Last Friday, in response to our post the previous day reproducing the Official Information request replies, the following e-mail was sent to elected council members and staff:
Good afternoon all
You may have seen or heard about the article posted on the Waikanae Watch blog yesterday referring to an Official Information Request response that my team have compiled for [us] recently regarding funding for Housing for Older People. https://waikanaewatch.org/
While the information provided in the letter, which has been published on the blog site, is technically correct in terms of the first two questions asked, (total income versus maintenance costs) it does not paint a fuller and more accurate picture of the funding model used for this portfolio of work.
[Our] blog asserts that the housing portfolio brings in more than it costs. This is not correct. When all of the indirect costs such as depreciation, rates, insurance, staffing costs and other internal allocations are attributed, the portfolio recovers only approximately 80% of total cost for service. This percentage of course varies year on year depending on the maintenance and refurbishment work we undertake in any given year, however is in line with our current Revenue and Finance Policy.
While our response to the LGOIMA was technically correct, in hindsight I could have avoided the slant this blog has taken by providing a fuller response than just to those questions asked.
As always, please feel free to contact me if you have any questions arising.
Group Manager Place & Space
Te Kaihautū Takiwā, Waahi hoki
Clearly, the KCDC is anxious to dispel the idea that the units make a profit; but what does it mean by “indirect costs such as depreciation, rates, insurance, staffing costs and other internal allocations”?
What does maintenance and and refurbishment do, if not deal with depreciation? The two aren’t the same; maintenance means tradespeople fixing things like plumbing, wiring, guttering, cracked paths and the like; refurbishment is at the least replacing old fixtures and fittings with new ones, maybe redecorating. It probably won’t be comprehensive, though: unlike a retirement village, the council won’t be seeking increased unit valuations so it can charge the next tenant more.
Perhaps the council views deterioration and depreciation as two different things? Does it apply a fixed depreciation rate to all the units regardless? In standard accounting thought, with buildings this is 1% of the original cost a year, but that is an arbitrary thing and not necessarily real.
Rates? The council would be paying rates to itself — unless it has to remit the portion that goes to the Wellington Regional Council, regardless.
Insurance, yes, but what does the council insure — a basic fire and extraneous perils policy, the cheap form of insurance; or comprehensive full replacement?
Staffing costs — does this mean having someone go around making periodic inspections, plus the cost of billing and receiving payments, receiving maintenance requests and arranging for a tradie?
In any event, the council’s accounting team seem to have decided upon revenue being only 80% of costs. That is reflected in the OIA response that Cr Jackie Elliott got in May on the subject:
Jackie Elliott doesn’t think much of the standard of the units: “The market rents would be minimal for a one or two bedroom sized semi-detached unit, usually without a carport or garage. They are pretty pitiful inside and out, all need a major upgrade including double glazing and new floor coverings. And all over 30 years old.”
Your editors can’t verify the comment about them being “pitiful inside and outside” from first hand experience, but it’s apparent that they can at least be described as basic and dreary.
What the council is careful to omit is any consideration of appreciation of the land values, which would be quite significant and almost certainly well in excess of the alleged bottom line ‘deficit’ figures in response to question 2 shown in the Official Information response above.
Why is the council worried? Probably because it wants to sell them off, which we suspected was the case in a post in April last year.