While this article uses Hamilton as the example, it really applies to all councils facing the same problem for the same reason.
News that Hamilton City Council has proposed a 25.5% rates rise next year does not tell the full story. It is planned to be followed with a 12.9% rise the following year and an 8.7% one the year after. This compounds to a whopping 54%, showing just how bad things really are. What is really scary is that the mayor’s alternative was even worse at 57.4%!
How did it get to this?
Councils and governments need to operate according to the same budget principles as the average family. If your income is more than you spend, then you can pay off your mortgage, invest in your future, or save for a rainy day. If you spend more than you earn, you are in trouble. Putting it on your credit card is a bad idea – it simply makes it harder to survive next month.
This is called balancing the books, because (not so long ago) before computers, accountants used one book to record money in, and another to record money out. It is so important that the law states councils must balance their books unless they have a good reason not to. Examples of a good reason might be Covid or a recession. That might excuse the last couple of years, but Hamilton City Council has failed to do it in eighteen of the last twenty years.
That should have got the public worried. Financial management is critical to good governance of our assets, so voters should have acted to punish bad management. Knowing this, successive councils have hidden behind the credit card, borrowing money to keep the appearance of things running smoothly.
The council has finally hit its credit limit of 285% debt to revenue. That is, we are allowed $2.85 of borrowing for every $1 of rates. Actually, we hit our credit limit many times but kept getting the limit increased. Around ten years ago, the ratio was 180%. As most homeowners will tell you, now is a terrible time to be in debt with mortgage rates shooting up, so our lenders are not going to give us more.
The average family needs to cut spending or get a second job. A second job is hard.
The council needs to cut spending or charge ratepayers more. Charging ratepayers more is easy. That is the problem.
Each three-year council term, the councillors have to approve a budget plan for ten years. This is to show long-term thinking, even though it gets redone every third year. Councillors come and go with their pet projects and spending priorities. The high-profile vanity projects like cycleways and theatres get far more attention than the unglamorous core services of sewage and potholes. The plan is used to set rates.
This time, the plan process started out as usual. A series of trendy new ‘green’ transport projects, such as adding speed bumps, in-lane bus stops, and cycleways while removing car parks and turning lanes, were put to the vote.
I am sure it feels good to go with populist, progressive and woke ideals of giving away other people’s money while portraying the opposition as penny-pinching old-school climate deniers. There were big smiles on the faces of the eight councillors (Southgate, O’Leary, Huaki, Tauriki, Van Oosten, Thomson, Hutt, and Casey-Cox) who voted yes on each project, while the six Scrooges (myself, Wilson, Taylor, Pike, Donovan, and Naidoo-Rauf) were frustrated – because we knew what was coming.
Then we moved on to the boring stuff. Maintenance. This is where inflation, supply chain delays, workforce shortages, ever-increasing legislation, and the burden of traffic safety management (cone farms) put an almighty strain on budgets. The penny-pinchers were the ones pushing for extra funds. We didn’t have a choice – we know the false economy of cutting essential maintenance which leads to higher costs in the long run.
Finally, it was crunch time. The budget was totalled up and showed the usual shortfall. Normally, the embarrassment of overspending can be hidden by borrowing more. Don’t worry, it will be the next council’s problem. Not anymore – we are the next council! The spending addiction is about to overdose.
A huge increase in rates is needed.
At a time when so many of us are dealing with a cost-of-living crisis, this is a disaster.
But it is also the disaster I have been waiting for. Too often, it takes a catastrophic failure to make a change. The Titanic sinking resulted in much safer maritime practices. The Great Fire of London led to the first building codes. We have a problem that was decades in the making, and we have a change that needs to be made. There are some fundamental issues with the way councils operate – the good news is we have a new Government that is prepared to look into it.
In the meantime, we can fight back against much of the rates increase. There is around $90 million that I believe can be cut from the budget. The process is that the budget goes out to public consultation in the new year before final decisions lock in the rise. A big response from you will help me turn this around. In other councils, find out which of your representatives is working like I am. Get active, get groups together, turn up to council meetings, and let your voice be heard. There are a couple of councillors running scared – if I can turn them around, we will have the numbers to win 8–6 for a change.
Andrew Bydder
Hamilton City Councillor
