Looking to the future, you’d hope that revenue and profit would continue to increase and that if major investment was needed for future growth, there was plenty of headroom to increase debt.
Except this is not a normal business we’re talking about.
It’s a local authority, specifically the Central Otago District Council (CODC).
But despite its reported robust financial position — the above numbers are from the council’s "Summary Annual Report" for 2023 — the CODC intended to increase rates across the 14,933 rateable properties in the district by an average of 21%.
Even worse was the staggering range of increases across the district.
For a lifestyle block near Alexandra with a septic tank and a private or community water supply, the rates rise was intended to be a manageable 8%.
Down the river at Roxburgh, a house with a rateable value of a modest $425,000 would have seen the rates accelerate an obscene 33%, more than $860. Is this the price Roxburgh must pay for its new wastewater project?
The most obvious question is how can the average rate rise be four times the nation’s rate of inflation?
As the annual report says, the primary objective of the council is to provide goods or services for the community or social benefit rather than making a financial return.
Yet here is a council with cash in the bank and a severely lopsided balance sheet going out to ratepayers with a Shylock-like enthusiasm to take even more money from them.
Except that unlike Shakespeare’s usurer in The Merchant of Venice, the long suffering denizens of Central Otago aren’t lending the council money and they won’t be getting it back.
They have to trust the council to spend it wisely.
To find out how and why the CODC wanted to increase rates by this exorbitant amount, there was some hint in the annual plan document. In round figures, the proposed rates increase would yield the council $10m.
Across Central Otago’s 15,000 rateable properties that’s $666 each.
Of the $10m increase, $6m is required for Three Waters services and more than $1m each for roading and waste-management services.
All up water services across the district will cost $18.6m in the 2024/25 year. The council reports on the "ever changing Three Waters landscape" after the repeal of the previous government’s plans.
While that’s true, the current government has signalled its future intentions. In principle, councils such as the CODC will be able to combine with neighbours to form a water entity which theoretically will be less of a financial imposition than going it alone.
That legislation is still some time away and it’s accepted that in the meantime local authorities have to bear the cost of maintaining and improving water services.
Central Otago has some water services challenges but they’re being met. The current projects in Clyde and Cromwell are just two of many.
The annual plan notes that CODC will take on another $30m in debt in the coming year.
That will still leave the council well below the Local Government Financial Agency (LGFA) lending covenants of 175% of revenue and 10% of assets.
The LGFA also says interest as a percentage of revenue should not exceed 20%.
But even after lifting debt to over $50m this year, interest payments are budgeted to be an easily manageable 2% of the council’s income.
Funding new infrastructure, whether it be water or roading, should be through debt.
That ensures current ratepayers are not burdened with the full cost as it’s spread through the life of the asset and the future generations who’ll use it.
Despite these straitened economic times, the balance sheet of the CODC could hardly be in better shape.
But here’s the kicker.
The annual plan also budgets for a surplus on June 30 next year of $10.4m, fractionally more than the planned rates increase.
Does that really add up?
— Peter Williams is a Central Otago resident and ratepayer. Last week the Central Otago District Council voted to increase rates by an average of 18.3%.
