The local government annual plan season is beginning, with councils facing austerity budgets. Some, as in Dunedin or Queenstown Lakes, have gorged on debt, and must face the slow process of digesting it. Others will be aware that communities have had enough of rates increases continually topping annual inflation.
The Dunedin City Council, easily Otago's largest council, has feasted on new projects and on high general costs, and its consolidated debt is peaking beyond the extraordinary figure of $600 million. Although it includes council company debts, it is still an astronomical figure. As projects small and large - like the Toitu Otago Settlers Museum, the Town Hall, the water and sewerage system upgrade and the stadium - came up for discussion, the annual interest costs were often the financial focus. The long-term accumulation of debt and cumulative interest totals could be sidelined behind an unrealistic optimism, leaving a legacy of commitments to years of whopping rates increases. Fortunately, the folly of this course has been recognised, and vigorous efforts are being made to turn to a sustainable direction.
The council last year managed to sneak the rate increase under 5%, with 4% the aim this year and 3% the year after. While these figures are still higher than most ratepayers might wish, they represent a firm and balanced approach to council spending. Although most projects must be rejected or postponed, the council is mindful of its role in economic and social activity. An austerity budget is essential but too savage cuts could push Dunedin towards a downward and dispiriting spiral.
The council today released its pre-draft annual plan, its proposed budget for the financial year beginning on July 1, and the signs are promising.
The basic increase, although expected to rise, is under the 4% target (2.8%) and for the first time in many years the council is due to pay back debt rather than increase borrowing. While any repayments will be small, at least a start is being made. Gradually, this can be increased and the debt burden lessened. These figures are encouragingly much lower than the 7.6% predicted for the coming financial year at this time in last year's budget round.
At the same time, operating costs are being steadily trimmed. This has meant some positions have been lost. After a decade or more when wage increases moved well ahead of many in the private sector, the general 1.5% increase is more in line with businesses. Continual efforts will need to be made to work smarter and leaner and to be ruthless about what is essential and what is just nice to have. Councillors will this week meet in workshops to examine the pre-draft plan before discussing it in public. They will confirm a draft annual plan, and public submissions will be sought in March through to early April. Hearings on these are due in early May, followed by deliberations. The plan should be ready for adoption before the new financial year. Every year many good ideas and worthy proposals are put forward by the public and interest groups, and there is always considerable disappointment at what is rejected.
Sadly, if the council is to stay under a 4% rise, submissions seeking any additional spending must clear extremely high hurdles. The attitude being promoted, and rightly so, is that if anything new goes into the annual plan, something has to be taken out.
An added challenge in the past two years has followed the realisation the council-owned companies, golden geese in subsidising rates, were in danger of being poisoned progressively because of excessive dividend demands. The practice of businesses having to borrow to pay dividends is worse than poor.
Further, and not surprisingly, the council will confront the financial future of Dunedin Venues Management Ltd and the Forsyth Barr Stadium. To make the stadium a success and to compete with other centres, the council might have to seriously consider an events fund. This will again cost ratepayers, but could benefit the city overall.
Councillors and senior council staff in Dunedin, and elsewhere, are fulfilling their most important and most difficult tasks as they decide on saving and spending priorities. It will require tough-headedness, common sense and forward thinking.
