Whakatane Action Group

In Friday’s Beacon, we gave some sort of an eyewitness account of the latest finance, performance and risk committee meeting.

Summarised with that the council is still piling up debt but has almost nothing to show for if you look at the non-financial performance achievements.

Later during that same meeting employees from Price Waterhouse & Coopers (PWC), who provide treasury services to the council, gave a very interesting lecture reminding what the responsibilities from council now are. They kicked off with explaining context and purpose from what is written in the law, pictured below.

Those paragraphs are written to prevent councils from kicking the can down the road regarding managing the district assets and from piling up the debt so future generations have to foot the bill.

The reality on the ground is that we have increasing debt AND we have a number of future asset investments to make to comply with the new 3 (2) water legislation.

Direct consequences of the level of debt are service costs. PWC has calculated that a 1 percent increase in interest rates will lead to a 2.44 percent council rate revenue increase to offset the extra expense.

So, with the current level of debt we are exposed to the worldwide movements of interest rates and they are dominated by the geopolitical situation over which we don’t have any control.

The current nett debt is $192.8 million. According to PWC, it has a current average cost of funds of 4 percent (interest + bank fees) and an average maturity of just over four years. Total financial costs will be around $8m each year.

The nett debt is lowered by the pre-funding council gets for some of its projects. After those pre-funding amounts are used, council completing projects, the gross debt will increase to its real level.

For the full determination of the council’s debt only one measurement will prevail: The Operational Deficit.

So, what will be the near-term outlook for the financial costs of debt?

To have a certain expectation about how that will develop I took a graph taken from the interest.co.nz website for the current four-year New Zealand wholesale interest rate. (We took this rate because the average maturity of the current debt is four years). Very much concerning is the increase of the rate since November 2025 from 2.77 percent to 3.86 percent. This is more than 1 percent as used by PWC in their example about interest exposures.

As said earlier, the council has zero influence over the level of interest rates.

That depends all on the policy “hairpins” of the Orange Man in the White House.

What council can influence is the level of debt and they have, as we can see from the opening of this article, a legal and especially moral obligation.

Asking staff to find savings is not enough to make a serious dent in the operational deficit and the level of debt.

The mayor and councillors should lower their expectations of what the council should be doing and consult those thoughts with ratepayers and residents.

We need to reduce the level in spite of everybody saying it is the same across New Zealand. It is irresponsible to increase rates because of rising debt levels.

Sadly, none of the councillors took the lead to kick start this process last Thursday but there will be still some time before the approval of the annual plan at the end of next month.

The economic situation within our district is not flash. Household incomes data from Infometrix and the Credit Arrears data from Centrix tell the real story of the financial health of the ratepayers of this district.

n As a supplement to the letters to the editor from the WAG here is a link to an article written by David Chaston published on the Interest.co.nz website. https://www.interest.co.nz/bonds/138525/wholesale-money-markets-are-giving-clear-signals-about-where-interest-rates-are

In this article, Chaston argues that the wholesale interest rates will increase with 1.43 percent, well above the calculation for the council made by PWC.

This means that if we don’t want to increase the operational deficit (and the total debt) any further the council rates need to increase by at least 3.50 percent to keep the deficit on its current level.

As David also argues that the drive behind the increase in wholesale interest rates is the geopolitical situation, the only thing our council is in control of is to seriously reduce spending.

This means:

■ Reduce the expectations of improving services

■ Reduce the amount of capital spending

■ Consult with ratepayers and residents what that effectively means

■ Make hard decisions