Projected debt simple question, complex answer

Letter Response - Wanganui District Council deputy chief executive/finance & corporate services manager Julian Harkness.

There has been some recent debate around council debt and some confusion about my previous, overly short explanation in response to Mr Carson's letter - and he queries whether my calculator batteries were flat.

Every three years, as part of an integrated 10-year plan, after determining what services are required, which assets need repair or replacement and which ideas add value, the council predicts future debt and rate levels.

Wanganui District Council and other New Zealand councils are the only organisations in New Zealand, and probably the world, that prepare audited, integrated financial and non-financial 10-year plans.

There are more than 1000 project lines in a 10-year plan budget. Elected members, senior staff and expert consultants have varied opinions that are distilled into one report. The work takes months, and has thousands of related calculations.

The plan and projections are independently audited by Audit New Zealand. The projections for the council's draft 10-year plan 2012-2022 have been approved by Audit New Zealand.

This 10-year plan is prepared on what is known now and, as with previous plans, our knowledge of projects, estimates and importance will change over time. Every change will alter the expected rate or debt projection. So, how accurate have council's previous debt predictions been?

2009/10 - 2010/11 - 2011/12 10-Year Plan

Debt prediction: $79million to $85million to $93million.

Actual debt: $79million to $89million to $89million (May 2012).

Even with some significant changes to its plans, eg soft water cost estimates, as well as the decision to purchase the port, council's debt will be lower or equal to what was predicted 3 years ago.

When discussing debt, council believes the peak debt is the most important indicator, as it is when we are most financially stretched.

In a recent letter to the editor, Mr Carson implied that my explanation on debt, and the 10-year plan explanation on why peak debt has risen $20million, was an answer to his question about why debt has risen by $40million for the year 2018-19. However, this is not so. Mr Carson's question was, "Why has projected debt been estimated at $105million for 2018-19 in the 2009-19 plan when it was $66million in the 2006-16 plan"?

The answer to this question is complex, as it is the net effect of all of the debt-funded changes made between the 2006-16 plan and the 2009-19 plan. The major components were:

Earthquake-prone building costs $21million.

Interest on additional debt.

Higher inflation estimates.

Changed priorities for when work will be done.

Variations to rates rise etc.

Council recognises there is a huge amount of information that needs to be shared so that a robust debate around debt can occur. The council has also signalled in the draft 10-year plan that the repayment of existing debt is a priority and has proposed a debt retirement rate to help with this.

I believe the draft 10-year plan 2012-22 forecasts are accurate, based on the assumptions made and the current information, and so does the Auditor-General.