Councils borrowing too much

From Question Time on Thursday:

Local Authorities—Increase in Council Debt Since 2002

6. JACQUI DEAN (National—Waitaki) to the Minister of Local Government: What reports has he received on increases in local government council debt since the Local Government Act 2002 was enacted?

Hon Dr NICK SMITH (Minister of Local Government): The local authority financial reports show that council debt has quadrupled from $2 billion in 2002 to over $8 billion today. The increase

in debt is significantly greater than any other sector, and is noted by local government analyst Larry Mitchell to be the No. 1 issue facing that sector.

Jacqui Dean: Has local government borrowing slowed in response to the global debt crisis, in the same way that households and businesses have become cautious of debt?

Hon Dr NICK SMITH: No, household debt grew sharply between 2000 and 2008, but stabilised in 2009 and has reduced in 2010 and 2011. Farm debt has also responded prudently to the global financial crisis and not increased since 2008. In contrast, council debt has been growing at a faster rate—$500 million of borrowing in 2007, $800 million in 2008, $1,100 million in 2009, and $1,800 million in 2010. This ongoing increase in local government debt is not sustainable.

Jacqui Dean: Why is this increase in debt a concern?

Hon Dr NICK SMITH: There are three concerns. The first is that council debt is actually just rates deferred. The greater the debt the less opportunity there is in future for containing the cost of rates for households and businesses. Secondly, council debt contributes to New Zealand’s overall indebtedness. Households and businesses are doing their bit by pulling back their borrowing, and local government needs also to tighten its belt. My third concern is that for some councils their level of debt-servicing costs is becoming so great that it puts the financial viability of their council at risk.

Central government and households have tightened their belts and are doing their best to reducedebt.

Councils must cut their costs and reduce debt  too.


9 Responses to Councils borrowing too much

  1. Ross says:

    Ele, Councils have an almost unsolvable problem in this area.

    No one wants services cut – plenty of comment when that is proposed, no one wants rates increases and at the same time roads, water supplies, sewer systems wear out and need fixed, or have to be upgraded to new environmental standards.

    All good, but someone has to pay for all this.

    When you add new sports stadiums, aquatic centers and the like then either the rates are going up of Councils are going to have to take on debt. Council debt is becoming an issue, and are few Councils are at the limit of what is considered prudent borrowing.

    In those communities there will serious discussions about what services will be retained and what goes.

    We have a bad habit in New Zealand of expecting other people to pay for our stuff – conditioned by decades of socialist doctrine and spending patterns across our society. This has lead to a very generous welfare system, that is unsustainable in its current form, and is also quite noticeable for Councils at the moment.

    There is no free lunch, and someone always has to pay.

    Like

  2. Captain Fantastic says:

    Ross is totally correct. The trend is to ignore essential services and focus on fluff. A large measure of the problem is the mediocre quality of councillor delivered at elections. Some really hopeless types. School teachers, academics etc. Who, in their own minds are hellishly important. But they think that cash grows on trees. And there is collective responsibilty, which absolves them from long term consequence of digging a huge growing hole of debt. Plus they love the money, and love to share it with the CEO’s etc. The system today, with its remunerations are attracting the wrong type of councillor, mayor etc. What we all need is successful hard working people, schooled demonstrably in prudence, prepared to work and guide on behalf of their community, without their snouts in the trough, getting the job done efficiently, economically, not suffering fools, with little fuss. They focussed on the core essential business.
    We used to get them! Back in the days when we had Town Clerks, not the self inflated, staff garnering, slick, expensive, well paid, well heeled CEO’s.

    Like

  3. homepaddock says:

    Ross – yes and the problem has got worse since councils got the power of general competence.

    Captaion F – council has become afulltime job and that rules out many people who have the skills but not the time and attracts people with time but not skills.

    However, I don’t know any teachers on councils and teachers I do know wouldn’t have the time.

    Like

  4. Bulaman says:

    Until they tackle the bloated salaries of the upper tiers no progress can be made. If the govt dropped salaries of 100K+ public servants by 20 percent the dollar would fall with the decrease in government borrowing and the productive sector would benefit.

    Like

  5. Ross says:

    Hi Bulaman

    I hate to break it to you but, but there is a big skills shortage in local government, particularly in skilled technical areas. This skills shortage is on both sides of the Tasman, and the Australians are bidding salaries up to attract the staff they need.

    If Councils do not complete for staff adequately in the marketplace then they lose them to higher bidders, both other Councils and private sector. There is an Australasian labour market now across technical professions – same deal in the medical area.

    The alternatives to not employing staff with decent skills can be very expensive in both the short and long term – and it is no way to run an efficient and effective business.

    It comes back to my statement above – what services do communities want, and what are they prepared to pay for.

    If your suggestion of dropping 100K+ salaries was implemented then simply you would lose a huge number of highly skilled people that are integral to the smooth, efficient and effective running of both our central and local government. We all know that if you pay peanuts….

    Like

  6. Bulaman says:

    I take it you work in public sector to believe this?? This peanuts argument is bull puckies. If they stuck to the what they are paid to do instead of running of to play in the finance markets and creating monuments to themselves not to mention a pyramid they can sit atop.. We could wave them good bye and feed the youth in the bottom. We could start a pool on how many would actually go. Most know they are on the best racket they are ever going to get in their lives!

    Like

  7. adam2314 says:

    Ross says.

    ” and it is no way to run an efficient and effective business. “.

    Councils are not a business !!!.

    They are a Service..

    Like

  8. Ross says:

    Bulaman – I work in a private business.

    Adam – Council’s are a service, but the services they provide are big business – and in roads, water, sewer and storm water – big monopoly businesses.

    They need to be run efficiently and effectively as businesses otherwise they have the potential to waste huge globs of money.

    Like

  9. adam2314 says:

    Ross says.

    ” as businesses otherwise they have the potential to waste huge globs of money. “.

    So we will not mention the Auckland computor fiasco ..
    To name but one..

    My mother could ” run efficiently and effectively ” our household on a limited budget and have savings..

    As do so many families.

    Like

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