SUBMISSION ON KDC LONG TERM PLAN 2018-2028
25 Alamar Crescent, Mangawhai Heads
09 431 4723
Postal address: PO Box 401005 Mangawhai Heads 0541
I make the following comments and submissions:
Stated rates increase
The Consultation Document states that the rate increase for 2018/2019 is:
General rates 3.00%
Targeted rates 2.45%
That, presumably, is an average across the district, and is misleading. Properties in Mangawhai will therefore have much greater increases.
The indicated average rate increase for the years 2022 to 2028 is stated to be 2.72%. That is a pie in the sky dream to give some hope for the future. There is no basis for such a projection.
The proposed 5.45 per cent increase for next year is far too much. The CPI for 2018 is predicted to be 1.6%. The Significant Forecasting Assumptions – a reference document for the LTP - state:
Price Level Changes: Costs of providing local government services will increase at a higher rate than inflation. Overall the Local Government Cost Index (LGCI) has risen faster than the Consumer Price Index since 1999 at an annual rate of 3.6% and 2.7% respectively.
That is an average differential. Rates in Mangawhai have risen more than the average over that period. Rates in Mangawhai for those connected to the MCWWS are almost double the rates in Auckland for similar valuations yet the average income is much lower. The differential between rate increases and the CPI, taking into account the effect of compounding, means that rates in Mangawhai will consume a larger and larger amount of a homeowner’s income. For those on fixed incomes Mangawhai is, and will increasingly become, unaffordable.
Rate increase is misleading
Buried deep in the consultation documents are some alarming comments and figures about the ACTUAL RATE INCREASES for the 2018/2019 rating year. This is taken from the Financial Strategy document:
The rating structure is under strain from two directions. Firstly, the rating revaluations at 01 September 2017 significantly moved the incidence of rates to residential (including lifestyle blocks less than 2 ha) and away from dairy and pastoral farming ratepayers. Within residential some areas, lower valued properties in particular, saw substantial rises in value, and as a consequence a larger than average increase in liability for rates. Council considered options to ameliorate the impact of the revaluations on ratepayers including a cap on annual increases, remissions and adjustments to the level of the UAGC. After consideration the status quo prevailed.
As an example of this increase a Mangawhai property with current rates if $ 3,016 will have a increase of $161 or 5.3% because of the revaluation impact and an increase of $277 or 9.19% because of the impact of the long term plan. The new rate will be $3,454 which is a 14.5% increase.
Under Effect of changes to rating across the district (average value property) the plan states:
“The following increases are the combined effect of proposed budgets and property revaluations that were undertaken in 2017.”
Average Mangawhai Residential 17 per cent increase.
Sample properties rating impacts (taken from the funding impact statement)
Land value Increase
$280,000 22 per cent
$ 430,000 17 per cent
Lifestyle 20 to 35 per cent
Dargaville 4 per cent
Maungatoroto 12 per cent
Te Koporu 9 per cent
Paparoa 20 per cent
Kaiwaka 20 per cent
Pahi 25 per cent
If these figures are correct then the consultation document fraudulently misrepresents to ratepayers the proposed rates increases for the 2018/2019 rating year. The first rates invoice for the new rating year will not be delivered until August. Ratepayers who believe that the rate increase will be 5.4 per cent are in for a big shock.
Rates increases should be fixed by law
Rates are a coercive local government tax. It is the only tax that is not fixed in law. All other taxes are fixed by Parliament and any increase is a serious political issue.
There is no limit on what rates can be charged by a local authority, and, as stated above, rates are increasing far more than the CPI. Rates now form a much larger part of a property owners outgoings and that situation will get worse. In Mangawhai especially property owners will be rated off their properties.
All businesses have to live within their budget, otherwise they will not survive in a competitive market that encourages competence and efficiency. Whilst local authorities are obliged to balance their books they can simply increase their rates willy-nilly and without any justification, and coerce ratepayers into paying. Legally compliant administration, competence, efficiency and prudent financial management are irrelevant.
Rate increase drivers
This is what the Consultation Document says:
When considering changes to the general rates for Council, in approximate terms, an increase of $200,000 in operating expenditure equates to a 1% increase in general rates.
The key drivers of the 2018/19 rates figure are:
• an increase in the targeted rates funding of depreciation as part of the transition to fully funding depreciation;
• increase in planning and regulatory operating expenditure, resulting from a range of factors including central government legislative changes which have reduced the extent to which costs can be recovered combined with ongoing increase in activity resulting from the high levels of growth; and
• increase in rates funded roads and footpath investment. For further clarity around the financial drivers over the period of this Long Term Plan more information can be found at www.kaipara.govt.nz (Comment: This is consultation document yet this reference to further information is completely unhelpful.)
None of these drivers justify an increase in rates.
If a local authority functions prudently then all depreciation should be fully funded.
Likewise planning and regulatory operations must be gauged so that they come within the existing budget. I marvel at the money that the KDC wastes on the Crown Manager, the Crown Observer, on the District Plan and changes to it, on enforcing ludicrous Fire Service rules, on persecuting innocent ratepayers over vehicle crossings, and on continuing the vendetta against whistle-blowing ratepayers.
Again, roads and footpaths should come within the existing budget.
This is what the KDC says about its services:
All councils are judged by their response to customer enquiries, standard of public amenities and other easily observable issues. An outcome of the tight fiscal management and need to balance the budget has resulted in Kaipara District Council’s investment in many of these frontline and back office services being neglected or held at a minimal level. There is a need for us to improve performance in many areas. To achieve this requires investment in technology, staff and amenities. Prioritising what some may view as non-essential expenditure was required, and contributed to the increase in rates.
Tight fiscal management and efficiency should be the drivers. Cut out all the unnecessary wastage stated above. Like all other businesses the KDC should work to its budget.
The effective rate increase for each property – which means the actual rate increase for each property including any increase as a result of revaluation – should be limited to the projected CPI increase for the next twelve months. The KDC should then trim its budget, and increase efficiencies to balance its budget.
MANGAWHAI COMMUNITY PLAN
The Consultation Document states:
This will be funded through a variety of methods; not just general rates but targeted rates, development contributions and by Council borrowing to fund infrastructure projects and spreading the cost amongst future ratepayers. The MCP involves a wide range of projects, at a total estimated cost of $26.9 million over the next 10 years, designed to: • increase connectivity through slow streets and walking and cycling projects; • develop blue green infrastructure; • facilitate key development projects; • protect the coastal character; and • offer housing and lifestyle choices.
The proposed rates for the current year will come as a huge shock to ratepayers when they are finally revealed. Any enthusiasm for the Mangawhai Community Plan will wane dramatically when it is realised that it will mean higher general rates and targeted rates and higher development contributions, along with even more borrowing.
Anything that increases rates and debt any further is simply not possible given the financial state of the KDC and the limited ability of ratepayers to meet further increase in rates.
Option 3 proposes spending half of the capital ($2,453,262) of the Mangawhai Endowment Lands Account (MELA) on implementing the Mangawhai Community Plan.
This fund originates from the sale of leased land by the Northland Harbour Board around the Mangawhai harbour and is held in trust for the people of Mangawhai.
The KDC is now proposing to pay half of the fund to itself for the purposes of the KDC. It is questionable if this is permitted under the terms of the trust but the KDC advises that it has obtained a legal opinion which states that such a payment is consistent with the terms of the trust. Presumably that is on the basis that the monies once paid to the KDC will be used indirectly to benefit the people of Mangawhai.
Facts about the MELA fund
Let us be very clear about this. The MELA Fund does not exist. It is not a separate entity that is invested separately and earning interest like all the trust funds that we know about.
It has been absorbed as part of the general funds of the KDC which it uses for other purposes (including debt reduction) and exists solely as a book entry in the KDC accounts. It earns no interest in its own right, and the “interest” that is paid out each year to recipients is calculated on the basis of what it would have earned if invested separately, and is paid from general rates income levied across the whole district.
This treatment of the fund appears to be contrary to the provisions of the Mangawai (sic) Lands Empowering Act 1966:
8(2) The proceeds of the sale or rentals of any of the lands shall be paid by the Council to a special account to be known as the Mangawai Endowment Lands Account and the money, together with interest accruing thereon from the investment thereof, or any part thereof, shall be expended by the Council in accordance with the provisions of subsection (1).
The book entry is effectively a debt owing to ratepayers but is not included in the amount of KDC debt. If the MELA fund was invested separately the KDC would have to borrow to reimburse the fund and the KDC’s debt would increase by $5 million.
During the McKerchar/Tiller days the fund completely disappeared, and no interest was accrued or paid out. Following investigations by the Minister of Local Government the KDC reorganised the administration of the fund.
The trustee of the fund is the KDC. A committee runs the fund and is made up of three councillors, Peter Wethey (chair), Libby Jones and Jonathan Larsen. That is of concern in itself, given that there is no independent ratepayer representative, and especially now that the KDC is proposing to pay to itself half of the fund.
If the legal transfer of half of the fund goes ahead there is no way of ensuring that the monies are spent in the way proposed. And even if they are spent on Mangawhai community Plan on such matters as roading, we have to ask ourselves if that is the appropriate way that the MELA fund should be spent.
I have concerns about the legality of the KDC paying half of the MELA funds to itself. The fact that those who are the designated beneficiaries under the empowering act (the people of Mangawhai) may receive an indirect benefit is not relevant. The point is that the capital of the fund is being paid out to the KDC itself. In other words the trustee is paying part of the fund held on trust to itself for its own purposes as a council, and to avoid having to borrow capital for its projects
Deputy Mayor Peter Wethey has stated that the KDC has received an opinion from the KDC’s lawyers stating that the proposed payment of half of the MELA fund to the KDC is lawful and complies with the trusts in its empowering act. I understand that the Mayor and Councillors have not seen this opinion and it is unclear who has actually seen the opinion. As it stands at present, the conclusion supposedly drawn in the opinion is mere hearsay.
I also understand that the committee of the MELA fund have not been permitted to see the legal opinion.
I have made an application to the KDC under LGOIMA (Local Government Official Information and Meetings Act 1987) to make the legal opinion available to the Mayor and Councillors and all residents of Mangawhai. So far there has been no response.
There is no legal basis for the KDC to decline to disclose the opinion. There is no legal privilege involved. If the KDC is relaying on that opinion to justify taking half of the MELA fund then, in the interest of simple honesty, transparency and good governance it must make the opinion available.
Remember that a legal opinion is just that. It is an opinion on what the law might mean. No matter how qualified the lawyer writing it, it is of no value at all if it is provided by a lawyer who acts on behalf of the party who sought the opinion. Lawyers are hired guns who act in the best interests of their clients. There is no independence. If the KDC believes that it is entitled to use the MELA fund for its own benefit, and the law supports that move, then it must come clean and lay all of its cards on the table. We all - and that should include the Mayor, Councillors and ratepayers - want to see that opinion so that we can assess it and see if in fact it is an accurate statement of the law. There is nothing like the daylight to expose the truth.
If the legality of the KDC’s proposal is placed beyond any doubt, only then is it appropriate for the KDC elected members to decide on what they consider appropriate for the MELA fund, and at that stage ratepayers can have their say on whether they agree with the proposal, as part of the LTP consultation process.
If the KDC refuses to release the opinion then we all know that it will not withstand independent legal scrutiny and that is not worth the paper that it is written on.
Finally, it is important to note that the MELA fund has benefitted many local projects over the years. Many of them could not have survived without that funding. If the fund is reduced by half then many worthy projects would receive no funding. Funds that received grants from the fund in the last year are:
Mangawhai Library Hall Committee
Mangawhai Activity Zone Charitable Trust
Mangawhai Harbour Restoration Society
Mangawhai Riparian Planting Group
NZ Fairy Tern Charitable Trust
Friends of Mangawhai Community Park
Mangawhai Harbour Water Quality Community Advisory Panel
Mangawhai Heads Volunteer Lifeguard Services
Mangawhai Recreational Charitable Trust
Mangawhai Tennis Club
Mangawhai Football Club
Do not touch the MELA fund
This is the current name for the ill-fated EcoCare Scheme. Ratepayers will struggle to find all the information they need from the Consultation Document. It is a “lightly over” blurb and tells you only what the KDC wants you to know.
Below are snippets taken from reference documents which paint the true picture.
This is what the Consultation Document says:
The Mangawhai Community Wastewater Scheme (MCWWS) helps protect the water quality of the Mangawhai Harbour. In 2009 the scheme was commissioned with 1,216 connections. This number has increased to 2,293, with a further 486 capable of connection. The current design capacity for the treatment plant is approximately 2,500 connections. Council is proposing to extend the scheme over a period of 27 years as continued growth will eventually require expenditure on an additional disposal system as well as extending and upgrading the existing system. This is a significant cost and wherever you live in our district there will be an impact from these decisions. Therefore we have included this as an issue for consideration.
Continued growth in the Mangawhai area will increasingly put upward pressure on the plant and its capability. It is planned that the treatment plant will receive a $1.8 million upgrade (over the first two years) to extend the disposal system which will increase capacity over peak times. The reticulation network, treatment plant and disposal area are limited in terms of their ability to cope with expected levels of growth. It is estimated that connections will grow over the LTP planning period by 920 connections.
Elsewhere the plan states that there are currently 1953 residential connections and 49 other connections, making a total number of 2,002 connections. In 2012 the chief executive Steve Ruru advised the capital cost of the scheme was circa $62 million, to which must be added capital expenditure over the past 7 years. The cost of the scheme equates to $31,000 per property plus interest.
KDC has stated for the first time (see quote above) that the plant was designed with a capacity of about 2,500 connections. That is in contrast to the amended proposal of Beca (the KDC consultant to the project) in its Mangawhai EcoCare - Discussion Paper on Rates and Charges of October 2006 (See here)
In that document Beca proposed a substantial increase in the size and cost of the scheme. The original cost was increased from $26.4 million to $57.7 million. The number of connections was increased from the original 3,300 over 25 years to 4,500 over 25 years. The proposal was adopted by the KDC and formed the basis of the project. However, the proposal and all other matters relating to the scheme were kept secret and never consulted on.
It is now extremely distressing to find that not only was the price of the scheme doubled but that it will only service 2.500 connections and not the 3,300 originally stated and nowhere near the 4,500 in the amended scheme.
Given the failure of the scheme to match the details of the proposal, the criticism of the implementation of the scheme in the Auditor-General’s scathing report, and in light of the many allegations of locals of poor workmanship and materials, there is a popular view that the scheme is a “lemon”. The KDC has, in the past, consistently refused to advise ratepayers of the capacity of the plant and disposal field and whether the scheme is fit for purpose and worth extending and upgrading. We now know the current capacity but we are still in the dark about the attributes of the scheme and whether we should pour more money into it, or look for alternatives.
We are now at crunch time. As stated above the KDC is going to spend $1.8 million over the next two years to upgrade the disposal field. But that is not all. A further $20.5 million is to be pumped into the MCWWS in the next 10 years
Council is working under the assumption that growth will continue at Mangawhai, it has allocated $20.05 million (95% of which is levied on future developers) over the next 10 years to: • extend the existing disposal system and irrigation system; • add a new disposal system; • upgrade and extend reticulation networks; and • augment the treatment plant to reach a 4,700 connection capacity. This is part of a 27 year, $34.76 million programme to extend the overall MCWWS connectable area.
In other words we are going to spend a further $20.5 million to increase capacity to what is should have been in the original scheme.
And who is going to pay for all that future cost? This is what the KDC tells us:
This will be funded through debt and repaid with revenue raised from development contributions. Accordingly there is no impact on rates.
Or, try this one:
It is planned that development contributions levied on future development will pay for 95% of any proposed upgrades.
The problem is that those future development contributions are already targeted for paying off $26.2 million of the existing debt, never mind the future debt of $20.5 million. This is explained further under THE DEBT below.
Local resident Christian Simon has pressed the KDC to open its eyes to alternative sewage treatment which would be more cost effective than, and just as efficient as, a central scheme. Deputy Mayor Peter Wethey is a staunch opponent of such an approach. He has consistently stated that inefficient septic tanks are the cause of the pollution of the Mangawhai Harbour. However, no evidence has been produced to establish that. On the contrary it appears that bovine pollution is the real culprit.
At a recent KDC workshop on the new plan (which I attended) Councillor Wethey was critical of any proposal that would involve any alternative sewerage systems. He pointed out to council staff and councillors that it was essential that every new property had to connect to the MCWWS. The reason? Quite simply because the development contributions from new connections are absolutely vital to pay $26.2 million of the existing debt and $20.5 million of the future debt. Alternative systems contribute nothing to the debt.
In other words, the KDC is absolutely reliant on those future connections to the scheme to pay off existing debt. It is a sort of Ponzi scheme that continually needs new contributions to meet historic costs. The reason for continuing with the scheme is not because it is the best option, but simply because it is the only way that the KDC can suck in money to meet its debt obligations.
• The KDC should obtain independent reports on the MCWWS, provide ratepayers with ALL information relating to the scheme, look at alternatives, consult with ratepayers and then make an informed decision about the future of the scheme and any alternatives.
• The annual charge for connectable properties should be reduced to 50 per cent of the full fee. At present it is 75 per cent ($974.30). On a user pays basis that amount cannot be justified. Where the criteria of 30 metres from the reticulation is met but a connection cannot be made for any reason (such as lack of reticulation or plant capacity), no fee should be charged.
The Consultation Document states:
A major achievement over the past three years is the significant reduction of debt beyond that forecast in the LTP 2015/2025. Public Debt is projected to be $54.5 million at June 2018 compared to the $70.7 million projected in the LTP 2015/2025. Over the course of the plan debt is forecast to trend downwards, reaching $27.8 million
It looks good, but where did the comparative figure of $70.7 million come from? Note that it was not a real figure but a “projected” figure. That is completely misleading. And that is the problem with the KDC. It still continues to present figures that do not represent the true situation.
• Remember that the Auditor-General paid $5 million in damages that should have been carved off the debt.
• Remember that the MELA fund is used for KDC general purposes and it would cost $5 million of new debt to reimburse it.
The largest part of the debt is in respect of the MCWWS scheme. We need to remember that the scheme was declared by the High Court to be unlawful and the debts raised to fund it were unlawful. The High Court held that rates that were set from 2008/2009 to 2011 to 2012 to fund the debt were lawful because of the protected transaction provisions in the Local Government Act. But that decision only covered those rates and the KDC’s lenders at that stage. The MCWWS scheme and the debt remain unlawful from a legal point of view and this could impact on the KDC’s ability to charge developments contributions for an unlawful activity. This is an issue that the KDC needs to resolve with the government.
How is the debt being repaid?
This is what the Financial Strategy says about the MCWWS debt:
The debt attributable to the MCWWS was $58 million at June 2012. The debt was, under the original funding arrangements prior to the adoption of the Long Term Plan 2012/2022, forecast to grow significantly as interest and other operating costs were to be funded from additional borrowing until further development had occurred.
The Long Term Plan Amendment adopted with the Annual Plan 2013/2014, refined the attribution of debt and rates for the different communities’ debt allocations. In summary the attribution was; existing community (connected and connectable) $13.4 million, future communities (development contributions) $26.2 million and districtwide community $18.4 million to be funded from general rates.
The Long Term Plan 2018/2028 continues the strategy set out in the previous Long Term Plan. The existing community will continue debt repayments at the same rate per annum. Development contributions will be collected at the rate per unit set out in this Long Term Plan. District-wide ratepayers will continue to repay attributed debt as part of general rates.
While the existing community and future community debt repayment continues for the originally planned thirty to forty years respectively, the district-wide community will see a reduced term. Sales of surplus assets and other general surpluses have been applied to reduce the debt. It is expected the debt will be fully repaid within the next 10 years.
The operational costs of the MCWWS continue to be charged to the existing community subject to any equalisation as set out in the Long Term Plan.
It appears that this has been amended in the new plan with a new provision for those connections made after 2028.
Council is limited to setting development contributions based on growth anticipated over the next 10 years. The benefits of the Mangawhai Community Waste Water Scheme extend to properties that will be created after June 2028, the future community. The cost of development and debt attributed to these properties is $20.2 million.
I am not sure how this fits in with the earlier scheme but the outcome seems to be as follows: $26.2 million (or $20.2) million of the existing debt is attributed to the “future community” which will be responsible for that part of the debt.
So how long will it take future users to pay the $26.2 million part of the existing debt?
The main growth related project is the MCWWS. To date it has largely been debt funded. The forecasts for the next 10 years project that the portions paid by the Mangawhai Community and the District will be repaid over the original 30 years. The projections for future users have been revised downwards to reflect that not all the new growth developments will be charged a Development Contribution. As a consequence the future users portion of the debt is now projected to be repaid over the 40 years
So this is how long repayment will take:
Existing community (connected and connectable) $13.4 million: 30 years
Future communities (development contributions) $26.2 million: 40 years
Districtwide community $18.4 million (to be funded from general rates): 30 years or 10 years (two conflicting periods)
The troubling thing about future communities is the comment in the quote above that “not all the new growth developments will be charged a Development Contribution”. And yet the KDC is relying on those development contributions to pay:
• The parked $26.2 million of the existing debt.
• The proposed future debt of $20.5 million for the MCWWS which is to be spent over the next 10 years.
• $26.9 million for the Mangawhai Community Plan over the next 10 years.
• Decades of interest on the half of the existing $26.2 million debt attributed to future communities that has been capitalised:
Council’s policy provides for 50% of the interest on this debt to be capitalised to be recovered from the future community development contributions. The remaining 50% is a charge to the general rate.
I have always said that the MCWWS debt will burden Kaipara for generations. The new LTP acknowledges that in the year 2058 - forty years on from now - we will still be paying of the debt that was incurred unlawfully in 2007 to 2009. And on top of that we will have a further debt of $20.5 million which will be incurred over the next 10 years.
All that indebtedness for a “lemon”?
I also note that depreciation for the MCWWS has not been funded and will not be funded until at least 2025. So when it finally gives up the ghost there will be no money to replace it and the borrowing will start all over again.
• Get independent financial experts to report on the debt situation.
• Issue the report for consultation with ratepayers.
• Approach the government to help resolve the problem.
The funding impact statement of the KDC makes the following statement in respect of payment of rates:
Any payments of rates due will be credited first to the oldest amounts due.
This is restated with slightly different wording in the KDC rates invoices:
If you do have any rates arrears, any payments that you make towards your rates will be credited first towards the oldest amount due.
The KDC, as collector of the rates of both the KDC and the NRC, has enforced this policy strictly. Where there are arrears, any payment of an instalment amount is credited towards the oldest arrear, and the instalment is treated as being unpaid and an instalment penalty is added.
Councillor Wethey has advised me that the purpose of the policy is encourage ratepayers to pay their arrears, and such a provision is common in the commercial world.
That may be true, but we are dealing here with statutory powers and obligations which are prescribed by statute.
• The payment of rates is controlled by statute and there is no authority for such a policy. It is therefore unlawful.
• The policy prevents ratepayers from performing their unconditional statutory obligation to pay the amount payable on the current rates invoice. That amount is the current instalment only.
• Section 24 requires the local authority to state in the rates resolution:
24(b) the date on which the rate must be paid or, if the rate is payable by instalments, the dates by which the specified amounts must be paid.
• Section 45 requires the rates assessment to clearly identify:
45(1)(m) the methods by which rates may be paid and the date or, if the rates are payable by instalments, the dates by which specified amounts must be paid:
• Section 46 requires the rates invoice to clearly identify:
46(2)(f) the amount payable on the current rates invoice:
(g) the date on which the payment is due on the current rates invoice:
• The oldest debt first policy prevents ratepayers from exercising their unconditional statutory right to pay each rates instalment as it falls due without incurring an instalment penalty, regardless of the fact that they have arrears still outstanding.
Importantly, this policy has prevented whistle-blowing ratepayers who dispute historic penalties from paying rates as they fall due.
• This policy clearly negates the whole purpose and statutory function of the rates invoice.
• If challenged in court, it is likely that the rates invoices would be declared invalid and the rates set aside.
• Remove the policy from the plan and from the rates invoice.
• Ask the government to pass validating legislation to validate historic rates invoices and the rates.
Under the old policy, of the funds collected, 60% was spent within the local area likely to feel the impact of growth from the development, and 40% allocated to district-wide purposes.
Under the proposed new policy Council will generally apply funds in the locality in which they are generated, and
1. May apply up to 20 per cent of the funds in other parts of the district.
2. 80 percent of the funds collected in each catchment is allocated to that catchment.
3. A contestable fund for local communities and Council’s Parks and Reserves Team (including the three Park Committees) to apply for funding from the reserve contributions pool
The purpose of reserves contributions under the RMA is to use money that has been collected for reserves to be spent locally to compensate for the effects of growth in that area.
It is also important that the monies are used locally otherwise we will end up with future legacy issues of not enough reserves and outdoor recreation areas for the growing population.
The public contestable component is important as it allows input from the communities that live in an area and use the facilities.
I support the proposed policy