Hamilton must stop living on credit: mayor

Gray clouds over Hamilton's finances with some hard decisions ahead over "nice to haves" and "need to haves". Photo: File

"We can't continue living on the credit card" - those were the words of Hamilton mayor Andrew King last week following the presentation at full council of a summary of the city's money woes.

The scenario, laid bare in a detailed $180,000 analysis by accounting and management firm PriceWaterHouseCoopers, pointed out that Hamilton was running an annual deficit - the difference between what the council was receiving in income and what it is spending - of just over $12 million.

"The $12.1 million deficit is what it costs us today to service what we have now, not taking growth into consideration. We need to have a close look at our overheads."

While the cost of staff was a major cost in most operations King said the HCC already ran a very lean ship and he could not see what further reductions in staffing could be made.

King was speaking just a couple of days before council announced CEO Richard Briggs was to receive a $60,000 pay increase, bringing his salary to $440,000.

The mayor also said the city had "sold the family silver," so no significant assets could be sold to lessen the impact.

In his chairman's report to council last week, King pointed out that the council was in an "extremely difficult financial position."

The PWC analysis showed why. "The current financial strategy implemented in 2012 and reaffirmed in 2015, was appropriate at the time, given high debt and low growth. However, in order for the everyday running costs of the city to be met by revenue in the 2017/18 year an increase in revenue of $12.1m, or a reduction in costs will be required," it says.

"The council's financial plan completed less than two years ago indicated a 3.8 per cent average rates increase this year. However, to cover the funding shortfall, an additional 7.9 per cent would be required.

"At the same time Hamilton is experiencing levels of growth not seen for many years which require investment by council in infrastructure.

"Over the next 10 years an estimated funding gap of around $806 million will require the use of all available options to achieve desired outcomes including robust prioritisation."

The report states that it is likely that future funding requirements will be addressed through a combination of rates increases, increases in user charges, cost savings, deferred expenditure, a review of levels of service, greater private sector involvement and more merging of assets with neighbouring councils as a means of reducing costs.

The analysis also took a very different view of the city's recent decision to take up the Government's offer of a 10-year interest-free $270 million loan from its Housing Infrastructure Fund to develop the Peacocke area on the city's southern border.

Mr King said the council had studied opening either the Rotokauri, the Peacocks area or both. The city had opted for Peacocke because it had greater growth potential - 8000 sections to begin with and a further 10,000 once the Southern Links roading project was completed - earning the city greater amounts from developer contribution and rates income and off-setting the costs of development.

However the PWC view differed. "The current cost of Peacocke to council makes it an un-economic proposition which will cost all rate payers approximately $435 each year which represents an average rates rise of around 20 per cent to all Hamilton rate payers."

Councillor Gary Mallett said the situation would require some hard decisions around "nice to haves" and "need to haves," including continuing refurbishment of the central library and Waterworld Te Rapa.

"The pressures of city growth are extraordinary and the millions we will get from development contributions and NZTA subsidies won't cover the costs. We're going to have to abandon a few of the nice-to-haves."

Deciding how to deal with the city's financial predicament will begin later this year and ramp-up towards budget time next year.