Timaru councillors zero in on budgets as plan deadline looms

Saturday, 17 February 2024

• Budgets prepared for the Long-term Plan show the council’s debt could rise from $206.3m this year to $416.6m by 2034

• Ratepayers could face rates increases of 15%

• Council staff trimmed $10m from expense budget over summer

Faced with council debt ballooning to more than $400 million, Timaru District councillors have some tough decisions to make over what they can afford and what they will have to cut from the Long-term Plan budget.

Councillors met this week for a workshop and the first full council meeting of the year, during which there was plenty of discussion about the state of the coffers, the capital expenditure programme, rates and what debt level they were comfortable with.

Presenting his budget review during Wednesday’s Long-term Plan (LTP) workshop, council chief executive Nigel Trainor said an option was being looked at that would see rates increase by 15% in year one.

In years two and three, rates would increase by 12%, before the increase smoothed to under 3% in years four to 10.

The council would also increase fees and charges by 12% in year one, 7% in years two and three, and then by less than 3% in years four to 10.

The figures also show the council’s debt levels would increase from $206.3m this year to $357.6m in 2027. Debt would top $416.6m by 2034.

Trainor said all approved capital expenditure projects were included in the figures, but they had been reduced.

About $10m had been cut from expenses and a $10m deficit was now being forecast for this year, he said.

A $57m programme would be delivered in year one. Trainor said there was some debate within the council over its ability to deliver that, but he was “relatively confident” it could.

He said they were suggesting a $98m capital programme in year two, but with the Theatre Royal and Heritage Hub project, Aorangi Stadium and Geraldine duplicate water main removed, that could be reduced to $56m.

Trainor said they had been working hard since the council met late last year to “try and pull the costs back”.

“We are examining our costs as much as we can, we are also challenging each other on our revenue lines to ensure that we pull that deficit back as much as possible.”

Under the modelling presented, the council would have some head room (estimated to be $60m to $80m) and remain under its preferred debt cap of 2.5, he said.

The debt cap is the ratio of net borrowing to total revenue. The existing debt cap at the council is 2.1, and the maximum allowed is 2.8.

Trainor’s revised budget followed a warning, in December, from LTP project manager Vincie Billante that there was a “very high likelihood” the council may have to look at changing the levels of service provided, if it wanted to make further reductions.

At the time, Billante presented a host of potential mitigation levers and said she believed councillors would be forced to pull more than one for this LTP.

Those included higher rates, increased borrowing, reduced operating expenditure, delaying capital expenditure, increasing fees and charges, and selling assets.

Working to a debt cap of 2.5, it was agreed council staff would work over the summer to find ways to cut costs and report in to a group labelled the “Frugal Five” by Billante.

That included councillors Scott Shannon, Allan Booth, Michelle Pye, Stu Piddington and Stacey Scott, plus mayor Nigel Bowen.

Trainor said the senior leadership team had pushed hard to keep costs down and had even asked staff to help.

“We’ve gone out to our own staff to look at savings initiatives and they’re coming up with ideas.”

Pye said that while she appreciated that, the council was still looking at overspending of $5m on expenses for the year. She believed that came down to not understanding the assumptions in the budget, or not budgeting the right amount, rather than blowouts.

Trainor agreed and said the “outsourcing of some of the work” was costing a premium. “When we get that pulled … right away the costs will come down.”

Pye said she was not afraid of debt but questioned the notion of the council going from $200m to $416m of debt.

“If we just spend depreciation, plus capital grants, we won’t even do our basic roading and water, will we?”

Trainor told Pye she was correct and explained how the council came to be in the position it is.

“For decades now we have not revalued our assets. Our assets are way undervalued, which means the depreciation figure is way understated.”

He said that gave a “false sense of security, because you are applying rate increases to balance to the profit and loss but you are not putting cash aside to replace them, or not sufficient to replace them”.

He said this was the making of decades of administration and the way accounts had been put together.

Trainor suggested the solution might be looking at a back-to-basics approach where the council delivered only the core necessities.

“It takes a brave council to go, ‘We’re not doing that any more. We’re going to stop that capital line and we’re just going to live with what we’ve got.’”

During December’s workshop, Trainor said Timaru was 21st of 24 provinces in terms of ranking for residential rates.

Timaru was “at the lower end, and we do need to start thinking hard about that”.

He said the issues could be solved, and it was up to the council to make the decision that was best for the community

“We shouldn’t be afraid of debt … but we should ensure we can afford the debt we have.”

The LTP, which sets the activities, budget and financial impacts for the next 10 years, is the basis on which rates are set. It is a statutory requirement of councils and is due to be adopted in June. Councillors are expected to adopt a consultation document by April 9.

On Wednesday, councillors were told they had new options available under the Government’s Water Services Repeal Bill that included deferring the LTP by 12 months.

Bowen and Piddington said that was something they would support. Scott and councillor Sally Parker indicated their preference was to push ahead as planned.

Scott asked for staff to provide modelling to show greater rates increases across years four to 10 to allow for debt to be repaid to be delivered at the next meeting.