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Increasing the rates? Or borrowing?

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NZHerald and DomPost reporters have been doing diligent investigations into what the Wellington City Council is spending, and how much more it needs to spend.

Georgina Campbell writes in the NZ Herald:

Budget blowout after budget blowout has landed on the council’s table recently, whether it’s earthquake strengthening, transport projects, or water infrastructure. New cycleways connecting Wellington’s eastern suburbs to the city have blown their budgets to the tune of $12 million. The cost escalation on Cobham Drive and at Evans Bay raises wider questions about Wellington City Council’s budgeting processes.

She quotes mayor Andy Foster as saying:

When the council went through this kind of process again, its budgeting processes have to be improved. “Sometimes we put a number in a budget at a certain point in time, which says we think the cost is a million dollars and then 10 years later it turns out it’s two or three. We’ve got to do better than that.”

In the DomPost, Joel McManus reviewed the costs being faced by the city council to repair the city’s ageing wastewater pipes:

… as much as $5 billion in new spending to clear the backlog of existing issues and prepare for population growth.

And he reported

Wellington’s pipes have an average age of 51 years, the oldest of any city in New Zealand, and over a third are in poor condition, according to analysis from Water New Zealand. Pipes are deteriorating at a faster rate than they are being fixed or replaced.

Also in the DomPost, Damian George looked at whether the council should be willing to borrow more, to cover its huge spending needs. He quoted economic commentator Bernard Hickey as saying:

… with the council facing bills of up to $5b for new and upgraded water pipe infrastructure and $1.3b for its share in the Let’s Get Wellington Moving programme, the organisation needed to change its thinking around borrowing, which nowadays had very low risk. Interest rates on council borrowing were now as low as 0.35 per cent, meaning even if the council borrowed its full allowance, it would still only be paying $5.7m a year in interest.

And he quoted council chief executive Barbara McKerrow as agreeing that the council was facing considerable cost pressures, but she said it strived to be a prudent and efficient organisation:

While the council was facing a huge number of ongoing and future costs, most of them were already budgeted for through the council’s Annual Plan or Long-Term Plan. Those included things like earthquake-strengthening of the Town Hall and St James Theatre, construction of a new Convention Centre, and the 35 million-litre Omāroro water reservoir in Mt Cook. But that still left up to $6.5b in non-budgeted costs, including up to $5b to repair and construct water pipes.

How to meet these costs? Damian George wrote that Mayor Andy Foster recently said the forecast rates increase for 2021-22 looks “horrific”, likely to be more than 15 per cent, the largest increase for residential ratepayers since 1995-96.

If this is likely, then the borrowing option should be getting more serious consideration from the council. And as Barbara McKerrow says: “Elected members ultimately decide.”