Smarter Spending

Budget basics:

There are two basic 'rules' for good budgeting in local government:

• Balanced budgets - operating revenue (oprev) should cover operating expenses (opex).

• Capital expenditure (capex) should be debt funded - to fairly allocate costs to ratepayers over time.

Currently, our Council breaks both these rules.

Breaking the balanced budget rule results in operating deficits which must be covered by borrowing - which results in higher debt, leading to higher rates...

Funding capex directly via operating revenue has two negative consequences.  First, the costs of the capex are not shared fairly over time, and second, the additional revenue required perversely results in an increased debt ceiling for the Council - which will, when drawn on, lead to higher rates...

A newly elected Council should make the adherence to the two basic rules a clear KPI for the Chief Executive.

Smarter spending:

Smarter spending is spending, whether it be operational (funded by oprev), or capital (funded by debt), in which the outcomes are SMART - that is, the outcomes are:

• Specific.

• Measurable.

• Achievable.

• Relevant.

• Time-bound.

Too many TCC projects lack one or all of the above - two obvious examples are:

• The $300+ million Civic Centre project, Te Manawataki, has the objective of getting the city's 'heart pumping' - this is nether specific nor measurable.

• The last elected Council was told that the Cameron Road project would cost $85m - current estimates suggest that final cost will exceed $330m.  Clearly the budget outcome was never achievable.

Without SMART outcomes, there is no clarity as to whether a project has succeeded or failed.

Which perhaps explains why there appears to be no accountability in TCC.

Dumb debt:

It is critical that when choosing where to 'invest', capital projects are compared not only on the basis of their capital cost, but also on the basis of their impact on the operating budget.

There is a big difference between investing in a parking building where the operating revenue will exceed the operating cost, and 'investing' the same amount in, say, a museum, where operating costs will significantly exceed revenue.

Recent arguments in support of funding decisions for the Civic Centre project (Te Manawataki) have suggested that swapping 'net income' assets for 'net expenditure' assets makes no difference to the balance sheet.

These arguments are simply false.

They lower the 'quality' of the balance sheet, and the pain is felt by the ratepayer in higher rates.