It was apparent from the large attendance at the weekend public meeting that there is widespread community concern regarding the magnitude of the [Central Otago District] Council’s proposed rates increase. This applies particularly at a time when the government and the Reserve Bank are calling for restraint with the important necessity to bring inflation and price increases under control.
The [Central Otago District] Mayor [Tim Cadogan] endeavoured to justify the rates increase by elaborating on the substantial cost of upgrading water treatment services over the entire district.
It would seem that much of this expenditure should be regarded as being of a capital improvement upgrade nature rather than an immediate direct operating expense to be met out of the current year’s income, which was the impression conveyed to the meeting by the mayor.
Based on standard recognised accounting treatment of matching operating expenditure against income, the question must be raised that in a situation where there would clearly be a long-term capital benefit what consideration has been given to spreading this expenditure and associated financing costs over the life of the upgraded capital asset. This is as opposed to inferring that what is deemed to be necessary capital expenditure has to be met out of a very substantial increase in the current year’s rates.
In the existing difficult economic times when many people are under significant financial pressure, the issue perhaps comes down to what extent it can be considered reasonable to require today’s ratepayers to be expected to pay for major capital infrastructure upgrades which will provide significant long-term residual benefits? Clearly, this approach must be seen as effectively expecting current ratepayers to directly subsidise the next generation.
REPLY
Having had it emphasised to me by the MC at the meeting that I could only speak ‘‘very briefly’’, I chose to highlight the capital projects that we face in the Three Waters space while in front of two government MPs who (as with all MPs) cannot be reminded enough about how unfunded mandates from Wellington impact directly on communities. New capital projects are funded by debt to allow intergenerational equity but paying the interest on that debt does of course impact directly on rates bills. I could have just as easily focused on operating expense increases in the Three Waters space such as electricity costing +$430,000 more than budgeted next financial year (which alone accounts for about one percentage point of the projected rates increase) or operations and management costs which are anticipated to be +$1,580,000 more than budgeted.
