KCDC is the most indebted District Council per capita in the Wellington region and the seventh largest borrower from the Local Government Funding Agency (LGFA). The Council’s debt to the LGFA currently stands at $160 million, and will be increasing to $195 million by December this year. KCDC has never repaid any principal.
Between 2012 – 2016:
· Our rates have increased by 12.6%,
· Operating costs have decreased by 4.9%, but
· Staff costs have increased by 28.9%.
Broadly, over the next 3 years, the Kapiti council will reach its self-imposed maximum debt level of $200 million [probably earlier than that – Eds], and will be entirely reliant on increasing rates to fund all capital expenditure and interest payments.
In 2019, KCDC will have been in existence for thirty years. It will have achieved its objective of creating a modern, well-organised district. However, it will have a probable long-term debt in excess of $200 million. Council defines this as an “inter-generational debt”, meaning future generations will need to pay because they will also benefit from the capital expenditure made now. This policy is not affordable or sustainable and is in urgent need of serious revisions.
There are four categories of operating expenditure making up the total of $73 million:
· Staff expenses
· Working expenses
· Depreciation; and
· Interest
KCDC is presently facing increases, not only in depreciation, but also a significant increases in the cost of interest. This is exacerbated by the fact that a $70 million loan must be refinanced this year, and also because the Council is planning further borrowing at a time when the cost of interest is expected to rise.
The debt is debentured to the rates flow and is thus the joint liability of every ratepayer.
That leaves two crucial questions that our elected officials need to answer:
1. When can we expect KCDC to begin repayment on the debt and tackle debt reduction?
2. What steps is this Council taking to tighten its belt? Raising rates by 5.9% forces ratepayers to tighten their belts, especially those on fixed incomes.
Council has some direct control of only one item of income (rates) and one item of expenditure (staff). The only way KCDC can increase income without borrowing is to increase rates. Whether 5.9% will be adequate could be an open question, and may even prove a moderate figure during the remainder of this Council’s tenure.
The KCDC is looking forward to being handed the old SH1 so it can include that in its asset base and thus increase the borrowing limit. The two previous councils together with Dougherty all must take the blame for this financial quagmire. It is up to the present council to reverse the situation, but recent events show no cause for optimism. – Eds
Excellent article.
It is not possible to pay off such debt because of the character of the financial system, based on compound interest, or what council refers to as ‘inter-generational’. It is the way the system operates in regard to councils, businesses, nations, households and individuals – an accumulating mountain of debt, because credit is treated as a commodity rather than as a means of exchange.
A hint at how that can be fixed is provided if one looks at how the 1935 Labour Government funded the iconic state housing project, but nobody recalls how, including historians, least of all any present Labour identity. We even had a minister of finance, Dr Cullen, claiming that credit is created by cash from bank deposits!
While bloated bureaucracy is not the cause, it certainly is an aggravation of magnitude.
For history buffs, John A Lee explained precisely how the system works, and that generation knew widely about such matters. Now we have ‘experts,’ academics and politicians who don’t have the foggiest idea, and the dumbed-down plebs don’t even know there is a problem.
One Kapiti mayoral candidate, I cannot recall who, actually lauded debt as desirable; reminiscent of a National Party election pamphlet some years ago which I found blowing around in the gutter, where it belonged, signed by Don Brash, which stated that debt is good and ‘nobody pays in cash any more’.
Years ago when Social Credit leader Bruce Beetham was mayor of Rangitikei he proposed a local currency, which is what many communities issued in North America, and elsewhere, during the Great Depression. But please, no vision ‘ere; it’s ‘funny money’, don’t you know?