Rotorua Lakes Council deputy chief executive organisational enablement Thomas Colle. Photo / NZME
The Rotorua Lakes Council is forecasting a loss of $4 million to $5 million by June 2022.
As of October 2021, council's debt was at $256m, while cash to hand amounted to $8m.
Rotorua Mayor Steve Chadwick has compared the "uncertain waters" of the Covid-19 situation to a "wartime crisis."
At council's last Operations and Monitoring Committee for the year which took place yesterday morning, deputy chief executive organisational enablement Thomas Colle reported Covid-19 had a detrimental effect on the council's revenue.
Colle said Covid-19 and the effects of the extended lockdown would result in a $1.9m loss in council earnings from all fees and charges by the end of the financial year.
Parking revenue had suffered a 30 per cent reduction in income because of fewer visitors in the city.
"That's probably a reflection of having no Auckland or Waikato visitors over the last number of months, actually close to 100 days."
Cancelled and deferred bookings at the Rotorua Energy Events Centre also meant the venue had a 58 per cent loss in income, compared to earnings in 2019.
Colle said the council had also seconded staff to the Lakes District Health Board to support the board's Covid-19 response.
He said continued pressure on operational costs could result in a $4m to $5m loss by the end of the current financial year.
"In any normal year, if one or two of these hit I'd sit in front of you and be quite confident that we could end the year on budget," Colle said.
"With Covid-19 and with the amount of challenges that we're facing I think that short of turning something off it will be incredibly difficult to offset this."
Some of the challenges Colle referred to in his report to the committee included legal costs and spending on community safety.
"We're also under pressure from legal costs. There's obviously the landfill case that was there, plan changes to support our housing, internal legal matters as well as housing and consent notification challenges."
The "landfill case" Colle referred to was the four-year legal battle that ended with council pleading guilty to discharging a dangerous substance from the city's dump. The court case resulted in almost $1 million in legal and consultancy costs.
On November 19, council was given a $60,000 fine and ordered to pay $80,000 reparation towards setting up a trust with local iwi to help rectify the offending.
Council spending on community safety included investment in CCTV cameras and increases in the number of inner-city security patrols.
"Our operational costs are under a little bit of pressure as a result of the Three Waters Reform, the waste management legal challenge, the housing strategy and the resilience grants that were paid out, and our security patrols."
Another financial pressure on council is the construction of QE Health's new facility at the Rotorua Lakefront. In August, the council pitched in $1 million in funding and a $2m loan towards the $18.5m redevelopment.
The financial performance report prepared by Michelle Overbeek said operational expenses were over-budget by $486,000 but said staff vacancies across the organisation resulted in savings of $474,000.
Meanwhile, the council's larger projects were not progressing at the pace hoped for, with a $40m total underspend forecast on projects including Rotorua Museum and Aquatic Centre.
"Our debt may need to be used to support our operational shortfalls," Colle said.
Rotorua Lakes councillor Reynold Macpherson asked Colle if there was a possibility of adjusting expenses and reducing debt.
"Where the revenue lines are under pressure they will not likely recover for the remainder of the fiscal year," Colle responded.
"With regards to the ability to reduce costs... we squeeze and squeeze as much as possible. So we're at a point now where we'd have to stop doing something to be able to offset [costs]."
Colle said it would be up to the elected members to decide what area of council services they would be comfortable stopping.
"You would probably have to stop doing something significant," Colle said.
"I'm not sure that's palatable for our community at the moment and I'm not sure what that would look like.
"We're in Covid-19. The community expects more from us. As they expect more from us, it is very unlikely that we could therefore reduce our services."
Rotorua deputy mayor Dave Donaldson asked if the costs for an upcoming judicial review of council's granting consent for emergency housing review would lie solely with the council.
Council deputy chief executive district development Jean-Paul Gaston said since the council was the consenting authority and the potential judicial review was against the council then it would bear the cost.
Donaldson also asked Colle if there was a plan to continue to rely on holding staff vacancies as a cost-saving.
"Our current strategy is actually not to hold vacancies," Colle said.
"The challenge we have is staff retention at the moment in an incredibly competitive environment."
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Mayor Steve Chadwick thanked Colle for the report.
"There are such uncertain waters ahead of us."
Chadwick said Rotorua could be red in the new traffic light system for longer than "some of us are hoping for".
Chadwick praised the council's support of the Lakes District Health Board.
"To me, it's very like a war-time crisis where we all manage together to the benefit of our community. Well done and we'll wear the costs."
Council chief executive Geoff Wiliams said the organisation for the past seven years had delivered a financial result plus or minus one per cent of the final budget.
"We've evidenced a fairly high level of financial prudence and financial stewardship in this organisation."
Williams said the projection of a four or five per cent variation in budget spend at the end of this financial year was "clearly a concern".
"The concern I think that really echoes through my mind continually is that the pressure and expectations of this organisation are increasing significantly.
"There will be no let-off, in my view, as to a decrease in demand in the next six months of next year."
Williams said the question facing the council was how to mitigate this financial spend.
"My view is that the only way we could possibly do this is by starting to stop things."
However, Williams said, he did not see how it was possible to "drive efficiencies into the organisation" and achieve a balanced bottom-line.
"There is the potential early next year to consider actually stopping doing some things. That is a discussion we will soon need to have."
The committee was also scheduled to hear a report on the progress of construction on the Sir Howard Morrison Performing Arts Centre.
However, this report will now be heard by the committee in the new year.
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