Ratepayers are already hurting - why is Wellington City Council raising rates?

Monday, 27 April 2020

Ratepayers will be hurting after weeks of lockdown and job losses.

OPINION: Wellington City Council needs to get with the programme.

The increase in rates should be zero. Not 4.9 per cent, or 2.15 per cent, which whilst down from the previously proposed 9.2 per cent, is still too high.

You cannot say rates need to rise because of funding shortfalls and then pledge support to Wellington Airport. Sure, Wellington Airport might be considered a strategic investment for the region, but you are mixing your drinks saying you are short of funds and then putting money on the table for the airport. I support the airport, but not lifting rates to assist with it. Sell another asset if the airport investment is the priority.

Does the council have funding pressure? Yes. They are going to be running a substantial deficit. They have infrastructure projects that need to be undertaken. Projections being prepared by staff will look ugly.

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Wellington airport - it's an investment ratepayers can't afford at the moment.

But they have the capability to absorb it. They need to help the region in tough times, not raise rates.

The prospect of big deficits and debt is not stopping central government from stepping up to the plate and writing out huge cheques to support the economy. The central government has a balance sheet to write the cheques.

It is saddling taxpayers with a huge liability. A credit downgrade will appear. It is still the right interim policy response.

Those with balance sheet capability need to step up.

The central government is.

Others are as well.

The Reserve Bank has thrown the kitchen sink into the mix, buying government bonds to keep interest rates extra low.

Banks are expected to be 'courageous' and support the economy.

Residential landlords have to wear the cost if tenants can't pay rent.

Wellington City Councillors and staff at a recent event

Commercial landlords are being asked to provide flexibility to tenants whose income is down or non-existent.

The unemployment rate is rising rapidly. It will be far higher than what we saw during the global financial crisis. That is going to hurt ratepayers.

It is almost beyond belief that any council thinks they should be raising rates in this environment.

Time and time again we hear the same old excuses about being short of funds and having high debt levels or infrastructure projects to fund. Councils are facing less income from non-rate sources as an economic recession bites, just like businesses. Wellington Council debt has been rising fast.

It is missing the point.

They have balance sheet capability. As noted in Wellington City Councils 2018/19 annual report 'our financial position remains healthy'.

Wellington City Council have assets close to $8 billion. They have a property investment portfolio of around $250 million. Property, plant and equipment of more than $7 billion. Councils will always have some cash on hand for liquidity and rainy day purposes; that was more than $100 million in the last financial year.

Borrowing is less than 10 per cent of assets.

Interest expenditure was less than 5 per cent of total expenditure in 2018/19. That's not high. Debt might rising but borrowing costs are incredibly low and have fallen since. The Reserve Bank is buying local government bonds to keep interest costs low.

Wellington City Council borrowing was 1.25 times total income in the 2018/19 year. That means they have reasonable ability to service debt and borrow a bit more, even as non-rate income falls. They had $140 million in unused debt facilities last year.

Central government borrowings were projected to be slightly more than income this financial year, though slightly below the council's 1.25 figure. The government figure is 1.6 if we allow for inter-segment eliminations (think crown entity funding). Government debt is now rising rapidly as they step up and help the economy.

Liabilities to income in the commercial property arena is more than five times income. Debt on dairy farms is more than three times income. It's a bit over two times income for the rest of agriculture. The ratio of household debt to income is more than 1.6. Debt is more than three times income for people with a mortgage.

Now is the time for the Wellington City Council to be stepping up. The same applies to all councils within the Wellington region and the country.

It is not a hard decision. You have greater capability to leverage off your balance sheet and ride out challenges than others.

The big need to be supporting the small.

We are not talking about cutting rates, just a zero increase. Many businesses are going to be cutting prices to help drive a recovery.

Total sales and income across the economy for the business sector is around $700 billion per year. Do the maths on what it costs the economy and businesses if major parts are shut down for one month, two, and possibly more.

It is also time for some of the hard decisions to be put back on the table including consolidating councils across the region and looking at recalibrating the council balance sheet (a fancy name for selling some assets and reinvesting in others).

* Cameron Bagrie is managing director and chief economist of Bagrie Economics