This strategy was voted for by the Council late last year and it raised a lot of Red Flags among the committee members of Concerned Ratepayers Kapiti with its ‘warm and fuzzy intentions’ but lack of stated goals and modus operandi, the financial commitment by Ratepayers and the strong likelihood of all the $ millions intended to be contributed ‘going south’.

The letter below was sent to the Mayor and Councilors yesterday.

Feedback from Concerned Ratepayers Kapiti re Economic Development Strategy

Several of our members attended drop-in sessions to find out more about the Economic Development Strategy (EDS) ahead of making a formal response.

We were hampered in making a substantive response because much of the necessary information was simply missing and Council staff facilitating the sessions couldn’t answer our questions or provide substantive detail.

However, from what we have been able to establish from the discussions and from various OIR responses, our response is:

The proposed Economic Development Strategy must be considered in light of the wider rates burden in the Kapiti district ….

1. We are concerned at the current rates burden across all ratepayers in Kapiti, and the proposed 115% rates increase over the next 10 years.  This concern extends to business rates, which impose costs on business (hindering their economic prospects) that also get passed on to residential ratepayers through increased prices.  We need to ensure that all Council spending is focussed on core council responsibilities, is well targeted and represents value for money.

The proposed Economic Development Strategy does not meet any of these requirements for Council spending…

2. The proposed Strategy for Economic Development as a function is not a core function of local government.  We note that the Government has signalled legislative change to get councils “back to basics,” which will remove any expectation that the “wellbeing’ requirements currently in the Act are the role of local government.   We believe KCDC should anticipate this change and be scaling back its non-core activities – including economic development activities – in advance of the legislative change.  We do not support KCDC scaling up these activities or entrenching them through new structures.

3. The proposed expenditure cannot be well targeted.  It is well known, and Statistics NZ figures confirm, that only about 40% of small businesses survive longer than 5 years.  This means that the majority of KCDC’s expenditure will simply be wasted and produce no long-term return, as most of the business ventures that you would support will eventually simply fail.  This outcome is made even more certain as, under the proposed Economic Development strategy, there is no assessment of business risk or viability before support would be offered – all that is required is that the enterprise comes forward to seek assistance.  The programme has no meaningful performance measures that would allow decision-makers to discriminate between good and bad uses of programme funding.  

4. Collectively, these issues mean this is the definition of a poorly targeted strategy, which is simply guaranteed to waste ratepayers money.

5. The proposed strategy cannot deliver value for money for the reasons outlined.  This is underscored through the lack of any clear performance measures in the draft Economic Development Strategy.  The consultation document sets out on page 9 a range of KPIs –  “increase”/”decrease” measures of a range of economic variables –  intended to assess the value of the Strategy.  But these are meaningless and cannot establish the difference this proposed expenditure would make, compared to changes in the wider economy, for example changes in interest rates.  This issue was acknowledged by KCDC staff at the drop-in sessions we attended.

6. KCDC often refers to an ROI on investment to justify its spending in this area – seen for example in claims that the Major Events Fund attracts 50,000 visitors and delivered a 25:1 return on investment (as claimed in OIR 2425/1227).  But this is not a ROI measure at all:

1. Looking through the various reports to Council claiming such returns, it is clear that what is measured is the gross turnover of the events being subsidised by Council.  But a measure of turnover is not a measure of profitability – or of business viability or business sustainability.  It is simply a measure of how much people spent at a particular event.

2. Such measures do not quantify the extra turnover that has occurred at such events because of the Council’s subsidy.  It as if the Council is claiming all of the credit for all the turnover at these events, even though others would have contributed resources in cash or in kind or both.  Even if the Council were to continue with a turnover measure (which we argue is not true ROI measure at all), what really needs to be measured is the additional turnover which the Council’s own contribution yields. 

3. If KCDC still genuinely believes that it is generating an ROI of 25:1, this would be such a fantastic rate of return that (i) Council should be receiving cash returns on its investment (which it is not) and (ii) the Economic Development Strategy should be self-financing and not require any ratepayer funding at all.  But that is not the case, a key point that we will now come to.

7. KCDC is forecast to spend a very large sum of money on this Strategy – over $31 million on Economic Development activities over the period covered by the Long-Term Plan 2024-2034.  The vast majority of this will be a cost on general ratepayers:

1. Although we had originally understood that this activity was funded by a targeted rate on business, we now understand (from OIR 2425/1282) that this is not the case.  Only about $769,000 of annual expenditure is currently met from a targeted business rate; the rest of the costs are from general rates and any third-party funding obtained.

2. While the rationale for establishing a Trust and a Limited Liability Company was to secure extra, non-Council funding, the historical level of such funding has been very low (between $155,000 and $285,000 in the past three years) and there is no forecast for what this third-party income will be (from OIR 2025/1282).  There is no target for what level of third-party funding will be sought, and no review point about re-considering the Strategy if such third-party funding is not forthcoming.  This means that the current assumption in the Long-Term Plan is that all costs will be met by ratepayers, with the vast majority of costs met by non-business ratepayers.  

3. From our reading of OIR 2425/1227, there are no business plans for investment in the various Economic Development activities, and no forecast of the expected financial return on investment.  While the Council’s documentation notes that the Council wishes to achieve some level of financial return, it is going into this future spending with no target rate of return, no idea of what return might actually be achieved and no idea whether this will be anything other than a continued drain on all Kapiti ratepayers.

The Strategy should be wound up, work should stop on the new structures being developed, and the rates funding used for Economic Development should be given back to ratepayers. 

8. Given the Economic development strategy is not core Council business, cannot be well targeted, and will not deliver value for money, we submit that all work should stop on the Strategy and associated activities, work should permanently stop on the establishment of the new structures, and the rates funding used to finance all these activities should be returned to ratepayers.  For the business rates returned, let the businesses use the funding released to them on the things that would do the most for their individual business and their individual circumstances.  

9. We do consider that there is a role for the Council in supporting business growth in the region.  We suggest that this is a combination of all of the following: offering business a low-rate environment, the provision of fit-for-purpose infrastructure, and predictable and timely regulatory decisions (eg: planning permissions).  These are core Council activities – and the best thing that the Council can do for economic development in the region is to do these things very well, at reasonable cost and with an affordable rates burden.

The nature of this consultation, and its actions in the background, suggests that KCDC has in fact already pre-determined the outcome of this feedback process and decided to progress the Economic Development Strategy

10. In the unfortunate event that the Council decides to proceed with this programme, KCDC should:

• Develop clear targeting criteria for Council investment.  We were advised at the drop-in sessions that any firms would be eligible for support and that no assessment of business viability would be made as a pre-condition of funding support.  As noted above, this means most expenditure will be completely wasted on entities that have very little chance of success.  However, if KCDC is determined to progress, some discriminating targeting measures must be developed.

• Develop clear performance objectives and measures for all activities to guide spending decisions by KCDC and the new entities, and establish a clear monitoring and evaluation regime.  This is needed if there is to be any possibility of being able to change funding strategies, depending on the measured performance of spending.  There is no merit in throwing good money after bad, but KCDC has no means of establishing whether or not spending is delivering tangible outcomes. The proposed Strategy should not proceed until this has been developed, otherwise it is almost certain that the spending will be wasted. 

• Include a “fast fail” approach, to change funding approaches if spending is having little or no impact.  This would require discriminating performance measures – as discussed above – although we consider that it is highly unlikely that the programme would ever be able to develop such measures.

• Develop a clear modus operandi and business model for the Strategy.  During the consultation, KCDC staff were vague on such matters as how to target the businesses needing support, how to ensure that the targeted businesses would make Kapiti their long-term home (rather than leave Kapiti once they got to a certain size/scale) and what types of support it would provide (it seemed that any form of support was potentially on the table).

• Ensure support provided under the Council structures does not overlap or displace central government or NGO business support that may be provided by groups / agencies such as Kapiti Coast Chamber of Commerce, Kapiti Economic Development Agency and the Ministry of Business, Innovation and Employment.

• Ensure that there is no residual risk or liability for KCDC.  At the drop-in sessions, staff stated that KCDC could be liable for any financial losses by the new entities (if, for example, the Limited Liability Company borrowed for a particularly initiative that it could not later repay, and for which the Trust had provided a guarantee).

• Ensure that representation on the governance structures are proportional to the sources of investment.  We note that it is proposed that iwi hold up to half the governance positions on the boards of the new structures; this would only be appropriate if iwi are providing half the investment funds.

11. In making the comments in paragraph 10 above, we in no way resile from our view that this activity should cease, and the funds returned to ratepayers.  But in the unfortunate event that the Council is determined to waste ratepayers money through this Strategy, the points in paragraph 10 above would at least limit a small part of the waste that is certain to occur.  

Concluding Remarks

12. Concerned Ratepayers Kāpiti does want the Kapiti Coast to be recognised now and into the future as being a great place to live, in a community where individuals and businesses can thrive.  We also want the decisions that are taken by KCDC to promote this are affordable and are implemented (and paid for) by the right individuals, groups and organisations.

13. We expect that the KCDC will give the views we’ve expressed open consideration, and we expect to be afforded a clear record of the decisions subsequently taken by Council, along with any background information or reports used to inform those decisions that have not yet been made available to us.

Yours sincerely

Chris Harwood (Ms)

Chair, Concerned Ratepayers Kapiti