Auckland Council Debt. Should Ratepayers be Concerned?

Adam Smith said governments never repay debts.

The 1934 Bankruptcy Act in the US allowed cities and municipalities to go bankrupt.
In 1937 Chapter 9 filings were introduced.
In 1976 US bankruptcy code was changed due to New York’s financial problems.
Between 1981 and July 2012, 42 cases for municipalities were filed.
In December 2010, Meredith Whitney, who in 2007 had predicted problems with Citigroup, predicted 100 US cities would go bankrupt within a year. That didn’t happen but by October 2011 the following cities were on the verge of bankruptcy: Camden, Chicago, Cincinnati, Detroit, Honolulu, Los Angeles, NY City, San Diego,
San Francisco, San Jose, Washington DC. Other cities in trouble were Bell, Gary,
Hamtramck, Harrisburg, Joliet, Newark, Paterson, Pontiac, Redding, Riverdale & Salem.
From Jan 2010 to Jul 2013 there were 36 municipal bankruptcy filings.
In recent years bankruptcies have included:
1994 Orange County (Ca) –losses on leveraged investment funds
May 08 Vallejo (Ca) – closing of Naval base in 1990’s
Aug 2011 Central Falls (RI) –
Oct 2011 Jefferson County (Al) -largest municipal filing in history ($4b) to date
Jun 2012 Stockton (Ca) –largest bankrupt City in US, population 300,000($26m)
Jun 2012 Mammoth Lakes (Ca) –($43m)
Jul 2012 San Bernadino (Ca) –($46m)
By March 2013 Emergency Managers had been appointed in 6 Michigan State cities.
In the mid 1950’s Detroit(Mi) had a population of 1.8m (larger than Auckland today). By 1960 it was the richest per capita city in the US. On 18 July 2013 it filed for bankruptcy with a debt of $19b and a population of 700,000.

Such things would never happen in NZ people have said to me. Don’t you believe it.
In Feb 2012 Kaipara Council was given a warning by the LG Minister Nick Smith. $4.5m of errors were found in its accounts. Commissioners were appointed and attempts made to legitimise rates set illegally. The battle is still ongoing.
In 2012 the investment unit of Dunedin City Council posted a $5.1m loss. The Council had taken on heavy debt to build a new stadium for the Rugby World Cup and had poured money in to bail out the Otago Rugby Union.

As for Auckland Council, debt is escalating at an alarming rate.
Annual Reports declared actual total debt as:
1/11/10 $5.99 billion
30/6/11 $6.30 billion
30/6/12 $7.45 billion
Section 99A of the Local Government Act 2002 requires Councils to prepare a pre-election report.
Figures provided in the recent report from the Chief Executive were:
Forecast 30/6/13 $8.30 billion
Annual Plan 30/6/14 $9.20 billion
Projections 30/6/15 $10.19 billion
30/6/16 $10.84 billion
30/6/17 $11.87 billion
How do these figures stack up against the 2012 Annual Plan and the 2012-22 Long Term Plan?
Projections were (in Billions of $)
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
7.02 8.10 9.05 10.00 10.57 11.64 12.40 13.32 14.67 15.29 15.81

Actual debt exceeded the 2012 budget by $430 million.
It can also be seen that revised debt projections within a year of the 2012 – 22 Long Term Plan have all exceeded those in the plan.

With an interest bill of a million dollars a day at the moment and the strong likelihood that that will double in the next ten years on current trends, I am one ratepayer who is deeply concerned.

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1 Response to Auckland Council Debt. Should Ratepayers be Concerned?

  1. Bob Wichman says:

    Great article.
    I would suggest that the budget was presented at the last minute to prevent Councillors
    requesting a more realistic rewrite before the 30/06/15 deadline.
    The CEO then told those Councillors hesitating that prosecutions could follow if
    not passed before the deadline, and a commissioner would be appointed, goodbye
    Len and the other misfits.
    Why would they not pass the budget to retain their horrendous salaries?

    I like your style.
    Regards

    Bob Wichman
    Howick Local Board

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