People sometimes say to me that the Whakatāne District Council should run like a business. That would get the rates under control, they say, and stop money being wasted on whatever they think the council is wasting money on. That usually means spending on things they don’t personally use.

As someone who has started and run a variety of businesses myself, I am constantly asking how we can do things differently. But councils are not businesses. Lots of businesspeople have been elected to councils around the country over the years on a promise to cut rates, only to find that they cannot.

Councils are democratic institutions, not commercial ones, and they are rigidly controlled by legislation in a way that no other sector is.

The vast bulk of council spending is set by legislation outside of our control.

We have no ability, legally or ethically, to stop providing safe drinking water. To stop treating sewage or managing stormwater.

We cannot decide to stop maintaining roads because it is too expensive or give up processing building consents, resource consents, food business registrations or alcohol licences because those “product lines” lose money.

Animal control is mandatory. Libraries have to be free of charge by law. Councils have to minimise and manage waste. We have to provide community facilities such as halls, administer and maintain reserves, and do civil defence and emergency management.

And the rules change all the time. It is estimated that implementing the new Emergency Management Act alone will cost an extra $1.3 million a year for the Bay of Plenty.

Legislation requires us to prepare a long-term plan every three years, which takes 14 to 18 months of staff and councillor time.

Most of that is chewed up by mandated process and compliance requirements, including substantial community consultation.

Everything is audited, even the consultation documents, and the audit alone cost $130,000 last time.

Auditing the annual report cost around $200,000. We could do it for less money and time and probably get a better result but politicians in Wellington who know very little about local government have decided that councils need to be micro-managed.

Everything councils do is subject to more public scrutiny and compliance red tape than any business would tolerate.

Or the Government. So, it is frustrating when politicians in Wellington talk about capping rates when at the same time, they are continually driving council costs up.

We are constantly being given new jobs to do but no extra funding to do them.

Rates caps will increase costs by affecting our credit rating and therefore the cost of borrowings. Their maths doesn’t add up.

Rates caps are like trying to make people healthier by capping the number of times they can visit the doctor.

Rates rises are driven by three main things: inflation, interest rates and historical deferred infrastructure spending.

Rates caps limit the council’s ability to address those problems, particularly infrastructure funding deficits.

Council costs are increasing faster than the rate of inflation and we are having to spend more on climate change resilience and emergency management.

Rates capping will force us into taking a more short-term and reactive stance, which is both intergenerationally unjust and more expensive in the long run.

The local government sector in New Zealand gets a very small share of public spending – 10 percent compared to an OECD average of 37 percent. It doesn’t help that the Crown doesn’t pay rates on its properties, or that we pay GST on rates – a tax on a tax.

Local government gets no share of the GST collected in the local area either, even though many of the things we do, including providing infrastructure, are critical to the productivity of the local economy.

These are the issues the Government refuses to address.

If the council was a business, we would be able to just stop doing all the things that don’t make money.

We would operate on full cost recovery for every service we provide, which puts the noise about the boat ramp fee into perspective. But councils are not there to make money. Councils do the unprofitable things that other people don’t do but which need to get done.

We have begun the process of preparing our next long-term plan already.

To get on top of our operating deficit and to prepare for the introduction of rates capping, we are talking about what things we don’t do, what services we can reduce, and what fees and charges we can raise.

The downside will be the inevitable running down of council assets, which will cost more to fix in the future. Remember the old saying, “a stitch in time saves nine”?

n A response to Gerard van Beek

Gerard van Beek was a district councillor for a number of years and is always worth paying attention to. His recent column in the Beacon, however, misses the mark.

Van Beek says that the council’s operational loss has increased from $10.347m to $13.165m. It is important to understand what those figures are.

The numbers in the Statement of Comprehensive Income include capital grants and non-funded items such as depreciation, which has been badly affected by revaluations of roading assets because of inflation.

Taking these into account, our balanced budget deficit has fallen below $10m, slightly better than what was predicted in the annual plan.

This will be further reduced through the current financial year and the long-term plan will again include a pathway to return to a balanced budget by 2030.

On borrowing, debt has risen due to needed investment in roading and waters infrastructure.

Without the use of debt, the district would not be able to pay for the infrastructure it needs, in the same way that people buy a house by taking out a mortgage rather than trying to save up for the whole cost.

The use of debt also means that the intergenerational benefits of those investments are paid for in a fair and equitable way by the people able to use them.

This does mean that future interest rate rises are a risk, as in any business or household with debt.

The council has a comprehensive Treasury Management Policy that ensures that this risk is managed through hedging and limiting the council’s exposure to interest rate volatility.