Amalgamation information evening a lively affair

August 3rd, 2011
[by David Armstrong]

Leading local body politicians fronted a small but lively audience of about 70 on Monday night ostensibly to provide information about the proposed amalgamation of Nelson and Tasman councils, but for many attending a chance to get local governance and administration issues off their chest.

The mayors and deputy mayors of both Tasman and Nelson councils spoke for six minutes each about aspects of the proposal and process that they felt were important, and they were supported by a spokesman from the Local Government Commission (LGC) and Mahana-based Philip Woollaston who was once the Minister for Local Government.

This was followed by over an hour of supposedly question-and-answer time, mostly from the floor rather than pre-submitted, but which comprised largely statements of opinion about various forms of dire outcomes should amalgamation be voted in.

Chairman for the evening, Brent Maru, who admitted to knowing little about the issue and was keen to hear the information himself, did an admirable job by injecting humour to limit the amount of speech-making by objectors and pleading for questioners to actually ask questions rather than arguing.

LGC employee Michael Coles began by summarising the process to date, from receiving the initial petition to asking now for submissions, and the process ahead. Then - and several times later in the evening - he urged people with opinions to make submissions to the Commission before the August 19th closing date. These submissions would help shape the final LGC reorganisation plan.

TDC mayor Richard Kempthorne said that, although he was personally against amalgamation, he would not advocate his position at the meeting but rather wanted to highlight some of the key issues that he and his council had with the proposal and the consultants' much-criticised report.

He said that now that LGC has specified delegations (local community powers and responsibilities) to be given to Community Boards by the proposed unitary council, Tasman District will also be offering these delegations, and that this had been worked on over the past six months rather than being a cynical response to the LGC proposal. He said that by statute councils cannot delegate finances but can delegate decision-making.

His other issue with the LGC report was that the "lost opportunities" referred to in relation to existing two-council activities have not been quantified.

Nelson mayor Aldo Miccio, who began the process with his 2009 petition, spoke with passion about the platform upon which he was voted in. (He got off to a bad start by addressing the chairman several times as "Manu".) His main argument was that he had seen dysfunction in both councils and felt there had to be a better way for local government in the region as a whole. He pointed out that his petition was signed by several heads of inter-council operations, indicating that they too felt there was wastage in the current set-up.

He made several statements on cost savings which drew cynical reactions from several in the room. He claimed that rates will at worst stay the same after an amalgamation, which drew considerable laughter and a challenge to promise that would be the case. He countered saying that rates would be set by future elected councillors, not by the current ones, so it would be up to who we elected as to future rates levels, just as it is now.

"I urge you all to make submissions and to exercise a once-in-a-generation chance to make things better for the governance of the region," he said.

Tasman District deputy mayor Tim King urged "a balanced view". He recognised that the calculations for debt levels and servicing were done using different accounting methods by the two councils, but stressed that in fact the two councils had very similar debt situations and shared a keenness to "manage them down".

"You will hear plenty of positives and negatives. Our job is to weigh up the risks and balance them," he concluded. He said a lot of what would be said at the meeting was opinion and listeners should be wary of people who tried to guarantee an outcome in the process.

Nelson’s deputy mayor Ali Boswijk spoke of the importance of focusing on the "macro level" of governance, rather than getting bogged down at the "micro level" of costs, rates, savings and so on. "We suffer from having two different councils putting out different agendas every three years at election time," she said. "We have two different regional policy statements, and there is a need for one strategic development policy for the region."

Philip Woollaston, who was once the chairman of the former Golden Bay County Council, the mayor of Nelson and the Minister of Local Government and is now a prominent wine maker, began by acknowledging that the failure of the 1989 amalgamation which formed the Tasman District, when promised trade-offs never eventuated, had generated much cynicism among older Motueka residents.

But he said that there was now no regional voice on activities and issues which are common to both Nelson and Tasman councils. He said both the councils are too big to be able to service the needs of smaller communities such as Motueka, and too small to provide a unified regional voice. It would be better to have one council with 16 councillors to look after regional issues, and community boards with budgets and powers to deal with local developments and concerns.

There is no legal impediment to the delegation of such matters to communities, he said. "The law says that anything that can be delegated to a CEO or a council committee can, and must if possible, be delegated to community boards. It can be done."

Philip received good applause when finished by encouraging further participation. "There is one way to get it right and many ways to muck it up. We must have a union and make sure delegation is given to communities."

Discussion based on questions from the floor

The topics brought up by audience members mainly centred on debt management, rates and the expected cost and savings of amalgamation. Aldo estimated that the cost savings per year would be in the $5 million to $10 million range, based on staff reductions (through duplication) and removal of opportunity costs. He said his estimate of redundancy packages and other transition costs was about $2 million. Many in the audience either laughed or challenged him to guarantee these predictions.

When asked to explain and list examples of lost opportunity costs, he mentioned several projects which did not go ahead because the two councils werre unable to cooperate on them. He also said that the councils have not been able to agree on how to set up a holding company for business operations, so no savings yet have been made through such a facility. This would likely go ahead under one council.

Questioned on the way the two councils handle and charge for the use of their community assets such as the port, sports grounds and pools, several speakers agreed that each council currently has its own policies and it would be one job of a united council to set new policies through democratic processes.

It was pointed out by Aldo Miccio that amalgamation was not a takeover of Tasman by Nelson, but could even be viewed as a takeover of Nelson by Tasman if one was so inclined to think of it that way. The two council areas have almost identical populations, rateable properties and asset bases. The new council would be democratically elected to represent all residents and would make its own decisions accordingly without any control by the current two councils.

Philip Woollaston was ask what extra delegations should community boards be given. He said boards should be given a works budget on which they could make decisions particular to their area, and be able to recommend to council how funds allocated and available to their area should be earmarked. It was not clear how a new council could be forced to abide by such delegated decisions. They should also be responsible for handling some resource consents. Philip said residents should make clear their desire for such delegations in submissions to the LGC.

Community board member Mark Chapman asked if, given that most of Motueka feels "disenfranchised" by the TDC and therefore may vote 'no' to yet another amalgamation, TDC will continue to offer the recently announced delegations to community boards. Richard Kempthorne answered that TDC wants to run a six-month trial on this and then decided what form of delegations may be effective in future.

One key question asked close to the end of the evening was addressed to all four politicians: Which is more important, governance (getting sound policies, democratic leadership and community participation) or administration (running the council operations, collecting and spending rates)? All speakers agreed firmly that governance is top priority and administration follows.

In summary, it was notable that the vast majority of people attending were over 60 years age (probably only a handful under 45), and from the murmurings and responses that most were against amalgamation, although is may have been that those for amalgamation or as yet undecided did not feel the need to express critical sentiments. Whatever, all speakers (except for one point where Aldo Miccio was shouted down as he continued to press some points) were heard with respect and given generous applause.

Golden Bay had a similar meeting two weeks ago which attracted 130 people, so it would appear that Motuekans are less interested in their future than the good folk over the hill.

All speakers urged residents to express their opinions and suggest refinements to the draft proposal by the cut-off date of August 19th. Submissions may be emailed to the Local Government Commission, and details about the process can be found on the Commission's website here. After public submissions close a hearing will be held in October, a decision will be made by the Commission in November and a public poll held in February next year if the Commission decides to proceed.

Comment by Aldo Miccio:
[Posted 4 August 2011]

The meeting was on the whole was an enjoyable lively debate which I'm sure has made people think a bit more and challenged some of the assumptions which they may have been living under .

It was no surprise that some at TDC who are against the union proposal would attack the independent commissioners' findings of a positive net cost benefit result of $4.7 million per anumn with speculation and allegations around inaccuracies, and it's now good to see the independent commission has stood up to the attack and provide the necessary clarification around the financial analysis and rebuked certain people's somewhat cynical attack so the community can now have confidence in the information they have provided in support of their proposal, and hence supports my claims that all things equal there is no reason why rates should rise, quite the opposite.

With regards to the proposal of improving local communities representation, it was interesting to hear Philip Woollaston describe not only that the proposal delivers more empowerment and delegation at a local level to the community boards but also greater representation for areas like Motueka at a regional council level. Because currently Motueka on regional issues which both councils work together on they only have 3 votes out of 27 elected members, under the new model they will have 2 out of 16, which is a far greater voice.

One of my jobs as representative of electors is to listen to people from all around the region; from Tasman which is the engine room of the economy to the service centres of Nelson and Richmond, and it's clear there is a ground swell in favour of the proposal based on four fundamentals. One is the empowerment of the community boards so they will be able to better deliver on their community's aspirations. Secondly for the first time council will be able to prioritise and govern the regional issues better and direct combined resources to the most important projects or issues facing the region such as the Lee Valley dam proposal.

The third is the obvious proven cost savings of having a single council to the tune of at least $5m per anum plus there is no reason why rates will rise quite the opposite as stated earlier or at least the status quo should remain. And lastly, the concern over the current TDC debt of $135 million and its own forecast budget in the LTCCP sky rocketing out to $270m in 8 years time, whereas a combined council will have greater ability to eliminate and or pay that down quicker in what are trying financial times where debt is toxic.

All of this is backed up and supported by the commission's proposal and analysis so please take time to read it and make your submission for things you would like to see further enhanced. This is your once in a generation opportunity to shape the governance direction of your community for the better.

The other really interesting issue I have touched on is current councils' debt and how they manage debt, Nelson's current debt is approx $50m and Tasman's $135m. It was very intriguing to hear deputy mayor Tim King's view of debt, because I think it's important we do get clear that the debt positions between the two councils do differ as do funding arrangements for depreciation and loan repayments.

It is correct that NCC rate (cash) fund depreciation but this actually has directly opposite implications to those that Tim King was suggesting at the meeting. Far from being better, Tim's argument makes TDC's position seem even worse. The below is a summary of how the accounts work. And I have emailed Tim so he can get some comment from his accounting staff manager Murray Staite on the below as I would love to know Murray's view on it. I know our CEO's view and he supports the below.

NCC in the 2011/12 year collect $54m in total rates vs TDC $56.5m. Of that $54m NCC rate fund approx $18m for depreciation which we use to (1) fund renewals, (2) then fund new capital expenditure, (3) any residual is used to repay loans. This compares to TDC rate funding for loan repayments and not for depreciation. From the 2011/12 Annual plan it's a bit hard to tell what amount of loan repayments is funded through rates but we are assuming it's about $9m (from their cash flow statement).

So in fact if NCC were not to rate (cash) fund depreciation but fund loan repayments like TDC, we would rate for ($54m - $18m + $11m = $47 million) and our rates would be much less than TDC. Conversely, TDC is worse off than NCC per annum to the tune of $9m (= must be borrowing to sustain current activity).

Consequently, because NCC rate fund depreciation vs loan repayments, we do not need to borrow as much as TDC, therefore NCC has less debt. Hence TDC current debt is $135m and ours is $60m, and their debt is forecast to go out to $270m in 8 years time (2009 LTCCP).

The other important question to ask is that if TDC are not funding depreciation form rates (depreciation is an operating expense) and if as Tim says they fund depreciation by taking out loans to replace infrastructure instead of cash depreciating, then isn't this capital borrowings to fund operating expenses?

Comment by Tim King:
[Posted 8 August 2011]

As I stated at the meeting in Motueka, people need to look at the figures involved for themselves and not just rely on information provided by either side. In coming to a conclusion they should ask themselves two questions - am I going to be better represented and are the potential benefits going to outweigh the risks?

To show the problems with figures that are bandied around without a place to reference them to, I will address a couple of points raised By Aldo Miccio.

Current debt: in the Councils' current annual plans TDC debt is forecast to be $153 million (not 135), NCC $100 million (not 50 or 60 depending which of Aldo's paragraphs you read?)

PEAK 10 year plan debt: TDC Debt $270m (correct), NCC debt $170m (not stated in Aldo's figures).

Calculation re debt and depreciation: "if NCC were not to fund depreciation" they would be better off, but they do, therefore this statement is meaningless.

Lastly, while depreciation is an expense it is not a cash expense and it is accounted for in both councils' Statements of Comprehensive Income.

Please look up these key financials, they are all available online for people to read and determine how they see the situation.

On the broader Question of debt vs cash funded depreciation :

1. Each council manages its financial needs differently - neither is wrong just different. TDC provides for capital expenditure by borrowing, NCC by a mixture of borrowing and cash funded depreciation. TDC borrows over variable timeframes but mainly over 20 years, all NCC borrowing is over 40 years. Both of these approaches need careful management to minimize the impact on ratepayers who ultimately pay the costs.

2. Each council requires a similar amount of income annually. 2011/12, TDC $94m, NCC $86.5m and over time. 2018/19, TDC $133m, NCC $126m (both councils ten year plans cash flow tables). The difference relates to a different mix of activities not the means of financing.

3. The Commission and its consultants have concluded "that there are no apparent issues in relation to the financial management policies that could cause problems for the individual councils in maintaining and enhancing levels of service for key infrastructure activities to meet existing and future community needs."

Please take the time to look up any figures quoted by proponents or opponents if they reference them.

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