Leaky homes thwart rate reduction

Mayor Stuart Crosby.

A chance to lower this year's rate increase by about half a per cent was voted down by Tauranga City Council yesterday after a funding shortfall in weathertightness claims was revealed.

The council instead stuck with the 2.5 per cent it had flagged as the rate rise at the outset of the 2016-17 Annual Plan public consultation process.

At stake was a rates saving of $662,000 that emerged from the wash-up of decision-making processes.

But instead of lowering the rates increase to about 1.9 per cent, the council voted to put the $662,000 into the Risk Reserve Fund.

An estimated $2.4 million was due to be transferred out of the Risk Reserve by June 30 to cover a shortfall in weathertightness claims from leaky buildings. This would have left a projected $1.9 million in the account at June 30, or $1.2 million less than a year earlier.

The $662,000 would top up the council's $1.26 million annual contribution to the fund, which it wanted to reach $17.3 million by 2025. However, at the current rate of progress, assuming no further claims, the balance would fall short by $4 million.

A paper from council's chief financial officer Paul Davidson detailed how the $17.3 million risk generally related to one-off unforeseen or uncertain events, such as uninsured earthquakes and floods and uninsured and unanticipated legal risks such as future leaky homes.

The council voted 6-4 for the 2.5 per cent rate increase.

Mayor Stuart Crosby said a 2.5 per cent rate increase was what the council went out with at the start of the public consultation process and there had not been a great volume of submissions opposed to that increase.

He reminded councillors how the risk reserve was cleaned out by the May 2005 floods and slips. "I will guarantee you one thing, you are going to need it but we don't know when," Mr Crosby said.

Councillor Steve Morris said they had reached a place where the rates requirement was about 1.9 per cent. Given that the council had enough in its balance sheet to deal with a major crisis, the proposed 2.5 was not required.

Councillor Rick Curach said it should have gone to a policy meeting for a decision. However Councillor Kelvin Clout said they clearly had to make an allocation to the risk reserve: "At this point, I am happy."

Councillor John Robson said most provisions in the risk reserve would be more naturally covered by debt: "I am somewhat concerned about making provisions in this way."

But Councillor Matt Cowley said it was not appropriate to fund legal risks from debt and he only supported putting the $662,000 into the Risk Reserve if it was to fund legal risk.

Tauranga's shortfall in providing for leaky homes payouts:

* Balance at June 30, 2015: $6.8 million

* Payments to April 30, 2016: $1.8 million

* Likely future payments identified at June 30, 2015: $5.9 million

* New claims during 2015-16: $1.5 million

* Shortfall to June 30, 2016: $2.4 million