Victor Luca

In his opinion piece in the Beaconof August 29 entitled ‘What the heck is happening with the rates?’, Nandor Tanczos attributes rates increases to increasing debt levels, inflation and the need to upgrade our water infrastructure. This is partially correct because taking on debt incurs debt financing costs. Inflation peaked just prior to my election as mayor in quarter 3 of 2022. The policy response by the RBNZ was to hike interest rates from a period of historic lows. That’s tough!

About 60-70 percent of council expenditure is on water services, roading and solid waste management. It’s not all about water (check Long-Term Plan 2024-2034). That still leaves a big chunk of expenditure on other stuff. It is not all about water infrastructure as Mr Tanczos implies.

Before completely trashing the idea of debt it has to be recognized that our entire economic system operates on debt. Credit is used to buy stuff today and pay for it over time. The Government borrows and the Government debt/GDP ratio is about 40 percent. Most of the borrowing is in NZ dollars and that’s important. However, much more concerning is the level of private debt (debt/GDP is 95 percent). About one third of New Zealanders have mortgages, others borrow to buy cars and consumer goods.

With few if any exceptions New Zealand councils borrow to fund their activities. Our money system is in fact based on credit and a certain amount of inflation is built into the money system. The RBNZ’s target range for inflation is 2-3 percent per annum which compounds.

What I find galling is Mr Tanczos’ statement, “n fact, I led a revolt of councilors against the mayor’s plan in 2023 to borrow even more to keep rates down” in which he is being deliberately deceptive in providing no context. The so-called “revolt” he refers to was a perfectly normal debate over the Annual Plan (AP) of 2023 which took place in March of 2023. That AP was the second year of the Long-Term Plan (LTP) of 2021-2031 which was developed during Judy Turner’s term as mayor. That LTP with plenty of borrowings in it was supported by Mr Tanczos but not by myself and several other councillors.

The Beacon (March 31, 2023) rightly characterised the discussion over the AP as a debate with the front-page declaring ‘RATES DEBATE:Borrow more or face 9.5 percent hike’. Not a revolt.

The picture on the front page had two rows of elected member faces. On the top row was Mr Tanczos and four other councillors who voted to hike rates from 6.92 percent in the LTP to 9.5 percent. On the bottom row were six councilors, myself included, who opted to hold the rates at 6.92 percent as originally programmed for year two of the LTP and compensate by adding $1.5 million of additional borrowing on top of a $28.4 million debt pile. This represented an increase in borrowing of only about 3.5 percent. The 6.92 percent increase was considerably more than council inflation at the time.

At the time the small increase in debt level was deemed to be prudent by the chair of the council’s Risk and Assurance Committee, Stuart Henderson, who was extensively quoted. The Deputy Mayor supported the motion to keep rates at 6.92 percent as did I. We were both extensively quoted. I referred to a ‘vicious jump in inflation’, which would hurt more the ‘50 percent of our community that lives on or below the median income’. I called the additional borrowing the ‘lesser of two evils’. The priority of six councilors was to support the less wealthy rate payers.

The reason that debt is necessary is simple. The council spends more than it receives in revenue. To achieve a balance, it is either a case of spending less or earning more, or a bit of both. The more activities council undertakes, the more stuff needs to be bought and more staff are required.

Between 2010 and 2016 the number of council staff fluctuated in the range 176 - 186. After 2016 the numbers escalated dramatically to 325 by 2023 and they are heading toward 357 by 2027 if something isn’t done. The growth in staff numbers increases operational expenditure and in my opinion is unsustainable. At the same time spending on consultants hasn’t dropped. Whilst some increase may be justified, I expressed the desire during the development of LTP 2024-2034 that no more staff would be approved.

What I have been advocating for since I first entered council is for a proper conversation about ‘affordability’. It is my view that we need a common understanding of affordability in order to set rates. I have also argued to reduce spending by focusing on critical infrastructure. Times are tough and could get tougher and it is time to be conservative. I shared a methodology for assessing affordability in a Mayor Talk column (December 18, 2024) entitled ‘What does affordable mean?’.

The Government seems to share my view that we need to better prioritize. Recognising that we can only reduce spending so much whilst maintaining consistent levels of services, the options are to earn more and/or reduce services and also become less wasteful.

There are four main sources of Council revenue including rates, fees and charges, Government grants, and of course, borrowings. If the rate payers are stretched, as I know they are, and we have borrowed all we reasonably can, then that leaves increasing fees and charges and/or putting the squeeze on Government.

Local Government New Zealand, which advocates on behalf of almost all New Zealand councils, has rightly been advocating for years for a change to the funding model so as to get more money out of central Government. Despite LGNZ’s years of intensive lobbying effort, so far there has been no joy. LGNZ is doing what I committed to prior to the last elections; trying to squeeze more money out of Government.

Could there be another way to fill the coffers? When elected in 2022 I made a commitment to look for alternative funding sources, in order to reduce the rates burden. The council has assets (e.g.property) and they yield relatively little and I think we can do better.

Over the past couple of years all councillors endorsed a project to assess how we can make better use of those assets. The project is now complete and the stage set for implementation in the coming months unless the new council deviates from the plan. A very recent report by Russell Investments titled ‘Rates to Returns’ gives the idea.

I never promised or committed to zero rates increases. That would have been totally unrealistic and idiotic given that inflation is built into the system. My position has always been that rates increases should not significantly exceed the inflation that council experiences. I committed to keeping ‘downward pressure on rates’ and I believe I have achieved that. If we increase rates beyond inflation we become part of the inflation problem and contribute to hardship.

Finally, it is all about choices/priorities. When you are desperately short of funds to provide safe water services, roading and waste management, how can we be thinking about a sporting complex?

During the LTP debates, I highlighted the vulnerability of Whakatāne’s drinking water supply. There is also a need for a second bridge to build resilience into our transport network. Climate change is going to bite.

Given our circumstances, we can ill-afford to make serious mistakes like the failed boat harbour project which I opposed from the outset.

I also opposed the total Civic Centre refurbishment at a cost of $13 million when initially the basics were going to cost $3 million? See the Beacon of August 21, 2019 ‘$3 million civic centre upgrade’.

Why do we need so many expensive toilets, and fancy crossings around town? And so on. It’s all about making sensible choices.

If people want a mayor who promotes ever increasing spending, then I guess I am not the right guy. This mayor is about making sensible, conservative decisions appropriate to prevailing economic conditions. If all of a sudden other sources income help fill our coffers then there is room for more to be spent on amenities.