What difference does a differential make?

There’s been plenty of publicity now on Hutt City Council’s decision to cut the proposed 7.9% rate increase for the year beginning July 1 to 3.8%.  There’s too much business and household hurt as we recover from COVID-19 for the higher figure, and to go to zero just puts off dealing with a growing deficit and digs a bigger financial hole. 

The 3.8% compromise has been described as an emergency/holding budget while we – as a community – debate in depth the spending priorities for the Long-Term Plan review in 2021.

Continue reading “What difference does a differential make?”

The rates debate – why we didn’t go for a zero increase

In a pandemic aftermath, when thousands of businesses and households are trying to get back on their feet, what the hell is Hutt City Council doing putting up rates by 3.8%?!

Well, the reasons follow.  If you get to the end of this opinion piece, and you still think the rates increase should be lower, even zero, I have a request for you.

For starters, right up until the headlines started appearing that the scourge of COVID-19 was rapidly spreading beyond Wuhan, the Hutt’s proposed rates increase was 7.9%.  If financial prudence was the only consideration, it probably still should be.

The 3 waters (drinking water, wastewater, stormwater) are one of the big drivers.  Mid last year Wellington Waters’ messages about the need for us to invest more in pipe infrastructure, reservoirs, etc., got very pointed.  

In 2020 we’re fast reaching the increased population (110,000) we weren’t forecast to hit until 2030.  Consents for new homes continue to track upwards and with Riverlink we want a whole lot of inner-city apartments to bring life to the CBD.  But our stormwater systems in the central city and other neighbourhoods are at capacity.

Two thirds of our piped water and wastewater infrastructure needs replacing over the next 30 years.  We don’t want a situation like Wellington’s raw sewage in Willis St.  Over the next 10 years we need to double capital spending on 3 waters infrastructure (an extra $240 million – for example, this year $1.2m for a seismic upgrade of Seaview sewage treatment plant).  And we need to boost 3 waters operational (day to day running cost) spending by $30 million over the same period.

A 3.8% hike in HCC’s total rates take in the financial year starting July 1 translates as an extra $122 per year on the average value home ($627,000).  The lion’s share of that increase is an extra $41.50 on every ratepayer’s fixed charge for wastewater, and $42 on the fixed charge for water supply.

Among the extra annual operating costs are $200,000 to boost the work by teams fixing the water leaks that seem to have popped up everywhere since the Kaikoura earthquake; $250,000 to start to get to grips with stormwater infiltrating and overwhelming our sewerage system when it rains hard; $200,000 for critical assessment of 3 Waters assets and $410,000 extra for bulk water because Hutt residents are continuing to use more water than other cities in the region.

Okay, so what about the other $38.50 extra the council has its hand in the pocket of the average ratepayer for?  

Some of the extra costs coming at us include: higher insurance ($600,000), higher depreciation ($3.3m), a start on the government-mandated District Plan Review ($1.2m), $500,000 each for HV Gymsport and HV Tennis (cut back from $1.3m and $2m respectively), Homelessness Strategy $500,000, climate change engagement $200,000, a start on dealing with inefficient IT systems $2.1m, assistance for landowners with significant biodiversity $200,000….

Yes, yes but these are unprecedented times.  People say ‘Cut your cloth to fit ratepayers’ circumstances’. 

We have made cuts/targeted savings.  As well as accepting our CE’s target of finding $1m in operational savings, we will:

  • Remove our contribution to Regional Amenities Fund – $200,000
  • Reduce Council accommodation costs by consolidating into Laings Rd building – $263,000
  • Reduce operating budgets by $100,000 each out of pools, libraries and parks – $300,000
  • Cancel staff pay increases – $1.2 million
  • Reduce the International Co-operating Cities funding – $45,000
  • Cut the suburban shopping centres fund by – $50,000
  • Savings in unallocated community funding – $100,000
  • Reduce minor road works budget – $200,000
  • Reduce museums funding – $50,000
  • Reduce biodiversity funding assistance for landowners – $65,000

Our revenue has also taken a $900,000+ hit during the COVID-19 lockdown.  Every month we suspend parking fees we lose around $350,000.  We’ve lost swimming pool entry charges.  Ratepayers have asked for extended terms to pay bills.   We put $100,000 into a Community Resilience Fund and more than $20,000 from the 10% pay cut volunteered by our chief executive has gone to Foodbanks.

Unfortunately, the bad news doesn’t stop there. 

For many years now Hutt City Council has taken pride in the fact that while other councils in the region have levied rates hikes often double or more than ours, we’ve held increases to the local government cost index (LGCI, or if you like the local government inflation rate).  The Productivity Commission highlighted this in its report on local authority financing (see the table below).

All well and good.  But simple logic says you can’t keep increasing services (Fraser Park Sportsville, upgraded Walter Nash stadium, new community hub in Stokes Valley, homelessness initiatives, Living Wage, etc) with no increases in budget beyond inflation. 

The upshot is that the council is now running operational deficits.  Halving that deficit was the main reason for the originally proposed 7.9% rates increase.  With that, and an extra 2% on rates for the following two years, we’d eliminate the deficit and achieve a balanced budget.  But recognising these are extraordinary times for many households and businesses, we’ve proposed the 3.8% increase in an emergency budget until we can do line by line scrutiny of every item of council expenditure to see if we’re still getting bang for buck, and whether indeed the way we’re delivering that service is best way, or is even still worthwhile given new priorities.

The city has a very long and expensive list of projects we’ll need to borrow for – a new Naenae Pool, Riverlink, the Eastern Bays shared pathway, restoring Petone Wharf, the Cross Valley Link and all the 3 Waters renewals to name a few.   By borrowing we spread the costs of these long-life assets across several generations, as is proper, but we can’t prudently borrow without adequate and balanced operating revenue to service the debt and budget for depreciation.

A majority of councillors think a 3.8% rates increase is the responsible course when anything less means we just dig ourselves a bigger financial hole in years to come. 

A big thank-you for sticking with all of that to get to here in the blog. 

And so to the request I mentioned right at the start.  If you think a 3.8% rates jump this year is too much, even with the policy we’ve expanded to allow residents and businesses facing an income shock to defer their rates bills (click here for information), you can help us out by giving us feedback on where else you think we should look for savings.

Check out the table below, and have a look at the Annual Plan consultation documents (here) and when you email or phone in your comments, tell us what else we could trim.  

To get to a zero rates increase, we’d need to find another $4 million or so in savings in addition to the cuts/reductions already detailed above.

If you have any questions, brickbats or other feedback – my email is simon.edwards@huttcity.govt.nz, phone 027 484 8892.

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