available. I am opening two new pages on this site. The first is LTP Rants which will give ratepayers the option of venting their spleen and expressing their honest views on the KDC. The second is LTP Views which will include more measured criticisms of different aspects of the LTP that contributors might want to share with others. This will be catalogued under different headings for easy reference.

Please send your rants and views to

If you want to know how the Rates Bomb is going to affect you go to the Council website here and type in your address. Then click on rates for 2012/13. Legal Eagle just went through the exercise. Ouch! The Bomb really hurts. Our rates last year for our very modest bach in Mangawhai were $4,978.70, The proposed new rates, thanks to the Rates Bomb, are $10,074.60. That is the 100+% increase that we anticipated.

Council is of course illegally charging us, like many others, for an extra SUIP (separate unit). The KDC under Jack McKerchar made an art form of extracting illegal tithes from ratepayers. His biggest rort was the unit of demand regime for separate units which was totally outside the Rating Act and ultra vires. It has, with all the other illegalities of Council, and with the help of Council's accomplices, Audit NZ and the the Auditor-General, been conveniently swept under the carpet (and the monies paid not refunded) but its legacy lingers on. Although Councillors have finally woken up to the requirements of the LGA and LGRA in respect of SUIPs, and have finally included a definition of a SUIP that complies with the law, that will not stop them continuing the rort by calling every auxiliary building a SUIP, and raking in all the extra rates that it now charges on them. It is completely dishonest and illustrates that, even with a new Chief Executive, the same fundamental dishonesty is still there. Leopards do not change their spots.

Legal Eagle has not paid his rates for a year now. These cowboys are operating totally outside the law and I refuse to pay any monies to an illegal regime. If the KDC and Audit NZ and the Auditor-General can treat the obligatory provisions of the LGA as optional, it seems only fair that ratepayers should have a choice whether they pay their rates or not.

That is the problem that the Auditor-General has created. As soon as she stops upholding the Rule of Law and treats local authorities partially, and ignores non-compliance with legislation, illegalities and ultra vires acts, then she invites others to do the same.

The Kaipara Citizens and Ratepayers Association has called for the resignations of Mayor Tiller and his Deputy Julie Geange. Mayor Tiller has been in Council for 11 years and Mayor for the last two terms. During his terms in office Kaipara has gone from being a prosperous district with virtually no debt to being insolvent and the most indebted local authority in New Zealand. His Council has acknowledged illegal and ultra vires setting of rates and has asked for the Auditor-General to inquire into the legality of the EcoCare scheme. Council advised ratepayers that the scheme would cost ratepayers $35.6 million but Council secretly extended the scheme and the final cost is about $80 million. Mayor Tiller acknowledged on Close Up that "Council got it wrong".

Deputy Mayor Geange is in her second term as Councillor and the first as Deputy Mayor. She is seen as a staunch supporter of Mayor Tiller and the now discredited former Chief Executive, Jack McKerchar.

A report of the matter can be seen in the Lifestyler here.

When Rodney Hide was Minister of Local Government he refused to take action against the KDC although it was clear to everyone that Council was completely incompetent and incapable of functioning under the LGA. He acknowledged that the financial accounts were a shambles, and that Council had persistently failed to comply with the Rating Act, but in spite of that he suggested that local problems should be sorted at a local level. (Presumably if he was Minister of Police he would suggest that armed robbers should be free to sort out their own problems with their victims.) He did, however, invoke one of the more serious sanctions in his armoury. He put the Council "on watch". He gave them six months to sort out their mess.

Interestingly, that six months has just expired. Steve Ruru, the Chief Executive, has been busting his boiler to meet the Minister's deadline and show that the mess has been well and truly sorted. One of the big targets was to adopt the draft LTP within the time frame set by the Minister. It was touch and go but he got home by a whisker. To do that Council had to ignore the fact that it was insolvent, that it had breached all its borrowing ratios, that all the Ecocare rates (and other rates) were illegal or ultra vires, and that millions of dollars levied as development contributions were also illegal.

It had to ignore the fact that its financial accounts for the past six years are riddled with mistakes and omissions and that an extra $40 million dollars had been spent on EcoCare that Council could not account for.

It also had to ignore the fact that the decision to extend the EcoCare scheme and increase the debt was illegal and subject to an unprecedented inquiry by the Auditor-General

It had to ignore the fact that it committed a fundamental breach of the LGA by not adopting the annual report for 2010/11 within the obligatory time-frame and prior to adopting the draft LTP.

And what of the LTP itself? It is a total travesty of what an LTP is required to be under the LGA. The whole point of an LTP is that it is a projection into the future based on the current situation of a local authority. You cannot plan for the future without assessing the present situation. What Council has done, effectively, with the endorsement of Audit NZ and the Auditor-General, is to pull a curtain down on the past. It has ignored what has gone before, all the problems, the liabilities, the illegalities, the ultra vires acts. It has ruled a line off on the past and started with a clean slate as at 1 July 2012. It is telling ratepayers that the past is irrelevant, that it has this massive debt, and that they have to fund it.

Not only that, because the LTP has been hatched in limbo it is simply incapable of projecting ahead. Council has acknowledged that the LTP is only a temporary measure and that massive changes will have to be made, which will probably coincide with the annual plan for the following year. That makes a mockery of the whole concept of a ten year plan.

Of course Audit NZ and the Auditor-General turned a blind eye to all these breaches of the Local Government Act, and, based on previous responses, the Minister will probably do the same. But times are changing. The Minister's Office has made it clear that rate rises of 7 per cent are not acceptable, and Nick Smith was planning to introduce legislation to curb rate increases. If John Key back-tracks on that and allows the Kaipara Council to get away with its illegal and ultra vires action, to impose rate rises of over 100 per cent, and to effectively destroy Magical Mangawhai, then his government is going to have to wear an awful lot of egg on its face.

All eyes on the Minister.

Mark Sainsbury asked Mayor Tiller on Close Up last night if he had been arrested yet. He was referring to the complaint of theft by the Council lodged at the Wellsford Police Station on 5 April. Legal Eagle has heard nothing from the police beyond receiving a case reference, and has been trying to track down what has happened to the complaint. It turns out that it sat at the Wellsford Station from 5 April to 15 April before it was forwarded to the Senior Sergeant at Dargaville. The Senior Sergeant at Dargaville has gone on leave for six weeks and no one can tell me what has happened to the file. The relieving Senior Sergeant hopefully would know but is only there part time. So I have absolutely no idea how the file is progressing.

Interestingly, the Serious Fraud Office rang me almost immediately to discuss the matter and wrote to me soon after. They expressed surprise that I had not heard from the Police.

Incidentally, the SFO stated that they would not be taking the matter up as they felt that this was a straightforward police matter.

Ratepayers in Kaipara must be feeling that this Council is Teflon-coated and is exempt from all legal liability.

Those who missed last night's item on KDC's rates rort on TV One's Close Up can view it here. It was good to hear Mayor Tiller finally acknowledging that "Council got it wrong". He also added that he would be standing down at the next election. If he had any integrity he would immediately fall on his sword, offer his resignation, and be consigned to History as the person principally responsible for the destruction of Kaipara. But that would require some integrity.

Leighton Smith on Newstalk ZB interviewed Bruce Rogan from the MRRA yesterday morning. Bruce presented a compelling case and it is clear that Leighton is going to run with the matter. The programme highlighted the root problem: Councils right across New Zealand are out of control, spending monies way beyond any concept of financial prudence, and completely ignoring the requirements of the Local Government Act. Just as the Securities Commission dozed through the Finance Company debacle, the so-called watchdogs for local government - the Ombudsman and the Auditor-General - long gave up the fight to rein in unruly and non-compliant councils. The Auditor-General has gone further and appears to be aiding and abetting the KDC's persistent non-compliance with the LGA.

Auditor-General Lyn Provost abdicated from her role as watchdog and made a mockery of compliance with the LGA by agreeing to the sign-off on the audit on the Council's 2012/22 LTP. Mayor Tiller and his Deputy Geange then detonated the Rates Bomb with only one abstention - Councillor Larsen. A press release was put out immediately full of the expected misinformation. It can be viewed here. (If the link does not work go to the Council website and Latest News)


Today's Council meeting introducing the Tiller/Geange Rates Bomb.

It is interesting that all of the Councillors seem to be unaware of the "other presence " in the room.

However, all ratepayers in attendance could clearly see the elephant in the room.

Apparently the elephant's name in Swahili translates into something like "legal compliance".

Here is an extract from Chris Barton 's article in the Herald of 20 April 2012:

Since May 2006, 65 companies have failed and some 205,000 investors are expected to lose half of the $8.65 billion invested. But macroeconomic factors (global financial crisis) were not the only cause of the local crisis. An inquiry by Parliament's commerce select committee last October found the failures were mostly the result of human fallibility: poor governance and management, criminal misconduct, deficiencies in disclosure and investors' understanding, and inadequate supervision.

Sounds very much like the Kaipara District Council.

Whilst the new watchdog, the FMA, is having a field day parading guilty directors of finance companies before the courts, the watchdogs for local authorities are turning a blind eye to the similar incompetence and malfeasance of councillors.

Breaches of the law by company directors are resulting in prosecution and substantial sentences. Persistent breaches of the law by Kaipara District Council, acknowledged by the OAG and the Minister of Local Government, are completely ignored, in spite of the fact that $40 million has gone missing, that rates have been set illegally and there is the possibility the $80 million EcoCare scheme and its debt will be declared invalid.


This is how the Office of the Auditor General describes the Auditor-General in its website for schools (here). It goes on to explain:

Our Auditor-General Lyn Provost checks that public money is being spent properly and that what we pay for is working well. Often called Parliament's "watchdog", Lyn has the job of telling Parliament how government spending is going across the board and to speak out when she sees anything that needs fixing. She also keeps an eye on local councils' spending to make sure that local communities are being served as planned. (my emphasis)

Yeah, right.

This is a big week for the citizens of Kaipara. The Kaipara District Council is about to release its Rates Bomb on the beleaguered ratepayers of the district. The only thing holding it back is the sign-off on the audit report by Audit NZ.

Under section 94 of the LGA the 2012/22 long-term plan must contain a report from the local authority's auditor on—

• (a) the extent to which the local authority has complied with the requirements of this Act in respect of the plan; and

• (b) the quality of the information and assumptions underlying the forecast information provided in the plan.

Of course the Council has not complied with the Act because it has failed to adopt the annual report for 2010/11. As explained in the posts below, this is now nearly six months past the compulsory deadline date set in the LGA.

I have not yet seen the terms of the new LTP but I can state quite affirmatively that it fails to comply with virtually every requirement of the LGA. Section 10 of the Act states that the purpose of local government is to promote the social, economic, environmental and cultural well-being of communities, in the present and for the future. These are the four well-beings.

In addition, section 3 of the Act requires the Council to take a "sustainable development approach". Sustainable development has been defined internationally as: "development which meets the needs of the present without compromising the ability of future generations to meet their own needs".

Over the past six years the Tiller/Geange Circus, driven by Jack McKerchar, has effectively destroyed Kaipara as a viable community. This new LTP is the final coup de grace that will effectively completely annihilate the district.

This LTP is not about the celebrated four well-beings. It is nothing to do with the well-being of the community in any shape or form. It is all about a reckless and incompetent Council that has finally been exposed, that has a "crime-sheet" as long as your arm, and has incurred such a massive debt that it is about to plunge into the abyss of financial ruin unless it can con ratepayers and the government into allowing it to levy outrageous imposts to meet its liabilities.

As for sustainable development, the original modest EcoCare scheme, as set out in the 2006/16 LTP, was never sustainable. It was always going to be a huge burden on ratepayers because it was driven by greed and not based on any viable figures. The secret amended scheme never pretended to be anything other than a rort on ratepayers. It was a huge hole into which a hapless Council flushed bucket loads of money. That is why it was kept secret for six years.

There is no way that the residents of Kaipara can ever meet the financial burden that the KDC is about to impose on them. Residents of Mangawhai, who will bear the brunt, can expect to see up to 100 percent rate rises with nearly $20,000 capital levy per property. Rates are already incredibly high and this will mean some rate bills for modest baches in excess of $10,000 per annum. Sustainable? The four well-beings?

The thing is, ratepayers have already paid for the EcoCare scheme. Council presented details of the scheme and its cost to ratepayers in the 2006/16 LTP. What effectively Council is now saying is that they stuffed up and we now want $40 million more to pay for their incompetence and cock-ups. Make no mistake, the massive rate hikes and new capital charges have absolutely nothing to do with EcoCare. They are solely a device to recover all the monies that Council was sucked into wasting on contractors and consultants for a scheme that was doomed to disaster from the outset.

If anyone wants any proof of the staggering rip-off it is a simple matter of comparing the cost of the scheme - probably around $80 million dollars - with the replacement valuation just obtained. The replacement valuation, which is considered by many to be far to generous, is $37,280,329. That's a difference of $43 million which appears to have disappeared down the gurgler.

There are other requirements of the Act that have not been complied with. Pursuant to section 14 of the LGA local authorities are obliged to act in accordance with certain principles. I set some of those principles out below:

Conduct its business in an open, transparent, and democratically accountable manner;

Consider the likely impact of any decision on each aspect of well-being referred to in section 10;

A local authority should undertake any commercial transactions in accordance with sound business practices; and

A local authority should ensure prudent stewardship and the efficient and effective use of its resources in the interests of its district or region.

The Kaipara District Council has not complied with a single one of those principles in respect of EcoCare. That relates to the past and to the plans for the future. If Audit NZ believes that the draconian terms of the LTP that is before it satisfies these compulsory principles then we have a really serious problem.

I could go on at length about the compulsory requirements of the LGA and how they are being breached by the KDC. The point is that the new LTP does not comply with the requirements of the LGA and Audit NZ should make that perfectly clear. It can either decline to issue an audit, or it can issue an audit with adverse comments.

This may be a very small Council, and on the scale of things it is a fairly insignificant matter, but the principles behind it are huge. There is a fundamental decision to be made by Audit NZ, and ultimately by the Auditor-General, which will illustrate to us her approach to the Rule of Law. It is not far away.

I have seen a draft of the annual report for 2010/11 (obtained under the Official Information Act). This is the document that Council has breached the LGA by not adopting. On page 77 when discussing Wastewater, it makes the following comment:

The Mangawhai Wastewater Scheme became fully operational in 2009/10. The network has 1,870 connections and some 40 kilometres of sewer lines catering for foreseeable growth. Additional capacity can accommodate 1,003 connections.

Go back and read it again. Now, let's look at some facts. First, the number of connections. The annual report states that (as at 30 June 2011) there were 1,870 connections. Something is wrong here. The advice received from Glennis Christie at Council on 21 November 2011 was that, as at October/November 2011, there was a total of 1,405 households that were connected to the scheme. However out of that total 117 were SUIPs (separate units which have been illegally charged) which were not actually connected individually to the scheme. So, the correct number of actual connections at the end of 2011 was 1,288. Glennis Christie and her team researched this figure (because there was no accurate figure available) and it is therefore more reliable that the figure in that annual report. Which means that the figure in the annual report is hopelessly inaccurate.

[It is interesting that when the scheme's Project Deed was signed in December 2005 the number of current sections to be connected was put at 1,215. So in six years we have seen only 70 odd new connections.]

Secondly, we need to look at the capacity. According to the annual report there is an additional capacity for a further 1,003 connections. Besides being a strangely precise type of number, it is also very alarming. If you add the 1,003 to the existing connections of 1,288 you end up with a scheme that has an overall capacity of 2,291. Now, in the original statement of proposal of February 2006 the projected scope of the scheme, at a cost of $35.6 million, was 3,300 connections after 25 years. That was of course superseded by the secret amended scheme that talked of a capacity of 4,500 connections.

So how do we now end up with a scheme that cost $80 million and has a capacity of 2,291 connections when Council represented that ratepayers would end up with 3,300 connections for $35.6 million? And what happened to all the extra capacity that was the supposed driving force behind the amended scheme and a further $40 million?

Like everything to do with this Council it is all meaningless gibberish. Ask your local Councillor to explain the contradiction to you. You will realise that they do not have a clue what has being going on. They are on a different planet.

It is beginning to look as if the Auditor-General is going to turn a blind eye to the KDC's failure to adopt its annual report before it adopts its new LTP. This is a complete no-no under the LGA, and the Auditor-General's attitude can be seen in the post below. However, it appears that the Auditor-General, and her subsidiary Audit NZ, are, for reasons that are totally incomprehensible, going to endorse KDC's fundamental breach of the law.

Yesterday Legal Eagle wrote to both the Auditor-General and the Directors of Audit New Zealand expressing concern at this situation and made detailed legal submissions as to why they cannot sign off the audit of the annual report, and therefore cannot sign off the audit of the LTP. Here are the final comments in that letter:

Both the LGA and the LGRA are based on set processes for carrying on the business of a local authority and for setting rates. Thus the LGA requires that an annual report is adopted by a local authority within four months of the end of the rating year. The purpose of the annual report is to report on the performance of the local authority during that year, and compare its actual performance to the performance that was set out in the plan. The report is for the benefit of stakeholders and ratepayers. It is important that they know how well the local authority is performing, and whether it met the targets that it set in its earlier plan.

The reason for the four month deadline is so that ratepayers will have the opportunity to understand and absorb the information in the annual report so that they can understand the proposals that are included in the new draft annual or long term plan that comes out just a few months later.

How can a local authority plan for the future, ten years ahead, if there are still doubts and concerns over its past performance, the illegalities of its past actions, the effect of ultra vires actions, and the state of its finances?

Adopting the annual report well in advance of the LTP is a vital step in local authority governance. It is not optional. It cannot be ignored.

But that is exactly what the KDC is planning to do. And, worse than that, it is planning to do it with the connivance of the OAG and its auditor, Audit NZ.

If Audit NZ signs off the audit for KDC's 2012/22 LTP before the KDC adopts its 2010/11 annual report then it is a clear statement to ratepayers that the KDC is operating completely outside the law, that the audit by Audit NZ is a complete a sham, and that the OAG has completely lost control of the situation.

I state quite emphatically that this is a situation that most New Zealanders would believe, if they knew the facts, could only happen in a third-world country. It is disgraceful that it is happening in New Zealand.

Kaipara District Council was obliged (section 98 LGA) to adopt its annual report for 2010/11 by the end of October 2011. It failed to do that. Not only that, in two weeks time it will be six months late in adopting its annual report. And still no sign of it on the horizon.

There appear to be serious problems with the auditing of the report by Audit NZ and with the statements of compliance that have to be signed by the Mayor and the Chief Executive.

This is what the Auditor-General says about the situation in Local government results of 2010/11 audits (here) and the lateness in adopting annual reports:

1.7 These reporting obligations are not new to local authorities. The trends that we see concern us. Local authorities that miss the statutory deadline fail to provide their stakeholders and community with the timely information that they are entitled to receive.

Not only is Council failing to keep its ratepayers up to date with timely information, as suggested by the Auditor-General, it is also failing to comply with the basic process that underlies the consultation process under the LGA. The deadline for annual reports is set so that ratepayers have a chance to be informed about Council's historical position before being presented with Council's plans for the future that are encompassed in the subsequent draft LTP.

The LTP cannot be viewed in isolation. It is part of the process. How can the proposals for the next ten years be weighed and considered if the prior annual report has still not been finalised? You cannot make plans, or assess plans, based on a vacuum.

That does not seem to trouble the KDC. It has set the standard for non-compliance with legislation and failing to consult appropriately. It now looks as if the draft LTP will be adopted before the annual report - on which it should be based - sees the light of day. That is absolutely shameful and fundamentally contrary to the principles on which the LGA is based.

So what is the Auditor-General doing about it? Not a lot. For the details see the article below.

Whilst the Council may elect to operate outside the law in failing to adopt its annual report (see article above), the finger has to be pointed at the Auditor-General for allowing the Council to flagrantly breach the provisions of the LGA. The Auditor-General's subsidiary, Audit NZ, is in charge of the audit of the KDC annual report and has been for many years. Audit NZ has also been responsible for auditing the annual plans and the LTPs of Council.

Therein lies the rub. Audit NZ has been seriously criticised by myself and others for failing to audit the Council appropriately and in compliance with the audit requirements set down by the Auditor-General. There have been suggestions that the poor level of auditing has created a culture where the Council feels free to breach statutory requirements without any sanction. There has been so much measured criticism in respect of this that the Auditor-General has included the audit performance of Audit NZ as part of the inquiry into the EcoCare scheme. In other words the Auditor-General is going to inquire into the competence of Audit NZ in its role as auditor of the KDC.

That being the case, the immediate question that comes to mind is how can Audit NZ possibly continue to audit the KDC when its audit performance in the past is to be scrutinised by the Auditor-General in an inquiry? All the principles of transparency require that it must be immediately replaced as the auditor and have nothing further to do with the Council until the results of the inquiry are available.

Not only that, the Auditor-General is continuing to allow Audit NZ to audit the KDC in exactly the same manner that it has been criticised for in the past. It is allowing the Council to treat the obligatory requirements of the LGA as optional. It is turning a blind eye to the fact that its past audits have signed off plans which are a total charade in respect of major projects such as EcoCare, and that the Council accounts have for years been riddled with inconsistencies and errors and do not reflect the true financial situation of Council. This is the first audit since the illegality of the EcoCare rates has been confirmed and serious questions have been asked as to the legality of the extension of the EcoCare scheme and the increase in the debt, the legality of the EcoCare development contributions, and the legality of the new District Plan decision. These demand a complete reassessment of previous plans and financial accounts with an honest acknowledgement of the errors of the past and a summary of where things stand at present.

The suspicion is that such transparency is not going to happen. From what I have seen it seems clear that Audit NZ will ignore all the errors, gloss over the past, sign off the audit and convey it to history.

The reality, from a legal point of view, is that Audit NZ cannot sign off the audit of the annual report because the KDC has effectively ceased operating as a local authority within the requirements of the LGA. It is no longer a "going concern" as required for audit purposes and can no longer borrow further monies because it has already exceeded its own ratios. It will be interesting to see if Audit NZ manages to side-step those fundamental requirements.

Audit NZ is also redrafting the absolute statements of compliance to be signed by the Mayor and the Chief Executive (required by the LGA), because they are not able to sign the statement in its required form. How can the Mayor and the Chief Executive state that they are not aware of any illegalities when they are surrounded by them? How can they state that the Council is a "going concern" when clearly it is unable to meet its liabilities without plundering its ratepayers even more? And how far is the Auditor-General going to go in allowing Audit NZ to bend the requirements of the LGA so that Audit NZ can sign off the audit on KDC's annual report?

All this seems to pass totally over the head of the Auditor-General. Some weeks ago I sent her detailed legal submissions on this matter. They were acknowledged by the Assistant Auditor-General Legal with the advice that they had been passed on to Audit NZ. Not another word, and nothing from Audit NZ.

This attitude is reflected in the Auditor-General's approach to the EcoCare inquiry. Whilst acknowledging in the terms of reference for the inquiry that there is a conflict of interest in the Office of the Auditor-General investigating the competence of its own subsidiary, Audit NZ, she sees nothing awry in allowing Audit NZ to continue its auditing role with the Council even while the inquiry into its own performance is under way. And, even more than that, when Audit NZ is still being heavily criticised for carrying on the current auditing in the same lax and questionable manner as in the past.

The Auditor-General is independent and only answerable to Parliament. However, if this situation were placed before all Members of Parliament, I would hazard a guess that there would not be one Member who would agree with the way in which the Auditor-General has handled this matter. She should move immediately to remove Audit NZ as auditor of the KDC and appoint a totally independent auditor. She has the power to do it, and any delay in acting is going to damage her credibility even further.

An even bolder move would be for the Auditor-General to advise the Chief Executive of the KDC that the Auditor-General and Audit NZ are unable to sign off the audit of the 2010/11 annual report in compliance with the LGA and the Audit Regulations, and that effectively the KDC could no longer function as a local authority under the LGA. The appropriate procedure would then be for the Chief Executive to advise Council of the situation and request intervention from the Minister.

Those who work for local authorities must spend more time studying the art of "spin" than learning the mechanics of running a local authority in compliance with the law.

We have seen incredible examples of "spin" emerging from Mayor Tiller, and now it is the turn of the Chief Executive, Steve Ruru.

It took over 12 months to get the KDC to comply with the Auditor-General's recommendation to hold an independent, first principles review into the validity of the EcoCare rates. The original agreement with ratepayer groups was for a genuinely independent, first principles review with terms of reference agreed by Council and ratepayers. Both parties agreed to be bound by the findings of the review. Note the latter point.

That was all scrapped and Council then instigated its own review that was not independent and was not first principles. The terms of reference were very narrow, dictated by Council, and ratepayers were not allowed to make any submissions. The lawyer selected to do the review was Council's own lawyer and responsible only to Council.

In spite of that, as we know, the Salter review found that Council acted ultra vires in setting EcoCare rates for the first two years and that the rates for the last two years were invalid because of a fundamental failure to comply with legislation. The review also pointed out other areas where rates might be invalid.

So, how did Council accept the findings of the review? To start with it was full of remorse and promised the world. The Mayor sent out personal apologies. There was talk of dialogue with stakeholders. However, it soon became apparent that Council had changed its tack. The extension of the review to identify other illegal rates has been put on hold. Council has shelved the decision as to the future of the monies collected illegally. And now that ratepayers are asking for their monies back, Council is questioning the validity of its own review.

This is what Steve Ruru wrote in a recent letter:

What we do not have is a definitive decision that says the rates were invalid and should be refunded. Such a decision can only be provided by the High Court.

So in spite of the fact that Council's own lawyer - and one of the top experts in rating law - made the decision, and even though Council has appeared to accept the decision and apologised to ratepayers, Steve Ruru is now saying that the findings of the review make no difference to the legal situation.

If the Salter review had supported Council's position you can be sure that Steve Ruru would be screaming out that it was a defining decision. Because the decision went against Council, Steve Ruru is doing what Council has always done, reneging on its understanding with ratepayers, and showing the bad faith that emerges from virtually every dealing that KDC has with ratepayers.

Steve Ruru is carrying on in the best traditions of Jack McKerchar. He is basically saying that the KDC is free to do anything it likes within or without the law and it is only obliged to stop an illegal activity when the High Court steps in and makes an official ruling.

Council itself is not going to be silly enough apply for such a ruling, so Steve Ruru is effectively telling us that the power of Council is limitless, and that the requirements of the LGA and the LGRA (and apparently the Crimes Act) are completely irrelevant, until there is a High Court ruling.

The only time the law of the land becomes relevant is when some third party has the wealth and the intestinal fortitude to apply to the High Court. In the meantime Council is free to wreak its havoc on its hapless ratepayers.

This is exactly how Jack McKerchar operated. He even invented a new rate completely outside the law - the unit of demand - which he successfully enforced for three years. According to Steve Ruru's logic this totally and utterly illegal tithe is still legal because the High Court hasn't ruled on it.

And what Steve Ruru doesn't reveal is that the question of the validity of the unit of demand illegal tithe was deliberately excluded by Council from the Salter review. Like all the other illegal rates it sits in limbo-land. If it is ignored then it can't be invalid.

Steve Ruru's spin is, of course, utter rubbish. Compare what Jonathan Salter, the lawyer for the KDC, said about the illegal rates in his review:

In my opinion if such (High Court) proceedings were brought it is highly likely that all of the rates identified would be invalidated. In a real sense, the rates cannot be regarded as enforceable by the council. Therefore the situation is serious and remedial action is required, assuming the council is not disposed to simply refund the rates received. (my highlight)

The only remedial action recommended by Salter was validation by parliament, but that was before he realised that Council had acted ultra vires in the first two years of the rates and that it the errors in the last two year came about because of total incompetence and negligence on the part of Council. That would suggest that the only option is to refund the monies.

Even if Council decides to go down the validation path and does succeed in validating any of the rates (I am taking bets that it never will) then it should refund them now and then it can re-invoice them further down the track.

It is as clear as a bell that the Council has committed theft if it retains the monies.

Forget all about the red-herring of High Court rulings and Steve Ruru's spin. The criminal law is based on the police prosecuting where there is a case to answer. In other words there has to be a prima facie case which the police consider is worth taking to court. It is then for the court to decide if the party prosecuted is guilty beyond reasonable doubt.

The matter of theft by the KDC is now in the hand of the NZ Police. The motto of the police is "Without fear or favour". It is going to be very interesting to see if the Police enforce the Rule of Law across the spectrum of Society without any favour.

The Auditor-General, Audit NZ, the Ombudsman, and the Minister of Local Government have all made it clear in the past that the Kaipara District Council is permitted to operate outside the requirements of the LGA and the LGRA. It now remains to be seen if the NZ Police and the SFO also take the view that the KDC can operate outside the scope of the criminal law.

The complaint of theft was reported by the Northern Advocate here.

RURU'S RATES 09.04.12
At a special meeting of Council on 7 March 2012 a report was received as to how Mangawhai wastewater rates were to be allocated to meet the incredibly high operating costs that have come about because of Council's illegal and ultra vires extension of the EcoCare scheme.

60 per cent of operating costs are to be paid by connected or connectable properties within the Mangawhai sewerage district.

15 per cent of the costs are to be paid across the whole of Kaipara and will be included in the general rate.

25 per cent will be paid by those properties in the Mangawhai Harbour Restoration area. This will apply to properties that are in Mangawhai but are not connected or connectable to the scheme. Those properties in Mangawhai that are connected to the scheme will pay the 60 per cent charge and the 15 per cent charge..

Ratepayers in Kaipara, especially those in Dargaville, are to be compensated for having to pay 15 per cent of the EcoCare costs. The swimming pool and Town Hall targeted rates are to be transferred to the general rates.

It is also understand that there is to be a massive capital tax on all Mangawhai properties to try and recover the missing $40 million that Council illegally expended on the scheme.

Mayor Tiller recently skited on National Radio about the cheap rates that he pays at Baylys Beach ($759). What he didn't reveal is that the subdivision in which his property is located has a problem with - you've guessed it - sewerage. The Sunset West Subdivision installed holding tanks as a temporary measure which would be discharged into the new Baylys Beach sewerage system once it was completed. Frightened off by the abject failure of Mayor Tiller's EcoCare scheme, the Baylys Beach project is no longer proceeding. Which leaves the Mayor's holding tanks overflowing. Many Kaipara ratepayers would raise a smile at the thought.

I understand that Council has been emptying the tanks free of charge. However at the last Council meeting a new formal charging regime was introduced. Those dwellings connected to the system are not to be charged for the 2010/11 year, but they are to be charged for the 2011/12 year.

The decision was made without the Mayor being present (and the Corporate Services Manager who is also a resident) but one cannot help noticing the generous approach to rating when the Mayor and a senior staff member are involved . Why not bill the residents from day one and pay for the lawful costs actually incurred by Council?

Why should ratepayers throughout the rest of the district pay for the Mayor's personal waste?

As we will see in the Tiller/Geange Rates Bomb, soon to be unleashed, the Mayor and his crew have no hesitation in back-dating rates when they relate to ratepayers in other areas such as Mangawhai even though the rates are to cover illegal and ultra vires expenditure. So why such latitude in Baylys Beach?

There is a definite stench coming from this whole affair - the stench of favouritism, unfair treatment and privileges for the boys

At the Council meeting of 28 March 2012 Council placed a new item on the agenda to be discussed in a "Public Excluded" session. It relates to what is cryptically called the "Chief Executive settlement agreement". A hint of what this is all about is to be found in the Reason for the Decision. This states:

Council has new information which has raised concerns about whether it was still appropriate for it to have negotiated the settlement agreement that it did with its former Chief Executive.

Last year Legal Eagle sought information from Council as to the grounds for the termination of the former Chief Executive's employment, and the details of the financial settlement. Council has refused to supply that information . An appeal has been lodged with the Ombudsman and that its working its way through the system.

However, it is common knowledge that Jack McKerchar was paid $250,000 by Council when he left, which was effectively a year's pay. Officially he resigned because of ill health and other personal reasons but it is also common knowledge that there were other reasons as well.

Legal Eagle has always believed that Councillors failed in their duty to ratepayers in paying the Chief Executive such generous severance pay when there was adequate cause for his dismissal because of incompetence and negligence.

Clearly "new information" has now come to light that suggests that Councillors were far too hasty in agreeing to the more than generous settlement, and Councillors are now having second thoughts.

At the same meeting last month Council also considered and adopted a draft Procurement Policy. "Procurement" relates to the purchasing by Council of goods and services and the contracts that it enters into to secure those goods and services . This is an area that is going to come under extreme scrutiny in the OAG inquiry in respect of the purchasing of goods and services to implement the EcoCare scheme.

The Reason for the Decision states:

Adopting the Procurement Policy March 2012 and adopting the required changes to both the Procurement Strategy and Fraud and Detection Policy will enable Council staff to have guidance on procurement management. By adopting the Procurement Policy means that the Council will follow the good procurement practices guidelines written by the Office of the Auditor General.

This would seem to indicate that during the EcoCare scheme debacle the Procurement Strategy and the Fraud and Detection Policy did not meet the guidelines set by the Auditor-General.

It is interesting that Council has come to that conclusion at the same time that it is re-examining the severance pay of Jack McKerchar because "new information" has raised concerns about the appropriateness of the payment. Are the two linked in any way?

Steve Ruru is in a very privileged position. He sits in Jack McKerchar's chair, at Jack McKerchar's desk, and has access to Jack McKerchar's filing cabinets. More that anyone else, Steve Ruru knows what Jack McKerchar was up to when he was Chief Executive. Councillors were well aware that Jack McKerchar had acted in an irregular and unacceptable manner prior to his handing in of his notice. Has Steve Ruru discovered other "new information" about the way the former Chief Executive dealt with procurement that he has now passed on to Councillors, and which has now resulted in a new procurement policy?

I suspect that something very sinister is going on here. The facts that are already available speak for themselves.

• EcoCare was sold to ratepayers as a $35.6 million package. No changes were officially made. The total cost was around $80 million.

• $40 million or thereabouts has gone missing and cannot be explained. Council cannot tell us where the monies have gone.

• A recent valuation of the EcoCare scheme based on a replacement basis valued the scheme at just over $37 million. Many consider this figure to be generous. The startling thing about this figure is that it is only half the amount that was spent on the scheme. Again, there has been an overspending of about $40 million.

It now appears that not only has $40 million gone missing but Steve Ruru has possibly uncovered evidence of irregularities in the procurement of goods and services under Jack McKerchar's "reign".

This places Steve Ruru in an unenviable situation

Steve Ruru is working overtime with his boffins to come up with "interesting" and novel rates to ensure that the missing $40 million is paid for out of the pockets of ratepayers. He has apparently closed his eyes and his mind to the fact that the EcoCare scheme cost 100 per cent more than the original contract, that the valuation indicates that it is only worth half of what it actually cost.. He is not interested in the missing $40 million and where it went. As pointed out in an earlier article, Steve Ruru has been here before with the TCDC and the massive overrun on that council's sewerage scheme when he was in charge. He successfully dumped it all on the ratepayers.

But things are very different in the Kaipara situation. Steve Ruru is already aware that the extension of the EcoCare scheme was illegal and the increased debt was illegal because of non compliance with the decision-making provisions of the LGA. (That is why he asked the OAG to hold an inquiry into the matter.) And if Steve Ruru has now uncovered evidence of irregularities by the former Chief Executive and his staff in relation to the purchase of goods and services for EcoCare, is he not obliged to advise the Police and the SFO of the situation?

Is it not time for Steve Ruru to front up and acknowledge that Council has a huge problem in respect of the $40 million dollars, state his concerns clearly and publicly, and place the matter in the hands of those who are capable of investigating it independently and thoroughly?

Time to stop the charade, Steve, and face up to reality. What happened to the $40 million?

Council has resolved to withdraw over $4.7 million dollars held as a sinking fund with the Public Trust and to use the monies to repay debt. The excuse given is that it is no longer the "preferred approach" to have sinking funds.

The Council has resolved to withdraw the monies immediately and to reduce debt, and confirms in the resolution that it has complied with the decision-making provisions of the LGA. That of course is nonsense. This is a fundamental change to one of Council's policies in its revenue and financing policy, and an amendment to such a policy cannot be changed unless it is included in an annual or long term plan.

Such a breach of the provisions of the LGA will not trouble Council or its auditor. Both of them treat the compulsory provisions of the LGA as optional.

Why the rush when the matter could be legally included in the draft LTP? I imagine that Council is really beginning to feel the pinch. The unofficial rates strike by many ratepayers must be starting to take its toll on the cash flow. And who can blame ratepayers? It is clear that Council will not be able to repay the $9.5 million (and more) that it has filched from ratepayers and it only seems sensible that ratepayers set off the monies that Council owes them against the rates that are now falling due. It is only a matter of time before Council goes under and once it does the monies will be lost forever.

Bill Barclay, ex-councillor of TCDC (see below Steve Ruru - Deja Vu) has made the following comments (here) about the Kaipara District Council:

Most will be aware of the disaster that is the Kaipara Council to which Steve Ruru has become the harbinger of bad news. It seems almost certain that the end result of the financial crevasse that has resulted from another gold plated wastewater scheme will be the appointment of an administrator, and Steve's consignment to the scrap-heap, unless of course the Minister has the wit to appoint Steve to the role - he may as well. By the way, their $50m scheme at Mangawhai services 2,000, yes that is 2,000 ratepayers, and the similarity with the proceses undertaken when our Eastern Seaboard scheme was pushed through Council is staggering. Our scheme is bigger, but the engineering and financial incompetence that led to each is the same.

The sentiment is right but the figures are even worse. The outstanding EcoCare debt is, according to the Mayor, $63 million. The overall cost is estimated to be close to $80 million. No one knows the true cost because the financial accounts are in such a mess.

A complaint was lodged yesterday with the NZ Police against the Kaipara District Council in respect of theft following a mistake and obtaining monies by deceit. The complaint of theft relates to Council's refusal to refund to ratepayers $9.5 million that Council acknowledges was illegally collected as rates. Having collected the rates under the mistaken belief that the rates were legal, Council was legally bound to repay the monies when it discovered that the rates were illegal. The complaint of obtaining monies by deceit is based on Council sending out rates demands and collecting rates knowing that the rates were illegal and that it had no right to collect the monies.

A copy of the complaint has also been sent to the Serious Fraud Office.

Readers should note that these are not civil proceedings, as suggested by Council. If the Police find that there is a case to answer then they will prosecute those responible.

Its about as deja vu as you can get. Steve Ruru as Chief Executive of KDC is pulling out all the stops to ensure that all the illegal costs of the EcoCare scheme well and truly become the responsibility of ratepayers. The glaring liability of all other parties for the financial and legal shambles that has been created will be ignored and ratepayers will be saddled with the lot, if Steve Ruru gets his way.

Steve has been in this place before. In his previous job as Chief Executive of Thames Coromandel District Council, he went though exactly the same process. In that case he was in charge when the cost of the sewerage scheme for the Eastern seaboard of that district blew out from $26.6 million to a final cost of over $90 million.

This is what Bill Barclay, an ex-councillor and critic of the TCDC, has to say about it in his blog (here) (scroll down to Wastewater):

By way of a brief background, the decision to adopt “One District” charging for wastewater was made in 2003 on the basis that the cost of the new schemes would be no greater than $26.6m. But by the time the actual business case was completed in 2005, a cost of $62.5m was indicated – later increasing to over $90m. This was due mainly to additional peripheral works resulting from conditions imposed by the Environment Court following appeals lodged by affected Eastern ward ratepayers.

Council at the time should have had regard to the provisions of the LGA that require further consultation when such significant cost "blow-outs" become evident, but failed to do so, relying instead on the LTCCP consultation as compliance with the requirement. The resulting charges – amongst the highest in the entire country, were subsequently imposed on Thames and other ratepayers not connected to the new schemes on the basis of “unaffordability”. How fair was that?

Notice the similarity in the figures. In the TCDC case there was at least some excuse for the blow-out (peripheral work following appeals) whereas in the Mangawhai scheme there is no rational explanation of the increase in costs, and the KDC cannot explain where the extra $40 million has gone.

Note also the non-compliance with the LGA. In the TCDC case there was no specific consultation with ratepayers about the increase in costs. Exactly the same with the KDC. The KDC failed to comply with the decision-making and consultation requirements of the Act before making the decision to extend the scheme. However, the TCDC did at least include details of the extra costs in a later LTP. Nothing like that from the KDC. The LTP of 2006/16 spelt out the original scope of the scheme. None of the plans since that time have mentioned any changes to the scope or the cost of the scheme. Six years have gone by and Council has kept the matter completely secret from ratepayers.

The cat is now out of the bag and ratepayers are being shafted with the full cost of Council's illegal excesses. It is interesting that at TCDC Steve Ruru introduced a "one district" charge for wastewater, in other words all properties paid the same rate for wastewater irrespective of where they were situated. It is unlikely that such a thing could happen in Kaipara. It should happen because EcoCare was a scheme imposed on Mangawhai by a majority of non-Mangawhai Councillors purportedly, and mistakenly, to save the harbour from pollution. That is a district wide benefit. However, there are too many self-interested Councillors outside Mangawhai to support such a reasonable approach.

The statement from Council referred to in the Lifestyler article reported below is full of misleading information. Below are some of the comments taken from the statement with my responses to them.

The KDC says it believes the initiation of legal proceedings at this time would be counter-productive and not in the interests of either council or the community.

Council is clearly confused. These are not "legal proceedings". That expression usually refers to civil litigation. This is a complaint to the police that a crime has been committed. If the police decide that a prima facie case has been established then Council will be charged with the crime of theft.

All that it would do is create significant additional costs for both council (whose costs would ultimately need to be funded via rates) and the individual ratepayers involved.

There are no costs. If the police decided to lay a charge then clearly a prima facie case has been established. If Council pleads guilty then there is little in the way of costs. There are no costs payable by the victims of Council's crimes, the ratepayers. This is a prosecution by the police.

In addition to the costs of the proceedings themselves there would be a need, if the court did order a refund of the rates collected to date, for that ‘lost revenue’ to be financed in an interim period until the resulting loan could be repaid via a new rating mechanism in the future.

Again, Council is confused. This is a prosecution for a crime. If the court found Council guilty then Council would no longer be in existence. It would be well and truly down the road. The monies stolen from ratepayers might or might not be recovered. The Court could make an order for restitution but in crimes of this type the stolen monies have usually long disappeared.

It is our desire to work with the community in an open and transparent manner.

This is absolute rubbish. KDC has never operated in an open and transparent manner. That is why it is in such a mess now. It introduced the EcoCare rates without consultation and refused to consider any criticisms from ratepayers. It more that doubled the cost of the EcoCare scheme, all secretly and all illegally. It has done the same with just about every project that it has undertaken. Steve Ruru has carried on in the true tradition of Jack McKerchar. At present he has a group of boffins working out ways to shaft ratepayers in the LTP, with the occasional nod from the bamboozled and bemused Councillors. Make no mistake, all of those schemes will be set in concrete. Council will hold consultation circuses to comply with the legislation but they will not listen to a word that is said.

Steve Ruru, who I presume is behind the statement from Council, goes on to talk about the new LTP:

The LTP outlines a number of options for funding both the capital and operating costs associated with the MCWWS (EcoCare system).

What the Chief Executive fails to say is that the massive EcoCare capital cost and operating costs have all come about because of the incompetence and the illegal actions of Council staff and Councillors. Steve Ruru is fully aware of that. And yet he and his experts have ignored where the liability lies. They are moving heaven and earth and using every innovative trick in the book (and not in the book) to work out how the burden of the illegal debt and the massive outgoings can be dumped on the innocent ratepayers. He suggests, with feigned naivety, that the new approach to rorting ratepayers will be "significantly different to the approach that council has used in the past and will create a high level of community interest and feedback".

What arrogant twaddle. The proposals in the new LTP to gouge monies out of ratepayers will be callous and draconian and will bring about the destruction of Kaipara.

Steve Ruru got away with this nonsense when he forced the ratepayers in Thames Coromandel to foot the bill for that council's similar incompetence in respect of a sewerage system that ran massively over budget - while Steve Ruru was Chief Executive. He got away with it then, and presumably he thinks that he will get away with it again.

What Steve Ruru has to learn is that the fantasy land that is local government in New Zealand is about to come to an end. Ratepayers have no legal obligation to pay rates to reimburse the losses of councils acting illegally and ultra vires, and Kaipara ratepayers are going to ensure that those at KDC who acted illegally, ultra vires or negligently, are actually held legally responsible for the losses that were incurred. At the moment that looks like the Chief Executive, Councillors, and Audit NZ as the auditor of Council. And in the broader frame one has to look at the OAG and the Minister of Local Government who have both created an environment where persistent illegality and total incompetence have been ignored. Under their myopic scrutiny local authorities have been free to bend the law at will and without any fear of sanction.

If Steve Ruru thinks that Kaipara ratepayers are going to pay his "interesting " rates then he has another think coming.

The Kaipara Lifestyler (here) is hot of the press with news of a complaint being lodged with the police against the Kaipara District Council.

The Lifestyler article did not quite get it right. There are two complaints. The first is is a complaint of theft following a mistake. Council levied $9.5 million dollars in rates believing that the rates were legal. Having discovered that they were illegal, and having acknowledging the same, Council was legally bound to refund the monies to ratepayers. It has no legal claim to the monies. Council has refused to refund the monies and therefore has committed theft. The situation is very much like the couple who last year had $10 million paid into their account by their bank. The payment to them was a mistake, but the theft occurred when they decided to hang on to the monies knowing that it had been paid by mistake.

The second complaint, obtaining monies by deceit (formerly obtaining by false pretences), is very much as outlined in the article. Even when it knew that the rates were illegal, Council continued to collect the rate and to send out rate demands, thus misrepresenting to ratepayers that the rates were legal and that they were obliged to pay them, and in so doing obtained monies which they were not entitled to.

Both seem pretty clear-cut claims to me. If Council was a normal citizen or a company then I have no doubt that there would very quickly be a tap on the shoulder from Mr Plod. I doubt whether that will happen in this case. The Kaipara District council is Teflon-coated when it comes to breaking the law. Under Jack McKerchar's dictatorship it thumbed its nose at its legal obligations, in some cases operating completely outside the law, and did so with the implied blessing of all the government watchdogs. The watchdogs have only shown any interest in recent months because the weight of evidence against Council has become so compelling, but they are still allowing Council to continue on the same illegal path of destruction.

When it comes to local government it is becoming very clear that John Key's government has a lot to hide. However, the lid of Pandora's Box is working loose and when it does finally come free all hell will be let loose. The government watchdogs in the area of local government law are doing all they can to keep the lid on the Box. It will be interesting to see how independent the NZ Police and the SFO are when it comes to applying the criminal law.

Heartened by the success of the Dargaville Pool and the EcoCare sewerage scheme, Mayor Tiller and Deputy Geange are making plans for their next big white elephant. This is to be a massive stadium complex to seat 50,000 people to be built at Baylys Beach. It is to be named the Tiller/Geange Memorial Stadium. Population projections and financial models have been prepared but are confidential. Decision-making and consultation has been fast tracked and the Local Government Act completely ignored.. Finance for the stadium will be raised by means of a special targeted rate on all Mangawhai ratepayers who survive the Tiller/Geange Rates-Bomb. The balance of the monies will be secured by another illegal loan. The Mayoral team has asked the architects to ensure that the stadium reflects the theme evident in their two earlier successes, and sums up their achievements as Mayor and Deputy Mayor. An artist's impression of the new stadium can be seen here.

AUDIT NZ - PART ONE 31.03.12
Over the last few years I have been very critical of the role of Audit NZ in auditing the Kaipara District Council. It seems to me that many of the areas of illegality and incompetence that are now coming to light were matters that should have been discovered several years ago in the auditing process. Let me give some examples.

It was quite obvious to any informed observer that the EcoCare targeted rates were flawed from day one. The original statement of proposal used the wrong terminology for the proposed rates and for the last four years the funding impact statement in the various plans, which is supposed to explain the rates to ratepayers, was quite simply incomprehensible. The unit of demand regime for charging separate units (SUIPs) was a creation of the Chief Executive that was completely outside the provisions of the Rating Act. There were basic omissions like no definition of a separate unit in the funding impact statement, as required by the LGA.

These are all fundamental matters that Audit NZ failed to pick up even though they are all listed on the audit check lists. The cost so far - $9.5 million

Audit NZ also missed the basic failure to include the policy on development contributions in the 2009/19 LTP thus rendering all subsequent development contributions invalid. These will now have to be refunded by Council. The cost is unknown but probably runs into millions

The Council accounts for the last few years have been in a dreadful state. The report from PJ Associates last year was a very lightly-over review of Council's financial situation, but even so it was highly critical of errors and inconsistencies in the Council's financial statements, and scathing of a financial reporting system that was completely ineffective. One only has to read the report Forecast One:2011/12 Annual Plan (here) from Glennis Christie (KDC's General Manager, Finance and Governance) to realise what dire straits Council's financial accounts have been in, and are still in. The Council has to borrow a further $7.5 million this rating year to make up for the errors and shortfalls in the annual plan.

And yet...and yet, for each of those years Audit NZ signed off the accounts as if everything was in perfect order.

The report from Larry Mitchell of February 2011 also highlighted the risks involved with the segmentation of the EcoCare debt and the dangers of exceeding the benchmarks of financial prudence if the debt was not kept segmented. The reality is that the strict rules of segmented debt, so carefully set out in the 2006/16 LTP, were all completely ignored by the Council, and, it seems, by Audit NZ. No wonder that Kaipara heads every chart for borrowing and indebtedness per capita.

That sums up the basic problem with the auditing of the Kaipara District Council. None of the plans, annual or long term, told the true story of what was actually happening. The rates, the development contributions, the decision-making, the prudent management of the debt, the financial accounts, as they were set out and described in the various plans, were all based on some artificial, fanciful travesty of reality which had very little bearing on what Council was actually doing in real life.

A fine example is the EcoCare debt which was so carefully segmented in the 2006/16 LTP. The reality is that the EcoCare debt did not exist in the first three years of EcoCare. There was a scheme, which ratepayers were not privy to, whereby ABN Amro which financed the scheme, formed a subsidiary to build the EcoCare project. The loan monies were therefore advanced by the financier to its subsidiary, with minimal control by Council. In July 2009 Council then purchased the asset from ABN Amro's subsidiary with the purchase price including all the capitalised interest for the previous three years. None of this was ever revealed to ratepayers, and I suspect that many Councillors do not understand what went on. Audit NZ also seems to have been totally in the dark as to how the EcoCare scheme and debt was structured in reality.

If things were so bad; if there was so many illegalities on different levels; if all the other experts could pick up the errors; the question that everyone is asking is: How did Audit NZ miss so many fundamental problems?

The Auditor-General has acknowledged the universal concern at the way Audit NZ conducted itself by including the performance of Audit NZ in the OAG inquiry of EcoCare. But that creates a clear conflict of interest. How can the Auditor-General hold an inquiry into the performance of a subsidiary unit of her own office? She intends to deal with it as follows:

Conflict of interest
The Auditor-General’s different roles can come into conflict if an inquiry has to consider the adequacy of the work done by another part of the organisation. The terms of reference for this inquiry specify that we will consider the role played by the auditor. The Council’s audit is carried out by appointed auditors within Audit New Zealand, which is a business unit of the Auditor-General. The Council was aware of this conflict when it asked the Auditor-General to inquire.

The Auditor-General has put in place the following arrangements to manage this situation:

• The inquiry will be carried out by staff in the Auditor-General’s other business unit, the Office of the Auditor-General, with assistance from external advisers as needed. It will be overseen by the Assistant Auditor-General Legal.

• Audit New Zealand will not be involved in the inquiry, other than to provide information on its work at the Council in recent years.

• The Office of the Auditor-General will engage an independent person to review the audits of the relevant annual reports and long term plans and will include comment from the independent reviewer in the final report.

This is all pretty serious. We have a Council that has failed to comply with the law in different areas on a consistent basis over many years, and is now technically insolvent with a massive debt that may well be illegal. We also have an auditor which is the subsidiary of a government department which has clearly failed to carry out it audits to the appropriate high standards.

So what happens next?

See PART TWO below.

AUDIT NZ - PART TWO 31.03.12
Let's look at the facts. The Auditor-General's review into EcoCare is going to take at least six months, probably longer. Hopefully at the end of it we will have some indication of the outcome of all the illegalities. However, in the meantime the situation carries on exactly as it was before. The Councillors who created all the mayhem are still in power and concocting the mother-of-all LTPs that is intended to recover all the monies lost through their own incompetence and illegalities, and which will effectively destroy Mangawhai as a viable community.

And, of course, you have guessed it, Audit NZ will carry on auditing the Council in the same way as it always has. That is not quite true because it does seem that Audit NZ is being more "picky" than previously. It is having some real problems signing off the audit on the annual report for 2010/11. By law that report had to be adopted by the end of October 2011, but the waiving of absolutely compulsory requirements of the LGA are bread and butter to Audit NZ. It even looks as if the draft LTP will be adopted before the annual report from 18 months ago is adopted. That is a complete abuse of the procedures laid down in the LGA.

One of the major problems in finalising the audit of the annual report is trying to sort out where EcoCare fits into the books. Suddenly Audit NZ has become aware of the true situation and is having difficulty in fitting in the reality with the sham that has been accepted for the past six years.

The other problem is in relation to the statement of compliance which must be signed by the Mayor and the Chief Executive and accompany the audit report. This includes a statement to the effect that all statutory requirements in relation to the annual report have been complied with. I understand that the Mayor is prepared to sign the document but the Chief Executive, Steve Ruru, is not.

In the last letter that I saw on this matter, Audit NZ was suggesting that it might be able to modify some parts of the statement so that it would be acceptable to Steve Ruru. There we go again. An absolute statement that has to be signed in the prescribed form, and yet Audit NZ is again bending the rules and treating compliance as optional so that Council can squeeze through another audit.

Legal Eagle has written to the Auditor-General and Audit NZ pointing out that neither the Mayor nor the Chief Executive can honestly sign the statement of compliance because the statutory requirements of the annual report have not been complied with. One of the statements is that "any decisions or actions have been taken with due regard to financial prudence". That is a little difficult to state when Council has breached all its own benchmarks of prudence and has become the most highly indebted council in New Zealand per capita. It also has spent $80 million on a sewerage scheme that it told ratepayers would cost $35.6 million, and it cannot explain where the extra monies have gone.

The statement of compliance also requires the Mayor and the Chief Executive to confirm that "we have complied with our statutory obligations including laws, regulations and contractual requirements". Again, a little difficult when massive illegalities have just been unearthed in EcoCare and other rates and there are a raft of other illegalities that are going to be investigated by the Auditor-General.

Even the Mayor, who is given to memory lapses, would find it hard to state that all statutory obligations had been complied with when he has just sent out a notice to all ratepayers apologising for a $9.5 million failure by Council "to comply with statutory requirements in setting its rates".

One of the other stumbling blocks in the statement of compliance is the "going concern assumption". The Mayor and the Chief Executive have to confirm that Council has adequate resources to continue operations at their current level for the foreseeable future. This is based on circumstances that are likely to affect the Council within one year of signing the statement and even beyond that date if the person signing it is aware of any circumstances that could effect Council's situation.

The reality is, of course, is that Council is absolutely broke. It cannot make ends meet for the current year and will have to borrow a further $7.5 million just to keep afloat. It also owes ratepayers $9.5 million dollars in illegal rates that it took from them which legally have to be repaid immediately with interest. There are also several million dollars in illegal development contributions which it will have to refund. It cannot pay these monies. There is also the looming possibility that much of the EcoCare debt will be declared to be illegal.

Council could borrow more monies, but it has already breached its own rules on borrowing set out in the Treasury Policies in its LTP, and blown apart all other generally accepted benchmarks of financial prudence. Again it has breached the requirements of the LGA in respect of financial prudence without skipping a beat.

It is clear to everyone, except perhaps Audit NZ, that the Kaipara District Council is insolvent. It cannot function as a going concern and it is no longer able to operate as a local authority pursuant to the requirements and the obligations of the LGA. The only way that it can survive is to set massive rates to recover all the monies that it has lost, but to do so would be completely in breach of the provisions of the LGA.

It will be fascinating to see if Audit NZ is yet again going to turn a blind eye to reality and to legal requirements and allow Kaipara once more to thumb its nose at the law.

And if Audit NZ carries on in the same way as it has in the past, it will be interesting to see if the Auditor-General allows that state of affairs to continue. Most reasonable people would think that if Audit NZ is being investigated for the way it has carried out Kaipara's audit in the past, then it would be appropriate for the Auditor-General to remove Audit NZ from its current auditing role and replace it with another auditor.

I am sure readers will be wondering how such a deplorable state of affairs could happen in New Zealand today. It is just beyond credibility. It took constant badgering over two year to get the Auditor-General interested in taking any action. The person who should be driving all this is the Minister for Local Government. Rodney Hide, who was Minister until last November, simply was not interested. He kicked for touch, ignored the acknowledged illegalities and the financial shambles and gave the Council six months to sort its own mess out. Nick Smith made a lot of noise about council reform in general and loved to cite Kaipara as a cot-case but when pressed on what he intended to do about Kaipara in particular he looked like a man driven by inertia. And now we have Gerry Brownlee who has already insulted the Finns and will no doubt ignore the plight of Mangawhai and Kaipara like his predecessors.

We have six months at least before the "trial". Will the government and its watchdogs sit back and allow the Kaipara District Council, facing a charge-sheet as long as your arm, total latitude to try and paper over the financial and legal shambles that it has created through its own incompetence, and, with the blessing of Audit NZ, launch the biggest rates-bomb ever seen in New Zealand on the people of Kaipara?

Or will John Key and his government finally realise that enough is enough and put the Kaipara District Council out of its misery?

Nick Smith reckoned that the Kaipara District Council was in a "serious pickle". Well that pickle - both financial and legal - is getting "seriouser and seriouser", to paraphrase Alice in Wonderland.

When Council commissioned Jonathan Salter of Simpson Grierson to review the legality of the EcoCare rates it opened the proverbial can of worms. In very short time the reviewer confirmed what ratepayers have been saying for the past three years, namely that the EcoCare rates were illegal. The first two years of EcoCare were ultra vires because Council had no power to set rates for a service that was not available on 1 July of those years. The following two years were illegal because Council had failed to follow the rigid but simple requirements of the Rating Act.

Jonathan Salter offered a simple solution for fixing the rating problem: simply apply to parliament to pass validating legislation. Unfortunately, the reviewer knew little of the background to the rates fiasco when he made the suggestion. He was totally unaware that the Chief Executive had driven through the rates in their defective format even though he was fully aware of their non-compliance with the law. He had accomplished this with the complicity of a bunch of Councillors who unquestioningly followed the dictates of their Pied Piper and chose to ignore the incomprehensibility of the rating documents and all the warnings of illegality.

Jonathan Salter was also unaware that the Minister Nick Smith had stated emphatically that he would not support validation if the illegal rates had come about because of incompetence or dishonesty. That makes sense, whether Nick Smith is Minister or not. It is unlikely that members of parliament - who have a free vote on such a issue - are going to give a "Get out of Gaol Card" to a Council that has thumbed its nose at the legislation, and shown complete disdain for the principles of good governance, transparency and all the other principles that are supposed to be encapsulated in the Local Government Act.

The Salter review has put the Council in a very embarrassing position. The review states quite categorically that the EcoCare rates are illegal. If they are illegal then Council has no right to the monies that were collected as rates. The monies were obtained by Council in the mistaken belief that the rates were legal. Now that Council has acknowledged that the rates were illegal then it must refund the monies.

The law is quite clear. If a party receives monies by mistake and then, having discovered the mistake, refuses to refund the monies and converts them to its own use, then it has committed the crime of theft under the Crimes Act 1961. Council is very much in the same situation as the couple who received $10 million by mistake from their bank and decided to do a "runner".

Council has indicated that it may seek validation of the rates through parliament, but that is looking less and less likely, and in any case it is irrelevant to the issue. The fact that parliament has the power to validate the rates (perhaps twelve months or more down the track) does not give Council the right to hang on to the monies. It should repay the monies and, if the rates are validated, then it can re-invoice ratepayers for the rates.

Council did intend to extend the Salter review to examine other rates that may be illegal (the reviewer found that the forestry rates were illegal and there are others), and ratepayer representatives have pressed for a fuller analysis of the illegal EcoCare rates and a review of the EcoCare rates assessments and the unit of demand regime. However, given the legal situation that it now finds itself in it has delayed any further inquiry into these matters. The last thing that it needs now is to reveal more rates that it will have to refund.

In a wise move from Council's point of view, the review of the legality of the Ecocare development contributions policy has been passed over to the Auditor-General. The problem with development contributions is that if they are declared to be illegal then they have to be refunded. They cannot be validated by legislation. So an immediate decision on that matter might have placed Council in the position where it had to find many millions of dollars to repay developers. Now that the problem has been passed to the Auditor General as part of the general EcoCare inquiry, it will be at least 6 months before the pressure goes on.

But there is still the question of the illegal EcoCare rates. To bring matters to a head, Legal Eagle has served formal legal notice on Council on behalf of all ratepayers demanding immediate repayment of all EcoCare and other rates that were illegally collected by Council, together with interest at the appropriate rate that is awarded by the court. I have given Council until tomorrow (Friday 29 March 2012) to repay the monies or come to some arrangement in respect of repayment. If Council fails to meet the deadline then I will lodge a complaint of theft with the New Zealand Police and with the Serious Fraud Office.

I will also be lodging a complaint against the Council of obtaining monies by deceit - formerly called obtaining by false pretences. The basis of this complaint is quite simple. Council acknowledged on 10 February 2012 that the EcoCare rates were illegal. It knew that it had no legal right to collect any rates that were illegal. However it had sent out a rate demand (4th instalment) that included those illegal rates at an earlier date. Once it discovered that the rates were illegal Council should have sent a message to ratepayers advising that the illegal rates were not to be paid. It failed to do that and proceeded to collect and keep the illegal rates.

In respect of the 5th instalment, Council sent out rate demands after it had disovered that the rates were illegal, knowing that it was requesting payment of rates that it had no legal right to request. In other words it was misrepresenting to ratepayers that the rates were legally payable.

If the Council were a private company or an individual there is little doubt that the law enforcement agencies would "throw the book" at it. But, for some reason that escapes me, local authorities in New Zealand seem to be exempt from the Rule of Law. The watch dogs that are supposed to enforce the LGA and the LGRA have shown an incredible amount of indulgence to the Kaipara District Council and allowed it the special privilege of treating obligatory statutory requirements as optional. It will be interesting to see if the authorities that enforce the criminal law allow the Council the same sort of latitude.

I have some serious worries about the resignation of Nick Smith. He was pressured to fall on his sword because he breached some unwritten rule about conflict of interest. He told parliament:

"I made not one error of judgement but two in dealing with a conflict of interest in respect of a friend."

Dr Smith recognised that his resignation was the "proper" thing to do. Prime Minister John Key agreed:

"I think New Zealanders recognise we have high standards and those standards have been maintained. Nick Smith has resigned, that was the honourable thing to do.''

It appears that the Minister's letters to ACC actually had no effect on the outcome of the case being considered. No one suffered because of them. No one was financially disadvantaged. The resignation was based solely on the technicality of a conflict of interest.

I can't help comparing the actions of Nick Smith and his predecessor Rodney Hide, as Ministers of Local Government, when dealing with the illegalities and the excesses of the Kaipara District Council.

This Council has acted outside the law for many years with an arrogance that comes from knowing that the government watch-dogs are sound asleep. The wastewater rates for the past four years for the new EcoCare scheme have all been held to be illegal either because they were ultra vires or because of unbelievable incompetence. The same for the forestry rates. That totals $9.5 million of rates illegally rorted out of ratepayers and still counting, as there are other rates that are clearly illegal but the Council has not yet got round to scrutinising them.

It appears that millions of dollars of development contributions have also been charged illegally.

Council has also failed to comply with the decision-making requirements of the LGA. It extended the scope of the EcoCare scheme in secret without consulting with ratepayers and the cost of the scheme mysteriously increased from $35.6 million in 2006 to about $80 million at the present time. Council is unable to tell ratepayers where much of the extra cost went. The Auditor-General is so concerned that it has instigated a broad-ranging inquiry into all aspects of EcoCare. The inquiry will decide if the Council acted illegally in extending the EcoCare scheme and whether the extra debt was incurred legally.

For over two years ratepayers have lodged complaints with the Minister of Local Government about the reckless actions of Council. Two years ago I made detailed legal submissions on the illegality of the rates. They were all ignored by the Minister even though those claims have now been proved to be correct.

Even last year Rodney Hide as Minister decided to ignore Council's persistent non-compliance with legislation and its appalling accounts that were riddled with inconsistencies and errors, and gave the Council 6 months to put its house in order. He put the Council "on watch", which is the Ministerial equivalent of a slap on the wrist with a wet rates demand.

Nick Smith adopted the same approach. Whilst acknowledging that the Council was in "a serious pickle" he added that the government's view was that "local solutions are best found by people sorting out their own mess".

Ratepayers of the district, who have been the victims of Council's incompetence, its illegal actions, and its blatant rorts, wonder what the Minister means by "people sorting their own mess out". Council has been allowed to flout the law at will because of the complicity of the Minister's Office and the disinterestedness of the Ombudsman's Office. The Office of the Auditor-General has turned a blind-eye to blatant illegalities, and Audit New Zealand which audits Council's plans...... well, more of that later. When faced with such overwhelming odds, how can ratepayers, who have been treated like mediaeval serfs, have any say in sorting out the mess that Council has created with the complicity of the government watch-dogs?

The amazing thing is that this very same Council, which through its incompetence and flouting of the legislation has created what will prove to be one of the greatest legal and financial shambles that New Zealand local government has ever seen. has been given six months by the Minister to sort its own mess out. That's a bit like putting Nick Smith in charge of the inquiry into his own conflict of interest.

Clearly the Minister had absolutely no regard for the voiceless victims of the gross misfeasance that has taken place in Kaipara. The fact that the Council has acknowledged that the rates that it set were illegal, and that the Auditor-General has instigated one of the broadest inquiries into the illegal actions of a local authority in New Zealand that it has ever held, seem to have been completely lost on the Minister.

At present the Council is, with Ministerial blessing, concocting one of the biggest rate-bombs to hit New Zealand. Council is pushing the Rating Act to the limit to gouge out of ratepayers sufficient monies to pay for all the illegalities and incompetence of the past, Mayor Tiller and Deputy Mayor Geange, along with the sleep-walking Councillors, will ensure that Mangawhai bears the brunt of the rates onslaught. The effect will be to destroy the lives of many people in the Mangawhai community and it will be the end of Magical Mangawhai as a viable community.

So, getting back to the beginning of the story, Nick Smith resigned because of some technical breach of the conflict of interest rule, that caused no disadvantage to anyone. And yet, during his brief tenure as Minister, he sat and fiddled and endorsed the blatant and persistent illegal actions of an out of control local authority that is hell bent on destroying the lives of its ratepayers.

I may be old school but I always considered that upholding the Rule of Law was one of the basic principles on which a society is founded. I would have expected a Cabinet Minister to be in the forefront of those honouring that principle. It seems peculiar that Nick Smith resigned for a technical breach of another important principle when the reality was that he would have been amply justified in resigning because of his persistent failure to uphold the Rule of Law.

If Nick Smith had resigned because of his failure to uphold the Rule of Law, and because of his betrayal of the people of Kaipara, then he would have had my support.

Local Government Minister Nick Smith is moving quickly to put a stop to some of the excesses of out of control councils. His planned local government reforms were some months away, but no doubt because of the crisis in Kaipara he has been compelled to step in immediately.

The headline in today's NZ Herald promises good news for Kaipara's ratepayers :

Councils in line for major shake-up as Govt aims to rein in rising rates and debt.

The article by Bernard Oarsman (here) states that the significant changes to the legislation are going to be signed off by Cabinet on Monday (19 March). The country's mayors and chief executives have been invited to a series of briefings from Tuesday to Friday next week.

It is not known when any public announcement will be made.

Fingers crossed that the changes will put a stop to Kaipara Council's Long term Plan and its attempt to gouge its ratepayers to recover the tens of millions it has lost through its own incompetence and illegal actions.

The Office of the Auditor-General has announced the terms of reference for the inquiry into the Mangawhai EcoCare scheme. Details are here.

The OAG advises that it decided to act following a request from Council. However, that comment should be put in context. Let me explain.

The proposed EcoCare scheme went through many changes in its early days but from a legal point of view was crystallised in the statement of proposal (SOP) of February 2006. This document set out the scope of the scheme in its final form and the cost ($35.6 million). The SOP was incorporated in the Long Term Plan (LTP) of 2006/16 and ratepayers had the opportunity to make submissions. As far as ratepayers were concerned the scheme and its cost were set in concrete in that document. This was confirmed by the Treasury Policies in the LTP which stated that neither the scope of the scheme nor the debt could be altered without consultation at the highest level.

In addition, the Local Government Act (LGA) states quite clearly that any proposal to make changes to a strategic asset such as the EcoCare scheme has to be included in an LTP. The new proposals and the cost would be set out in detail in the LTP and this would give ratepayers the opportunity to understand the proposals and to make submissions.

In 2006 the Council and its consultant Beca started looking at extensions to the scope of the EcoCare scheme. There were several reports submitted to Council and, as a result, a decision was made in late 2006 to extend the EcoCare scheme quite substantially and to increase the debt. This was confirmed in late 2007.

The EcoCare scheme was therefore developed on the basis of the extended scheme and the new costings. No limit was ever put on the final price of the scheme. Mayor Tiller recently announced that the EcoCare debt now stands at $63 million, but it seems that the actual cost is somewhere in the region of $80 million.(See article below)

So where did things go wrong? How did the cost of the scheme go from $35.6 million to $80 million?

The MRRA and other ratepayers demanded to know how the price increase had come about and whether it had been agreed to by Council. In December 2011 the new Chief Executive publicly released resolutions of Council dating back to the early days of EcoCare. They related to the proposal to extend the scope of the EcoCare scheme in 2006 and to increase the EcoCare debt. However, it soon became apparent that many of the resolutions had been passed in "public excluded " sessions. In other words they were made in secret. None of the reports on which the decisions were based had ever been disclosed publicly.

This meant that.Council had failed to follow the decision-making and consultation processes that were absolutely obligatory under its own LTP and the LGA. It had failed to put the proposals in an LTP before making a decision. It had failed to advise ratepayers even after making the decision. Ratepayers were completely excluded from the process.

The secret resolutions caused a stir. The MRRA and John Dickie lodged complaints with the Council about what had happened.. Legal Eagle drafted a Paper (here) suggesting that the actions of the Council in extending the scheme and increasing the debt were illegal. The Paper was sent to the Council, the Auditor-General and the Minister. Apparently the Council referred the Paper to their lawyers who confirmed that there was a serious question raised. As a result Council made the request to the OAG for an inquiry.

It is important to understand that on its own Council would have done nothing. It would have been happy to bury its illegal actions or flush them down the EcoCare dunny.. Likewise with the Salter review of the illegal EcoCare rates. Council did all that it could to hide the unlawful taking of $9.5 million of ratepayers' money and it was only the persistent demands of a small group of ratepayers that finally pressured a reluctant Council into holding the review.

So when you hear the Mayor proclaiming that the Council supports the OAG inquiry, take it with a grain of salt. He hates it. He and his Council have been caught out red-handed twice in row. Illegal rates and now illegal decisions. Two nails in the coffin of a totally dysfunctional Council that has systematically ruined Kaipara. I have said it before and I will say it again. Mayor Tiller, Deputy Mayor Geange and their sleep-walking Councillors (Councillor Larsen excepted) are an absolute disgrace. Let's hope the OAG inquiry hangs them out to dry and makes them financially responsible for the illegal debts that they have incurred, and which they are now trying to foist on to ratepayers.

All ratepayers that have a complaint about any aspect of EcocCare are encouraged to make submissions. Please ensure that everyone in the district knows what is going on, so please pass the information on to everyone that you know. Get them to subscribe to this website so that they can receive all the latest information. The email address is shown above.

Later we will be offering a service to help people put together their complaints and advise them on what to include. Those who are interested could send me an email now so that we can start the process.

Remember that any complaint is made in confidence. There will be no worry about the laws of defamation or any come-back on you personally.

The Salter Report on the legality of the EcoCare rates was released a few weeks ago. A copy can be seen here. It held that the Ecocare rates were illegal for all four years that they have been in existence. In addition, the forestry rate was held to be illegal. Council has estimated that $9.5 million dollars was paid in illegal rates.

At a meeting between ratepayer representatives and Jonathan Salter he indicated that the charging of rates for the first two years of EcoCare was ultra vires because there was no service to rate in either of those years. (The service must be in existence on 1 July to be rated for the following rating year.) In the following two years Council had the power to rate but failed to comply with the requirements of the Rating Act.

We have sought clarification of some matters in the report and have requested a fuller consideration of all instances of illegality. We have also asked for the enquiry to be extended to consider the legality of the unit of demand regime (which we consider to be completely ultra vires), and the compliance of the EcoCare rates assessments. We have asked to be allowed to make submissions on the legality of other rates. It is clear, for example, that the wastewater rate for the rest of Kaipara is also illegal.

Now that Council has acknowledged that the rates are illegal it is clear in law that Council has a legal obligation to refund the monies. It is very similar to the situation where a couple were paid $10 million in mistake by their bank. They received the monies by mistake but committed theft when they made the decision to keep the monies and convert it to their own use. The Council is in the same situation. If it retains the monies then it has committed theft. The fact that it has spent the money is irrelevant. Most burglars are in the same situation.

Council believes that it can validate the rates retroactively through a private act of parliament. The Minister, Nick Smith, is not so sure. He stated in an interview that he would have to look at the situation to see if there had been any incompetence or dishonesty. Unfortunately for Council there was incompetence by the bucket load. It is hard to imagine individual MPs (it is a free vote) voting to validate the rates for the first two years when Council had no power to levy those rates. As for the second two years, the level of incompetence and the stubborn refusal of Councillors to take proper advice will not induce MPs to let Council of the hook by passing validating legislation.

We are now waiting for a response from Council.

In the post below the true cost of the EcoCare scheme is estimated to be in excess of $80 million. The problem that Council has is that the last time it consulted with ratepayers was in the statement of proposal of February 2006 that was adopted as part of the 2006/16 LTP. The price was set at $35.6 million. There has been no consultation with ratepayers since then. Council has entered into secret agreements with the contractors, dramatically extended the scope of the scheme, doubled the costs of the scheme, and kept it all hidden by passing resolutions in public excluded sessions. This is of course highly illegal. The Auditor-General has accepted that there is a case to answer and has now instigated an inquiry into the legality of the whole EcoCare project.

The problem is that the inquiry will take at least six months. In the meantime the Minister, Nick Smith, is allowing the very same Councillors who bungled the rates to the tune of $9.5 million dollars, and secretly and illegally extended the EcoCare scheme and doubled the debt (by over $40 million), to bring in a draconian rating regime with rises of 45 per cent across the board to try and pay for their illegalities and incompetence.

ECOCARE COST - $62,000 PER PROPERTY 13.03.12
Mayor Tiller has acknowledged that the EcoCare debt now stands at $63 million. That might lead most of us to believe that this figure represents the total cost of the EcoCare scheme. In the words of Larry Mitchell (who did the report last year on Council's financial health): "Hold on to your hats!".

To that figure has to be added the EcoCare rates that have been collected over the last four years. They may have been illegal but they were still paid. And, illegal or not, they were still flushed down the Tiller/Geange dunny. The total amount of rates paid so far is about $8.8 million dollars.

There are also the development contributions that have been paid and have disappeared. I cannot put a figure on this because the annual report for 2009/10 does not give a separate breakdown for development contributions. The 2010/11 annual report.............well, the 2010/11 annual which by law should have been adopted by the end of October 2011, is still very much a work in progress.

Then there is the sanitary works subsidy paid by the government to the tune of $6.6 million. Gone down the John.

That probably adds up to over $80 million.

And, what do we get for that?

When the scheme's Project Deed was signed in December 2005 the number of sections to be connected was put at 1,215. There was a lot of hoopla from the contractors about "exponential" growth but the reality is far more conservative.

The advice received from Council on 21 November 2011 is that as at October/November 2011 there was a total of 1,405 households that were connected to the scheme. However out of that total 117 are SUIPs (separate units which have been illegally charged) which are not actually connected individually to the scheme.

So, the correct number of actual connections at present is 1,288.

Now, if you divide $80 million by 1,288 you get a cost of over $62,000 per property connected.

No wonder those poor folk to the west of State Highway One, who are going to end up footing the bill, believe that all the dunnies in Mangawhai must be gold-plated.

Kaipara residents are waiting for the Tiller/Geange Rates Bomb to descend on them. Rumours are flying about in respect of the size of the proposed increases. A few weeks ago it was 20 per cent plus, 100 per cent for EcoCare properties. A couple of days ago it was 45 per cent average. Now the Northern Advocate (here) is warning of an average rates rise of up to 42 per cent. Mayor Tiller has conceded that "a rise of at last 20 per cent was on the cards".

There are huge warnings for ratepayers hidden in this Advocate article. If Dargaville ratepayers think that EcoCare is Mangawhai 's responsibility, then think again. You and everyone in Kaipara are going to be hit by new rates that will seek to recover the massive illegal debt incurred largely by the EcoCare shambles.

Mangawhai ratepayers are not only going to have their EcoCare rates doubled (and they are incredibly high already) but they are to be dumped with Dargaville's white elephants as well. Note this comment in the Advocate article:

The council is also proposing roading move from general rates into targeted rates, and former targeted rates on the Kauri Coast Regional Swimming Pool, Dargaville Development, the Dargaville Town Hall, and 10 per cent of stormwater costs be moved into general rates.

That means that everyone in the Kaipara district will be paying for those Dargaville aberrations.

Perhaps what annoys me most is this comment of Glennis Christie, the Manager of Policy and Governance for the Council. It is reported by the Advocate as follows:

She said such a drastic rise would still only bring Kaipara in line with rates charged by other comparable local authorities.

That is totally ridiculous and an abuse of statistics. It is as bad as the Mayor boasting that he pays only $759 when pensioners in other parts of Kaipara are paying six times as much.

That is not all. Glennis Christie is quoted as saying:

The impact on individual ratepayers will vary widely depending on their valuations and the impact of potential rating changes such as redistributed targeted rates, but a significant rates catch-up was needed to fund the current level of service.

Note the words that I have highlighted. What a load of absolute baloney. Totally misleading. Totally untrue. This is the sort of rubbish that one expects from Mayor Tiller, but not from Council staff.

Glennis Christie is employed by the Chief Executive, Steve Ruru. It is his job to advise Council and to implement Council's decisions. It is not his responsibility, or the responsibility of his staff, to be a propagandist or apologist for the excesses of a dysfunctional Council.

The truth is that Steve Ruru and Glennis Christie are working hard to expose the incompetence and illegalities of the past. They are emphasising the need for Councillors and ratepayers to work together to resolve problems in collaboration. They are trying to show good will and gain the trust of ratepayers. With respect, that means being honest and transparent, getting rid of the "going forward" nonsense, and steering well clear of misleading comments - such as Glennis Christie has just fed to the press.

And for those ratepayers who do not know the real reasons why the rates are rising, let me tell you:

+ Council set EcoCare and other rates illegally for four years in spite of repeated warnings. The incompetence was so great that Council will not be able to validate the rates. That means a loss estimated at present of $9.5 million. But it will be more when other rating errors are exposed.

+ Council's finances are in such a mess that it made huge errors in last year's annual plan and now has to borrow a further $7.5 to enable it to survive financially.

+ Audit NZ, which has just awoken from a sleep that would rival that of the Sleeping Beauty, will not sign off on the annual report for last year because of financial irregularities. The report MUST be issued by the end of October 2011 under the LGA - it will soon be five months late - but such legal obligations are irrelevant for the Kaipara District Council.

+ The EcoCare development contributions were set illegally because of the incompetence of Council and will have to be refunded. No validation here, just a straight refund.

+ The EcoCare scheme cost to date, according to the Mayor, is $63 million. A recent replacement valuation came out at $37 million. That is considered by some experts to be optimistic. No explanation needed.

+ The Council paid $4.2 million for the Lees farm (part of EcoCare). It is now worth $1.8 million.

+ The last time that Council consulted with ratepayers about the EcoCare scheme (in the 2006/16 long term plan) the cost was $35.6 million. That grew and grew, like an out of control Topsy, and is now at $63 million. All of that increase was illegal because Council failed to comply with the provisions of the LGA in respect of decision-making and consultation. That is what the Auditor-General is now investigating.

+ We have asked Council where the $63 million has gone. That's a pretty fair question. Council cannot tell us. Audit NZ is trying to unravel the incredibly complex contractual situation. Did you know that ABN AMRO the financier formed a subsidiary to build EcoCare? ABN AMRO advanced monies to its subsidiary, outside Council's control, and then sold the whole package with capitalised interest and millions of dollars of "modifications" to the Council.

+ The Council paid $250,000 to get rid of Jack McKerchar. At the time such a payment could not be justified and that will become even more apparent as evidence of his incompetence is revealed.

+ Then there is the Dargaville swimming pool, and the Hakaru tip, and endless amounts of money that have been squandered on them and other similar projects (management reshuffle?).

+ The proposed district plan is bleeding bucket loads of money. It is a major financial haemorrhage for Council, and therefore ratepayers, It is never going to see the light of day (because of almost certain amalgamation) and is simply pouring vast amounts of monies down the gullets of consultants and lawyers.

+ The whole of the EcoCare debt was based on some flimsy concept designed by financiers to allow local authorities to exceed the normal benchmarks and ratios of prudent and safe borrowing. It was a complete fabrication as applied to the EcoCare debt with the result that for many years Council has exceeded all the normal limits for borrowing. Not only that, Council has failed to come clean in its accounts and has hidden it all from view.

The fact that the government watch-dogs and auditors created an environment where local authorities such as Kaipara could ignore legal compliance and the rules of prudent borrowing without any sanction, is bad enough in itself. However, it is nothing short of shameful that those responsible for the incompetence and illegalities that have created such a financial and legal morass - the Mayor and the Councillors along with the same lawyers and consultants - are now being entrusted by the Minister of Local Government to sort their own mess out. They have until April

The Councillors and their staff and consultants, buoyed by the Minister's indifference, are scheming their schemes in some rarified, isolated environment where they are in total denial in respect of any personal responsibility for the incompetence, illegalities and excesses discovered, or to be discovered, in the Salter review and the OAG review. They live in a world of make-believe and spin. To them the solution is simple. Deny all responsibility. Bring out the spin machine. And dump it all on the ratepayer.

And, with a bit of luck, the Minister will forget about his railings about the 6.8 per cent average increase in rates being far too high, and his threats to bring in a ceiling for rate increases; and, with a bit more luck, the Minister might turn a blind eye to the 45 per cent increase in Kaipara.

Other Northern Advocate articles can be seen here and here.

The OAG wants to finalise the scope of the EcoCare review by the end of this week. The review itself is going to take many months and clearly the OAG wants the scope finalised so that it can get cracking on the real issues.

I will be making submissions on the matter in the next day or so and I invite you as ratepayers to contact me and let me know which issues relating to the EcoCare scheme you want to see examined in the review. But please let me have them as soon as possible.

Please note that the review is concerned with EcoCare right from from its inception. It is not concerned with other areas that may be of concern, although the OAG has reserved itself the right to extend the review to any other matters that it considers it desirable to report on. In other words, if, for example, it found that there was a disregard for legally compliant decision-making in respect of EcoCare, it might consider looking at decision-making in other areas.

I therefore suggest that you let me know the Ecocare issues that you consider important and then list the other issues that you think are worthy of review.

The Auditor-General is the sole judge of the final scope of the review.

Please send you comments to:

If you know anyone else who is not on my emailing list then please pass this on to them. If we want the powers-that-be to listen to us then we must get involved.

Owen McShane died yesterday morning. Owen had a major heart operation some time ago and was in poor health but died suddenly.

Owen was an RMA consultant and planning expert and his expertise was sought on a local and national level. He was also a contributor to periodicals and blogs.

Owen had a profound knowledge of his particular discipline and a wealth of knowledge of international experiences and theories that made his opinions immensely readable and persuasive.

He believed that local authorities in New Zealand had been targeted by international consultants who saw them as cash-cows that could be treated as ATM machines. He rejected the big is beautiful axiom of amalagamation and recommended the small Swiss canton system of local government.

He was known locally as a great battler against the excesses of the Kaipara District Council. He was a fierce opponent of the Proposed District Plan, not just because of its illegality and the fact that it entrenched costly consultants in every consent process, but because it was simply illogical to spend millions of dollars on a plan that was never going to see the light of day.

Many Mangawhai residents owe him a debt of gratitude. I remember reading his submissions on the Jack Boyd Drive issue. In that case Council was illegally trying to pressure the residents to connect to the EcoCare scheme. Owen's submissions contained a comprehensive and clear statement of the law, a concise rebuttal of Council's claims, and the whole presentation was linked together with a persistent and compelling logic. It was a joy to read. Council immediately backed down and apologised to the residents.

Owen will be sorely missed.

Owen's last article was published last Friday and can be seen here. Another recent article can be seen here.

Council has just issued a press release (here) announcing that the Office of the Auditor-General has agreed to undertake a review of the decision-making, financial and contract processes used to approve and implement the Mangawhai Community Wastewater Scheme. This appears to be a full-ranging review of virtually every aspect of the scheme.

There were many warnings when South Canterbury Finance started foundering. There were strong calls for the government to take immediate action. Unfortunately, the government treated the matter with a hands-off approach and a generous latitude. It even guaranteed the firm's debts. As we now know, the government's indecision ended up costing the tax payer far more than if it had intervened earlier.

Nick Smith has taken the same approach with Kaipara. Although Kaipara is technically insolvent and can only survive if it succeeds in securing monstrous rate rises, the Minister refuses to take action. His predecessor, Rodney Hide, whilst acknowledging persistent non-compliance with the legislation, and other irregularities, gave the Council 6 months to sort its own problems out and quoted the mantra that local problems should be resolved by locals.

I am not quite sure what say the local ratepayers have in all this. They have already been disenfranchised by an autocratic Council that has operated outside the law and has shown an inclination to ignore its statutory obligations to consult with ratepayers. Not only that, a debt of $90 million (the highest per capita in the country) has been foisted on them in the space of a few years. Of that, $63 million (the figure recently given by the Mayor) is for the local Mangawhai sewerage scheme that services just over 1200 properties.

Kaipara's problems unfold daily. An independent legal review of the EcoCare rates for the sewerage system has decided that $9.5 million in rates was collected illegally by the Council. It also looks as if a large part of the $63 million debt was also borrowed illegally. The Office of the Auditor-General has been brought in to investigate the matter.

The Minister is still sitting on the side-lines whilst the Kaipara Council continues to do what it does best - spend money. In December it passed a resolution to borrow a further $7.5 million, of which $4 million was because of errors in the current year's annual plan. It is also pouring millions (without consultation again) into its proposed District Plan that will never see the light of day because amalgamation with a Far North unitary authority is only an eye blink of Nick Smith away.

One has some sympathy with the Minister, new to the Office, and overwhelmed with major decisions re local body restructuring, and overhauling the ineffectual provisions of the LGA and the LGRA, but one has to ask when he is going to take action and stop Kaipara haemorrhaging. Whilst the Minister dithers the Council is pouring bucketfuls of money down the gullets of consultants who are working out how to structure the new Long Term Plan so that the mountains of illegal spending can be ingeniously foisted on to the long-suffering ratepayers via massive increases in the rates.

The rumours suggest that the rate rises will be 20% for each of the next five years. and for the sewerage rates the increase will be 100%.

The Minister is not going to allow that to happen. He has made an issue of the 6.8% average increase in rates being too high. He has even talked of putting an upper limit on rate increases. There is simply no way that he will allow the Kaipara Council to pillage the ratepayers in the district to pay for its own misdeeds.

If that is the case, he should do what the Government failed to do with South Canterbury. He should take action now and put Kaipara out of its misery and save ratepayers, and ultimately taxpayers, an awful lot of money.

Ratepayers need to start thinking about where they would like to be 6 months from now. The current Kaipara Council has long outstayed its welcome but consideration has to be given to the future of local government in Kaipara. Do we want to carry on with the Kaipara experiment and see if we get it right next time, or are we going to succumb to the Minister's plans and become part of the Far North unitary authority? In the end we may have no choice. More than likely the government will have to bail Kaipara out financially and that will come at a price. The government's plans for a unitary authority are well under way and it would take a huge groundswell of public opinion in Kaipara to stall that.

Dr Muriel Newman's views on local government reform can be seen here. Owen McShane's article on Let's Take Our Councils Back (here) suggests that our councils have been hi-jacked by multi-national consultants, and that we need to claim them back.

Is Kaipara, or perhaps Mangawhai, prepared to take its council back, or is it resigned to disappearing into the unitary authority?

Echoing the folk song Tom Dooley, MRRA chair Bruce Rogan on TV3 News last night suggested that the Auditor-General should hang down her head in shame.

He ascribed to the Office of the Auditor -General (OAG) a large part of the blame for the Kaipara Council's EcoCare rating shambles.

There is little doubt that the OAG's indifference to blatant illegalities, and treating the requirements of the Rating Act and the Local Government Act as optional rather than compulsory, has created a culture of non-compliance amongst local authorities. If all the coppers are asleep then the burglars get cracking.

Nearly two years ago Legal Eagle and other ratepayers lodged submissions and complaints with the OAG in respect of the illegalities and statutory non-compliance of the Kaipara Council. Those submissions and complaints have now been vindicated by the Salter Report.

This is how the OAG responded

We cannot give a legal ruling on compliance with legislation

Only a court could determine whether the Council has complied with the Local Government (Rating) Act 2002 and whether any breaches of that Act or irregularities invalidate the rate.

In rejecting any involvement with the problem, except for suggesting (possibly as a compensation prize) an independent review of the rates, the Office stated quite bluntly:

In these circumstances, we have concluded that there is no need for us to devote any further resources to investigation of this issue. The entity that has responsibility for the matter (presumably the Council itself) is reviewing its actions including the question of legislative compliance. We expect that to resolve the matter.

As I said, the complaints were lodged with the OAG nearly two years ago. Decisive action could have prevented the loss of $9.5 million dollars (and climbing) in illegal rates, and unearthed all the other matters of non-compliance in the decision-making and consultation area that are now coming to light.

Hang down your head, Lyn Provost..........

Make sure you watch TV3 News tonight. There may be a segment on Kaipara's problems.

Kaipara ratepayers will have received in the mail a letter from Mayor Neil Tiller personally apologising for the Ecocare rating debacle, pleading that he and his Councillors were unaware of the illegalities.

The truth is that the Mayor and Councillors were fully aware that there were fundamental problems with all the EcoCare rating documents and chose to ignore all the advice and the warnings that they received.

Rather than acting in ignorance, the Mayor and his Councillors knew that it was highly likely that the rates were illegal, turned a blind eye to the situation, and failed to make reasonable enquiries into the legality of the rates.

Here is what the Mayor says in his letter:

Tiller Spin:

Based on the advice that we received at the time my understanding, and that of my Council, was that the way in which we had set the rates was substantially correct. We now know that this is not the case and we got it wrong.

Legal Eagle's response:

1. I am not sure what the Mayor means by 'substantially correct". Does it mean 50% correct or a little bit more? The Mayor clearly doesn't understand that when you draft rates you have to be completely correct. It's a bit like a maths question: you either get it right or you get it wrong.

2. In the past two years I made submissions to the Mayor and Councillors on several occasions prior to the rates resolutions being passed, and at other times, to the effect the rating documents were full of errors in relation to EcoCare; that they were non-compliant with the Rating Act; and that the end result would be that the rates would be declared illegal. I am a Barrister and Solicitor of the High Court of New Zealand, now retired, with a good knowledge of rating law.

3. I warned the Mayor and Councillors on several occasions in writing that the law required a strict compliance with the LGA and the Rating Act throughout the rating process, and that any mistake could result in the rates being declared invalid. I also referred them to similar warnings from the Society of Local Government Managers (SOLGM).

4. I advised the Mayor and the Councillors not to rely on the advice from the Chief Executive, Jack McKerchar. He had previously advised Council that Bell Gully had confirmed that all the rating documents were in order and compliant. This was completely incorrect. Bell Gully subsequently advised that they had never seen the rating documents. I provided a copy of the Bell Gully letter to the Mayor and Councillors and urged them not to believe the Chief Executive whenever he stated that Bell Gully had advised that his proposals were legal. I urged them to insist on seeing the advice of Bell Gully for themselves.

Quite amazingly the Mayor and Councillors denied themselves access to Bell Gully's opinions. When Councillor Larsen introduced a notice of motion to allow Councillors access to the legal opinions of Bell Gully, Mayor Tiller and Deputy Mayor Geange led Councillors in rejecting the motion.

Such an action - denying yourself access to legal advice and relying on the word of a Chief Executive who had already misled them - defies belief.

5. Suspecting that the Mayor and Councillors would ignore my advice. I advised them to do the following:

• Take independent legal advice from a lawyer specialising in rating law.

• Read the Guide to the Rating Act (website reference provided) co-authored by Jonathan Salter. This explained rating law very simply and set out examples of how rates should be set

• Consult with councillors in other districts to see how they tackled the rating documentation.

• Look at the website of the SOLGM which provides advice on setting rates, and modules to help councils through the rating process. It also offers courses on setting rates for council employees.

• Look at the websites of other councils to see how they set their rates in an appropriate and complying manner. (References provided)

• Read the funding impact statement (FIS) to see if it made sense. This document is the base document for setting the rates, both for a council to explain the proposed rates, and for ratepayers so that they can see the proposed rates and make submissions on them. The FIS for all rating years is totally incomprehensible.

6. I warned the Mayor and Councillors that all the rates assessments for the first three years were defective. This meant that under the Rating Act ratepayers had no legal obligation to pay the rates. Bell Gully advised Council that it agreed that the assessments were defective, but advised that Council could ignore this because ratepayers were obliged to pay rates any way, even if they were invalid (section 60 Rating Act).

Bell Gully advised that Council should simply amend the assessments for the 2011/12 year to ensure that they were legal. Council failed to do this.

7. I had a meeting with Chief Executive Jack McKerchar, the Deputy Mayor Julie Geange with other ratepayer representatives in January 2011. I challenged Jack McKerchar about the illegality of the rates. He acknowledged that the rates were "flawed" for the first three years. He added that he would obtain legal advice and ensure that the rates for the 2011/12 year were legally compliant.

Now, Deputy Mayor Julie Geange was present and heard this admission. In January 2011 she therefore knew that the Chief Executive had acknowledged that the rates were defective for the first three years. Why on earth did she do nothing about it? Why rather demanding to see the legal opinions of Bell Gully did she play a key role in ensuring that Councillors were denied access to them? Why did she not make an issue of getting immediate advice on the legality of the rates so that the same errors could be avoided when setting the 2011/12 rates? Why, when she was advised by me that the funding impact statement and the rates resolution for the 2011/12 year were still defective, did she ignore the advice? Why does she now blame all the problems on bad advice when she knew long ago that the advice was bad but chose to turn a blind eye?

8. The Auditor-General, whilst generally ignoring the blatant illegalities perpetrated by Council, did alert Council to matters of non-compliance and advised that steps had to be taken to remedy this. The Auditor-General was sufficiently concerned to recommend an independent first principles review of the EcoCare rates.

9. The contents of the Bell Gully opinions were locked in Jack McKerchar's famous bottom drawer. Only a few expurgated snippets were released. So we do not know what detailed advice was given. What we do know is that the Mayor and Councillors were aware from the Bell Gully advice that the wording of the rating documents was not appropriate and could be challenged, that the one-off rate was completely invalid, and that all the rates assessments were invalid.

10. Given all these warnings, and taking into account their collective weight, one might have thought that the Mayor and Councillors would have shown some concern and sought independent advice and got some answers to all the obvious questions.

The truth is that, except for Councillor Larsen, the Mayor and Councillors completely ignored all the advice and all the warnings. They sleep-walked their way through their obligation to exercise due care, and when they were awake they had their brains firmly locked in neutral.

I am of the view that, if the rating documents had consisted of chapters from the Adventures of Tin Tin, Mayor Tiller. Deputy Mayor Geange, and the Councillors (Councillor Larsen excepted) would have passed them without comment.

Given the warnings that the Mayor and Councillors received, I believe that it can be stated quite clearly that they breached the duty of care that they owe to ratepayers.

We are now watching them proclaiming their innocence, putting the blame on all and sundry, and claiming that they knew nothing of the problems.

They remind me in so many ways of the directors of Lombard Finance. For the last few weeks they have made very much the same claims in court. It was all someone else's fault. They didn't know what was going on. But the truth has prevailed and they have been found guilty.

Many ratepayers, looking at the photo of the four guilty Lombard directors in the Herald photo (page 4 of today's business section), looking very forlorn in the dock, with their reputations and careers in ruins, might feel that it would be appropriate if the Mayor and Councillors suffered the same fate.

What the Mayor and Councillors have done to Kaipara is an absolute disgrace. This mock plea of innocence and ignorance sticks in the craw of every ratepayer.

In his interview on Radio NZ (see below) Mayor Tiller maintained vehemently that Kaipara was not highly rated. He boasted that he personally only paid rates of $759 for his property at Baylys Beach close to the sea.

Ratepayers who heard the interview must have been gob-smacked by the sheer idiocy of the Mayor, generalising on the basis of one highly selective example. It was a perfect example of the natural adroitness of the Mayor in the spin and misrepresentation department.

The whole of New Zealand must have been staggered by his "I'm all right Jack" attitude and his sheer insensitivity to those ratepayers who are genuinely suffering under a massive rate burden and simply cannot meet their commitments.

To counter the Mayor's vacuous boast, here is another example of rates in the district. It is not suggested that this is typical instance but it does show the other side of the coin.

A pensioner couple have a holiday home in Mangawhai. It is an old, tiny, one bedroom bach with basic kitchen and bathroom facilities that would not meet the requirements of the Building Regulations. It has no laundry facilities or a garage. Some years ago an annexe was added (legally), providing a simple but more modern bathroom, two more bedrooms, laundry facilities, and a garage. The annexe is essential when the couple's children and granchildren come to stay or if they entertain friends. It is a very modest property.

As a holiday home the property is only occupied for about 10 weeks in a year, and for most of that time only the couple live there.

There is only one connection to the EcoCare scheme.

Kaipara District Council in a money grabbing exercise disguised as EcoCare rates deemed that there were two separate units and charged the rates accordingly.

Below are the rates for the property.







Post EcoCare:



5,974.00 (includes one-off levy)


6,495.00 (includes one-off levy)





[These figures do not take into account that other properties created after 2002 were obliged to pay a lump sum of $7,516.60.]

Add to that a rumoured increase of 20% on general rates and 100% on EcoCare charges, and the rates for the new year may be in excess of $7,000.

The Minister is leaving ratepayers to sort out the rating debacle for themselves. Perhaps the Minister can explain to those pensioners surviving in Mangawhai solely on a pension what they can do to meet the oppressive rates that are soon to be imposed on them.

But no Germany to bail us out. Frank Newman paints a very glum picture of Kaipara's future and, in fact, the future of local government in New Zealand. See his blog in Breaking Views here.

The simple truth is local councils are not competent when it comes to running large enterprises. Local councillors are very good at guest attendances at the local gardening club or drawing the raffle at the school gala. Asking them to make hard-nosed million-dollar business decisions does take them out of their comfort zone and they are far too keen to please whoever is next in line pleading for funding to be responsible with ratepayer money. Their lack of general competency has been blindingly obvious for many years now, yet politicians have not reversed their ill-conceived policy.

Bruce Rogan's interview with Lois Williams on Morning Report on 23 February can be heard here.

To hear Bill Guest, Mayor Tiller, and Steve Ruru on National Radio Checkpoint on 21 February, go here.

The Mangawhai Residents and Ratepayers Association has come out fighting in response to the declaration that $9.5 million of rates has been collected illegally by the Council. Chair Bruce Rogan, a former Councillor, has suggested that Mangawhai residents stop paying rates. The full article can be seen here.

The on-line newspaper Kaipara Konnection has started a petition to have the Mayor, the Deputy Mayor, and all second term or more Councillors resign immediately. It is also pressing for a commissioner to be appointed.

It also includes a copy of the full page advert by ex-Councillor Bill Guest in the Kaipara Lifestyler highlighting the incompetence of Council and also calling for the immediate resignation of all Councillors.

Bill Guest makes the following comment:

I personally find it ironical that when I was a councillor on the Kaipara District Council, I continually warned the councillors at that time, namely Mayor Tiller, Julie Geange, Tom Smith, Mrs Sutherland, Richard Alspach, Brian McEwing, Brian Burnett, and Graeme Taylor, over the issue of inadequate financial reporting, authorising loans without reliable data to back it up and failing to challenge the then Chief Executive's performance.

I have a quiet smile when I think how Mayor Tiller laughed at my warnings and made comments in the press regarding me personally, and accusing me of scaremongering and spreading falsehoods, while the rest of the council simply dismissed my numerous notices of motion regarding the above and persuaded Mayor Tiller to remove my portfolio responsibilities in regard to finance.

Read the Kaipara Konnection here.

We are all wondering: How could there be such widespread illegality in respect of the Ecocare rates for four years when the Auditor-General and Audit NZ should have been checking on those things?

I bet even the Minister is asking the same question.

Legal Eagle shares some of his experiences of those two government departments and concludes:

When Kaipara finally disintegrates and the Minister is trying to work out what wrong, he should take a long look at his watch-dogs.

Was it because of their incompetence and indifference that Jack McKerchar was able to wreak his havoc for so long?

To see the full article go here.

Nick Smith was interviewed this morning about "the serious pickle" that Kaipara is in. The feed is here

Compare the comments of the Minister with the comments of the Mayor in yesterday's interview (see below). You would think that they were talking about completely different things.

Kaipara is a huge problem, and it is pretty clear that the government does not know what to do with it. Nick Smith suggests that "local solutions are best found by people sorting out their own mess." That, of course, is rubbish. We are talking here of massive overruns in costs for projects that were extended unlawfully, and millions of dollars of expenditure that cannot be explained. Rates have been set illegally for four years in spite of clear advice that this was happening, and the Council's accounts are in a shambles. And that's just for starters.

To suggest that those responsible for such a state of affairs should be left to sort it out for themselves is risible. It is like suggesting that all the finance companies who ripped off investors should be free to sort matters out for themselves. Perhaps if Alan Hubbard was alive, Nick Smith would have put him on watch (ouch!) and given him six months to sort out South Canterbury Finance.

The simple solution for the government is for Kaipara to be split, with the Dargaville side joining the FNDC, and the Mangawhai side joining Whangarei. The big chiefs are talking about it as I write and it is almost guaranteed that it will happen this year.

Nick Smith highlighted the main problem in the interview when he said that Whangarei will not take on the EcoCare debt. Even after amalgamation it will have to be paid by those ratepayers for whose benefit it was incurred. Brace yourself Mangawhai!

The government's plan is to foist that debt on to Mangawhai. If we buckle and accept it meekly then all will be well, and the problem will be solved. That is why the government is not interested in the illegality of the debt or the fact that some of the monies may have gone missing. They know that if it is discovered the EcoCare debt is riddled with illegalities or irregularities then there is no hope of ratepayers footing the bill. The government will have to step in and sort it out. Pehaps it will have to foot the bill and try and recover some of the monies from those who were in charge and through whose negligence this all happened.

The Salter report makes it sound as if validatiing legislation is an easy option. It is far from that. Parliament is not quick to help local authorities out of such a mess when the illegality has resulted from ineptness. This is what the Minister had to say in the interview above:

Before I make a decision as to whether the government might back such legal action we need to know what went wrong. Was it simply incompetence? Was there any dishonesty involved? And what is the practical way out?

Given the the depth of incompetence on the part of all parties involved, it is highly unlikely that the validation proposal will get past first base. More on that to come in the next few days.

Listen to Mayor Tiller make a total fool of himself in a Radio NZ interview with Mary Wilson on 21 February 2012. The feed is here.

If you have any doubts how the Kaipara Council has got into a mess in so many areas, just listen to Mayor Tiller in the interview, and all will be explained.

It defies credibility that such a man should be put in charge of a multi-million dollar business and, when he stuffs it up, the Minister puts him in charge of sorting out the mess. It defies words.

The Tiller responses are in bold.

But you do concede that there was $58 million of loans to build a sewerage system that has turned out to be unaffordable?

We don't know that yet. The figures are, what shall I say, um, being redone at the moment. And we expect that, um. what shall I say, it is going to be worse than originally planned in the budget but certainly not out of proportion.

But does that not mean that you are looking at rate rises of 10 to 20 per cent?


So, given that, wouldn't you think that was a bit of a mistake?

But hang on. I live by the coast, Baylys Beach, right, and my house, 750 square metre section, valued at $400,000. My council rates are $759 including GST.

Are we a high rated council? No.

Can we afford to put our rates up? Yes.

Should we have done it years ago? Yes.

But Council deliberately and in Bill Guest's time on Council, when he was a Councillor, borrowed monies to pay for the groceries and we now have to reverse that, pay for the groceries each year and get on and pay off the debts that we have.

When talking about the $63 million EcoCare debt:

But you're saying that actually people can afford to have their rates increased to pay for it.

Well, where in New Zealand can you live 300 metres from the beach and $759 in annual rates?

They're going to be pretty angry about the big increases you're talking about.

We know that. Its either do it or let the government put a commissioner in to do it. Take your pick.


A couple of points.

The rate increase is nothing to do with the EcoCare debt. It is to pay for the groceries.

The Ecocare debt now stands officially at $63 million.

Why am I smiling?

Because I am only paying $759 in rates....

..... and the wallies in Mangawahai will soon be paying eight times that amount.

Pretty smart cookie, eh?

I am in the process of making submissions to Council and the regulatory authorities in respect of the Kaipara District Council. I have made many submissions in the past but have always done these in my own name. I believe that the submissions would carry more weight with the power-that-be if they were supported by a large sector of the community.

I am therefore forming the Kaipara Action Group. This will be a loose association of individuals and organisations that are concerned with the performance and competence of the Kaipara Council.

There are a lot of individuals and organisations working separately with their own agendas and it is unlikely that they would unite to form a common front. However, I believe that most of those individuals and organisations would endorse the comments and submissions that I make because they are based on the correct legal situation and the best interests of Kaipara ratepayers.

Those who are interested simply need to email me with their names (no pseudonyms) and email addresses. When making submissions I will simply state that the submissions are made on behalf of the Kaipara Action Group representing so many ratepayers. No individuals would be named unless they specifically request it.

I would name the groups, but they would have the opportunity to peruse the submissions before agreeing to add their names.

I welcome comments and suggestions from ratepayers and these could be discussed on:

Please pass this on to all your friends, neighbours and colleagues. The more support, the more effective the message. My submissions so far have been met with some success but they would be more compelling if I could indicate that I had the support of a large number of ratepayers.

Email to:

As the Kaipara Council teeters on the brink of self-destruction it is coincidental that the latest Listener includes an article by Jane Clifton entitled Rates Rises - why you should be worried.

The article paints a worrying picture of alarming levels of debt being run up by local councils. One of those singled out as a Hot Spot is Kaipara which is seen as one of the most indebted councils in the country.

Minister Nick Smith is quoted as saying that the Government is seriously worried about the situation, fearing that some councils could even become insolvent.

There is little doubt that those who lend monies to local authorities have been lulled into a false sense of security because local authorities are viewed as cast-iron securities because of their ability to simply levy rates to cover any debt.

One problem is that there is a limit to how large the rating burden can be increased. There comes a stage when ratepayers simply cannot pay any more.

The Minister is aware of this and is critical of average rate increase of nearly 7% which are way ahead of the inflation rate. He intends to take action to limit rate increases.

Another problem is that if a debt is illegally entered into by a local authority and ratepayers baulk at paying rates to fund an illegal debt, the lender is left with little security. Certainly most local authorities have a balance sheet full of assets but these have no value in the real world and cannot be sold. The ability to rate is their only real asset.

Even debts illegally entered into by a local authority are valid under the LGA, but enforcing the repayment of the debt is a problem if the amount due is so great that it cannot be covered by an acceptable level of rates, or if the ratepayers refuse to pay rates to fund the illegal debt.

Kaipara District Council has huge problems. The true amount of Kaipara debt is unknown because of the poor state of its financial reports, but the current debt is probably at least $90 million. Add to that:

• An extra $7.5 million it intends to borrow this current rating year (over and above the amount indicated in the annual plan, and in breach of borrowing benchmarks) because of errors in the annual plan, and, quite simply, because of shortage of money.

• The millions of dollars it intends to spend on the Proposed District Plan which will be money down the drain because amalgamation will almost certainly make it superfluous.

• The rumoured half million dollars to get rid of the previous Chief Executive.

• The $9.5 million dollars that Council has just acknowledged that it has illegally taken from ratepayers because of its incompetence in setting rates. This will have to be repaid to ratepayers.

• Other monies that have to be refunded because of other defective rates and development contributions which are still being investigated.

• The monies that it needs to borrow each year to cover the interest payments on its debt.

The Kaipara Council has already breached the widely accepted benchmarks of prudence in borrowing monies and will need to continue to do so if it is to survive. However, that is not possible if Audit NZ and the Office of the Auditor-General do their jobs properly and start ensuring that the benchmarks are observed.

In addition it is clear that many of the major decisions made by Council in recent years have breached the requirements of the Local Government Act in respect of decision-making and consultation.

One of the principle concerns is that the secret decision to substantially extend the Mangawhai Ecocare sewerage scheme, and to increase in the debt to fund it, is in breach of the LGA requirements. (The debt for the sewerage plant serving 1200 properties increased from the original $35.6 million to $60 million and Council is unable to explain where the monies went.)

Following pressure from ratepayers the Auditor-General has been asked to review this matter.

The size of the proposed rate increases to cover the EcoCare debt will be revealed in the Long Term Plan which is due out soon. Rumours suggest that there will be a 20 percent increase in general rates for each of the next few years and up to a 100% increase in the wastewater targeted rates for Mangawhai.

If Kaipara is not to default on its debt then such rate rises are essential, but it is hard to see how such massive increase could be squared away with a Minister who believes that a 7% rise is over the top.

Rates are incredibly high in Mangawhai already and such an increase in rates would make life impossible for many residents. It would be impossible to sell houses and Mangawhai would become a ghetto town.

If the Auditor-General's review reveals that the EcoCare debt was incurred illegally then ratepayers will simply refuse to pay the rates to fund repayment of the illegal debt.

Kaipara will then default on the debt.

No doubt the lender will look to the Government for assistance.

Whilst Government does not guarantee local authority debts the general understanding is that it would be the Government's responsibility to come up with a solution. The Listener article refers to Nick Smith's thinking on the matter::

Although Smith does not seem to be hinting that the Government plans to take over Council responsibilities, he does seem to be wondering aloud about what would happen if a council became insolvent, and whether this would inevitably be seen as "the Government's problem to sort out".

In respect of Kaipara there is a feeling amongst ratepayers that the Government bears a large proportion of the blame for its problems. The previous Chief Executive, who was responsible for most of the carnage, had been there for 18 years. In that time he perfected a system of minimal compliance with legal and accounting requirements, ensured that the Mayor and Councillors were complying and unquestioning, and somehow managed to steer a course that was not questioned by Audit NZ (a branch of the Office of the Auditor-General).

Even when things started becoming unstuck and complaints were lodged with the Office of the Auditor-General and the Minister of Local Government, they both responded in a totally disinterested manner that suggested that were not unduly concerned with legally non-compliant behaviour.

Ministers Rodney Hide and now Nick Smith have refused to interfere in Kaipara although the Council is disintegrating rapidly and insolvency cannot be too far away.

If Nick Smith does not know what would happen if a local authority becomes insolvent, as suggested above, then there is a very good chance that Kaipara is going to be an object lesson for him in the very near future.

The SS Kaipara has run aground on the Salter Rock and is fast taking in water. Elected Council, staff, and consultants are frantically trying to fix the leaks but reports suggest that the ship is doomed. Their desperation is so great that they are now calling for assistance from the Office of the Auditor-General.

In spite of claims by Mayor Tiller, who was at the tiller when the ship struck the rock, that the fault is due to inadequate advice, it is clear that the Captain and his crew were warned of the pending problems but completely ignored that advice.

For a flash-back to the warnings that were given go to Workboot's website (here) and the Northern Advocate (here).

At a Council meeting today Council tabled the Salter review on the legality of the EcoCare rates. In essence the report states that the EcoCare rates for all three years that they have been in existence are invalid, and a total of $9.5 million dollars is refundable to ratepayers.

The only way that the rates can be validated retrospectively is through a private Act of Parliament. This is a difficult and expensive process and fraught with difficulties.

The Council report and the Salter report can be viewed on the Council website under Documents - Council Agendas - third one down. (here)

In a recent address to Nelson Rotary, Minister Nick Smith expressed concern about the high annual increases in rates. He stated:

My number one concern is about spending and the financial burden of rates on households and businesses.

Over the past decade average rates across the country have grown by 6.8% per annum, or by more than twice the rate of inflation. It is telling, that of all the inputs into the consumer price index, rates have gone up by more than any other cost. Food price increases since 2002 have on average increased by 3.3%, transport 2.6%, clothing 0.1%, and housing 5%. The 6.8% rates rise figure is just unsustainable.

If that is the case one has to ask what the Minister is going to do about the rate increase proposed by the Kaipara District Council in the draft LTP which is due out soon. Massive rates increases are predicated that make the 6.8% figure seem like a fantasy.

Frank Newman, an ex Whangarei City Councillor, has written about Minister of Local Government, Nick Smith's proposal to significantly reform local government in the near future.(here).

He writes:

Having spent two terms on the local council I have come to the view those councils that are not already disaster zones are simply disaster zones in the waiting. The failure is basically that councillors are not competent and/or courageous enough to force their staff to do a better job – it seems council CEOs are virtually unaccountable for poor financial performance and poor service delivery.

That will no doubt ring a bell with Kaipara ratepayers. He goes on:

This is in stark contrast to private sector where (generally) directors know what their role is - to establish the organisation’s objectives and to make sure those objectives are achieved by those paid to do so. If time reveals staff are not up to the task it’s the responsibility of the directors to replace them with those who can. That’s the way it should be, and it’s in everyone's interest that it is so.

There is something fundamentally flawed about the whole concept of local government. How can you expect a group of individuals with very limited experience and expertise to run a multi-million dollar undertaking.that demands expertise and experience at the highest level. They are lambs to the slaughter for wily chief executives and entrenched consultants looking to feather their own nests.

When things go wrong, as they inevitably do, it is the ratepayers who are left to foot the bill for their incompetence.

The Kim Dotcom business trouble me. The NZ government has thrown the book at a German national living in NZ and treated him as if he were an international terrorist. New Zealanders have rarely seen such a show of power from the enforcement authorities.

The problem is that Dotcom has not committed any offence in New Zealand and it is unlikely that he will be charged with any. Apparently he is going to be charged in the US once he has been extradited but charged with offences that do not exist in the NZ statute book.

In other words, this innocent man (until proven guilty) is being treated as an international criminal of the highest order simply at the behest of the US government. Apparently Hilary Clinton herself will sign the extradition papers.

I cannot help comparing the plight of Mangawhai ratepayers who have been rorted out of millions of dollars by a Council that is operating outside the law. Rates have been set completely outside the provisions of the Rating Act and are completely unlawful. Not only that, the rates that Council charged when no service was available in the 2008-09 year were retained by Council even though it acknowledged that it had no right to do so. That is quite simply theft.

The government watch-dogs including the Minister of Local Government and the Office of the Auditor-General are aware of the persistent illegal actions of the Council but have chosen to do nothing about it. For some reason illegal actions and crimes by local authorities against ratepayers are deemed to be perfectly acceptable in New Zealand.

Last week the Serious Fraud Office became involved in the disappearance of gold bullion to the tune of $300,000. The amount of money illegally taken by the Kaipara District Council from ratepayers runs into millions. Why did the SFO not act on the complaints lodged with it and take action against the Council?

Could it be because of the involvement of fellow government agencies in the matter and any investigation might point an uncomfortable finger at those who bear responsibility for the illegally taken monies?

It is a pity that Hilary Clinton does not have a holiday home in Mangawhai. A letter from her would soon get things moving.

The Northern Advocate has reported (here) that plans to amalgamate the district councils and the regional council of the North are being seriously mooted. The Mayor of the Far North District Council, Wayne Brown, is suggesting that two unitary authorities are created, with the FNDC amalgamating with the Dargaville part of the Kaipara District Council, and Mangawhai being absorbed by Whangarei. The Northland Regional Council would cease to exist.

Those who are critical of Kaipara's performance under Mayor Tiller and Chief Executive Jack McKerchar would welcome the news. Whangarei may not be perfect but it would certainly be a lot better than the Wild West that operates out of Dargaville.

Mangawhai has never fitted in well with Dargaville and the proposal for Dargaville to be part of the Far North and Mangawhai to be part of Whangarei is a nice fit.

A couple of questions immediately come to mind. One is the question of the huge Kaipara debt and what is to become of it. Much of the debt was incurred illegally by the Kaipara Council, and much of it cannot be accounted for. Ratepayers are certain to baulk at paying rates to fund the deficit caused by the illegal acts of Council. It may well be that the government will have to step in to sort out the financial chaos otherwise no one will want to amalgamate with Kaipara.

The other matter is the platinum-plated Proposed District Plan that is going to be the final financial coup de grace for the incompetent and dysfunctional Council. Councillors have been aware for some time that amalgamation in the next few years was very seriously on the cards. The Auckland amalgamations set the tone and the Brash / Trapski report of last year suggested that Kaipara be swallowed up by one of the larger councils.

That being the case, why did the nine Councillors feel it necessary to spend millions of dollars on a new District Plan when the chances of it ever being operative (because of amalgamation) were virtually nil? All the independent experts agree that the new Plan was not legally necessary, so it beats me why anyone would be stupid enough to commission a new plan at such huge cost when it was clearly money down the drain.

The experts who advise Councillors certainly put pressure on them to introduce the new Plan. Coincidentally, those experts are the only ones who would benefit financially from a new Plan. Surely Councillors would have realised that such advice was tainted, and surely Councillors took independent advice? Or did they just blunder on?

If the plan does not proceed, can the ratepayers sue Councillors individually for the breach of their duty of care for making a stupid decision and recover from them personally all the monies wasted on a futile plan?

Sounds fair to me.

Nick Smith is facing a problem of nightmare proportions with local authorities running of control. None more so than Kaipara. I am sure he wishes that the ground would open up and swallow Kaipara, but the second best solution would be for Whangarei to do just that. But before he can do that he has to sort out the legal and financial shambles that has been created. No doubt he will be doing everything to dump on the ratepayers of Mangawhai, and we ratepayers need to ensure that he does no such thing. The government is largely at fault here because of its dozy laissez-faire attitudes to compliance. It has now reaped the harvest of that policy and will need to bite the bullet very hard.

Councillors: It is time to think hard about that Plan. Isn't it about time that you got some really independent advice? (Independent means that the advisers are not involved in any way and they stand to receive no benefit from the matter.)

Prediction: Kaipara's demise will be announced by the end of the year.

Nick Smith has not started of well in his new role as Minister of Local Government. Kaipara ratepayers were hoping for a better performance from the new Minister, given the rather distracted performance of the previous Minister Rodney Hide.

Nick Smith is known as a free thinker and a man who makes his opinions known but he is walking a very tight line in managing his new portfolio. The government obviously views Local Government as a disaster area and it is desperately trying to keep a lid on ratepayers' complaints. It is a bit like Pandora's Box - once the lid is off then all chaos will be let loose.

The government also has a miserable track-record in this area. The performance of the government so-called "watch-dogs" has been dreadful. Most experts would agree that their indifference to clear and blatant illegalities and non-compliance with legislation has encouraged a culture in local authorities that completely ignores decision making and consultation with ratepayers, legal-compliance, and suggests that local authorities are beyond the reach of legal accountability for their actions.

Kaipara has been run like a mediaeval fiefdom, often operating outside the law, drifting in and out of compliance with most of the rules that it is supposed to comply with, all with the blessing of the Office of the Auditor General and the Minister of Local Government.

The Office of the Ombudsman appears to have put local government problems in the too-hard basket.

Several ratepayers had made submissions to Minister Smith about the fiasco in Dargaville. We all received the same brief verbatim response dismissing our concerns and stating that he will not be taking any action to appoint a review authority.

Legal Eagle had presented him with lengthy submissions on the powers that the Minister has to appoint a review authority and how the thresholds for triggering those powers had been met.

Legal Eagle also made lengthy submissions to the Minister on how the Council had failed to comply with the LGA when extending the scope of the EcoCare Scheme and almost doubling the EcoCare debt. (The submissions can be seen here.)

The Minister did not acknowledge any of the submissions.

It is some comfort to the ratepayers that are being rorted by a Council that is out of control that the Minister is not totally ignoring the situation. He maintains that he is taking a significant step in respect of the complaints.

He states in his pro forma letter.

It is important to note that asking a council to report directly to the Minister of Local Government is a significant step, and one which rarely ocurs.

That's pretty tough action against a Council that for years has treated legal compliance as optional, that has persistently set rates illegally, and run up a debt of $90 million - the highest per capita in the country - and much of which it cannot account for because its accounts are in an appalling state.

Has anyone got a wet bus ticket that they could send to the Minister? It could prove useful if all else fails.

Which government is the most honest and transparent when it comes to dealing with a major diaster, the Italian government or the New Zealand government?

Legal Eagle poses some interesting questions when comparing how each government dealt with the loss of the Costa Concordia in Italy and the destruction of the SS Kaipara in New Zealand.

The outcome is disturbing.

Go to Auditor-General/Minister for more.

The wreck of the SS Kaipara (satellite photo) Captain Tiller

It has been a reasonably quiet time over the Christmas break. Perhaps it has been the lull before the storm. The year 2012 will no doubt be a very crucial year for the ratepayers of Kaipara, and those from Mangawhai in particular. This is the year when all the chickens of Mayor Tiller and his mates come home to roost and we witness their final attempt to destroy Mangawhai and reduce it to an impoverished ghetto.

There are rumours that the Salter report on the legality of EcoCare rates was available before Christmas. This has been denied by Council staff, and they suggest that it is still a couple of weeks away.

An audit report from Audit NZ for the year 2009-2010 was also released in December. Council has been sanitising it for public consumption over the break. Several requests for the report to be made publicly available on the Council website have been made under the Official Information Act so that we can all see the criticism levelled at the Council by Audit NZ.

Council is still flagrantly breaching the obligatory requirements of the LGA by failing to complete and adopt the annual report for the 2010-11 year within the mandatory time-frame. Council was obliged to adopt the report by the end of October 2011. It is now three months late and there is no sign of it being completed.

Council has already been placed on negative watch by the Minister of Local Government because of its persistent failure to comply with statutory requirements. However, it does not seem to understand that the Rating Act and the LGA apply to it, and that the provisions of those acts are compulsory.

For years Council - and with the full knowledge of the Office of the Auditor General and Audit New Zealand - has operated on the basis that compliance with legislation is optional.

It is understood that the delay relates to concerns by Audit NZ, but, as usual, ratepayers are being kept completely in the dark. One would have thought that the new Chief Executive would have tried to make his mark, and his point of difference with the previous Chief Executive, by ensuring that ratepayers were kept advised of the reasons for the delay. Too much work on his plate or an ominous sign?

Mayor Tiller had sufficient time to publish another press release on 21 December putting his usual fantasy spin on the gross errors in the annual plan for the current year that mean that an unbudgeted $7.5 million will have to be borrowed. The Mayor makes incompetence sound like an art-form. The gross incompetence and negligence of staff is "disappointing" but the Mayor now celebrates the fact, looking forward, that financial reporting is now improving. Where else would such rubbish be tolerated?

Glennis Christie, the General Manager, Policy and Governance, also submitted a report to the December Council meeting relating to the "reforecasting" of borrowing requirements because of the gross errors in the acounts in the annual plan. The report paints an incredibly dismal picture of the accounts and the complete failure to provide Councillors with financial information. The report looks at the options for funding the $7.5 million deficit, including tightening the belt and cutting costs. This is rejected in favour of simply borrowing the short-fall.

It is interesting that Council is now very conscious of its obligations to comply with the decision-making provisions and the consultation provisions of the LGA (which it has steadfastly ignored for many years) and much is made of this in the Christie report. But, as usual, the report makes a hash of it. Having decided that the decision is a "significant" decision (which requires decision-making and consultation at the highest level) it then goes on to consider the options in a few meaningless sentences.

But the biggest faux-pas is its failure to consider its own revenue and financing policy and its own Treasury Policies. These policies regulate Council's ability to borrow, and lay down very strict benchmarks. The problem is that Council has totally ignored the benchmarks for the so-called EcoCare segmented debt right from the day that it was mooted in the 2006-16 LTP. This means that the EcoCare debt has reverted to being a core debt of Council, and, as Larry Mitchell pointed out in his report of last year, if that happens then all the benchmarks of prudence relating to the core debt have been blown out of the water. Council has acted not only in in breach of its own policies and guidelines, and in breach of the requirements of the LGA to act "prudently", but it has also acted recklessy and negligently in handling the monies entrusted to it by ratepayers.

Council borrowed some of the EcoCare monies illegally. It has failed to comply with the segmented debt benchmarks for the EcoCare debt. It has ignored the benchmarks of prudence in respect of the existing core debt. And now it intends to borrow a further $7.5 million in breach of those benchmarks.

Hello Audit NZ, are you still there? Is that the Office of the Auditor General? Do you know, or do you care about what is going on? Hello Minister, are you taking note? How long are you going to allow this farce to carry on?

Whoever is funding Council and pouring its money into this bottomless pit needs to take a good look at what it is doing. Councils are seen as a safe bet for lending because councils are obliged to repay debts even though they were illegally incurred, and the security is pretty solid as the debts are secured against rates. The problem is that ratepayers are not obliged to pay rates that are levied for the purpose of repaying illegally incurred debts. That is where the government steps in and takes action was aware ofagainst the staff and elected members because of their illegal actions.