Dear 2021 Councillors, it’s very simple: You can’t have it both ways

The Christchurch City Council asset sales debate has reared its head again, with a move to reintroduce discussion on an elected members’ agenda last week. However, the 2021 bloc used their majority to prevent a debate taking place, but Independent Citizens has now announced that the issue will be a policy platform for their candidates for the local government elections next year. The issue is by no means dead as the Mayor has signalled she wants to see an intelligent conversation about selling assets.
The issue of asset sales has been floated in one form or another since the quakes because of the cost issues related to underinsurance of the city’s assets, resulting in significant financial pressure on the city’s books. Since there is only so much that ratepayers will be prepared to pay in direct increases in rates, the other options for bridging the gap have been spending restraint, increased borrowing, capital releases from assets or outright sale of asset shareholdings. All of these have issues associated with them, the main ones being set out below:
Solution Issues
Fiscal restraint By far the simplest and most obvious, but apparently some councillors need huge expensive spending projects to bribe voters with to guarantee they get re-elected.
Rates increases 5% increase in rates every year for the next 10 years is way too much and will cause economic hardship for people on fixed incomes such as elderly.
Increased borrowing Council hits borrowing limit (I believe it has). Debt servicing charges increase has to be financed by one of the other options.
Capital release from assets The extra dividends have to be paid for by some other means. The most obvious way this will occur is through increased user charges for services, which is effectively a hidden rates increase.
Asset sales
  • Dividend payouts to council are reduced which means there is a greater financial shortfall
  • Private shareholders, as seen with central government partial asset sales experience, will demand a profit-maximising focus which will likely result in increased user charges and other fiscal mechanisms that will cost ratepayers more in the medium term.
  • There is, in reality, no actual answer apart from fiscal restraint. An example of why capital release became a liability for central government was seen during the term of the 1999-2008 Clark Labour government. Most of the electricity generators at that time were fully owned by the State. Minister of Finance Michael Cullen went to these generators and asked them to hand over special dividends amounting to billions of dollars. The net result was sharp increases in electricity charges of about 50% or so. The government managed to successfully shut down debate over these increased household costs as a result of their policies during that time.

    The CCC situation is a very different one. 2021 do not control the council, in fact they are in a minority. The influence and credibility of this bloc is limited. Just because they stopped the issue being debated at the finance committee won’t stop it from going onto the agenda of the full council where they have a minority vote. And with the nature of local government, it is impossible for a controlling bloc to shut down debate as it is for central government. Councillors aren’t whipped at local level and therefore are free to take their own position on any issue, and the whole process is much more open.

    The deputy mayor and 2021 caucus leader Andrew Turner has claimed that there is no need for any asset sales of any sort because the council has just approved a “prudent and sensible” 10 year financial strategy that did not involve selling any assets. This strategy relies on the assumption ratepayers are going to fork out 5% increase every year for the next 10 years. That is a total crock. It’s a political liability that will come back to haunt these councillors at the elections.

    My personal view is that council spending should be reigned in (fiscal restraint). It’s easy to see where savings can be made:

    • Voluntary libraries that are only open a few hours a week by a small group of 50-100 users are obviously wasteful. The spaces should be full community centres with just a small space available for the books to be stored so that these libraries are just another community centre activity instead of having their own dedicated space that is hardly used and only by small numbers of people. CCC has rebuilt a number of these libraries around the city since the quakes but it is hard to justify why they should favour these small groups on the basis they are a library, when other community groups have to hire the community centre and have a limited space for storage. In some areas of the city such as Shirley there isn’t even a basic community centre facility, and the residents want to know why their area missed out.
    • New pool complexes across the city, justified because of school pool closures. Far cheaper to subsidise schools to keep their pools open. The other option is to cut the initial level of facilities at these complexes to just a pool, and leave out what has been described as “gold plated” options such as fitness centres and hydroslides. Giving the St Albans pool group a million dollar loan is another joke.
    • Spending blowout on the Town Hall restoration because extra capabilities have been added in.
    • The new city library especially the touch wall.  The existing library building was probably repairable, as it was very strong. The new library has been justified on the basis of increased demand for services, but we have urban libraries all round the city as well and there have been new sites added to the library network in the last seven years. Personally I used the temporary library in Manchester St and could not see how that was supposedly inadequate. The increased demand happens because the council decides to increase the services on offer, not because there is increased capacity needed for existing services. Apart from construction costs all this adds up to increased ratepayer costs in the form of subsidies to offset the operational losses. The list of facilities at the new central library just looks like a wish list: 200 seat arena, video editing suite, music studio, arts and craft spaces, hands on technology / innovation zone. These facilities are probably largely responsible for the need for a new, larger building, plus the cost to the city of wastefully demolishing the old building.
    • The stadium is an obvious target. With a total cost forecast of around $500 million, this adds up to two cost pressures. Firstly, the $253 million that ratepayers will have to fork out which is a large part of the increase in rates over the next ten years. Secondly, the $220 million or so that will be taken out of a $300 million fund that central government has offered the city, to make up the remaining cost, considering all the other things this could be spent on.

     The response from the 2021 bloc is to claim as I noted above that there is no need for any asset sales. This is not financially credible. In short there is no way of nullifying the present demand for asset sales.

    Personally I oppose asset sales and in fact any of the financial relief strategies except for fiscal restraint. I do not believe the city will benefit in the medium term from asset sales as the wasteful spending culture is not addressed and the assets can only be sold once. If there was no other option then the first assets to be considered for sale should be those businesses which operate in a commercial market, the obvious ones being City Care and Redbus. Nearly everything else is a monopoly for which public ownership serves a greater benefit, although to some extent the Port of Lyttelton competes openly with PrimePort for freight to the south of the city and is a commercial business that doesn’t really return much to the city in social benefits.

    It’s a great concern that the financial ability of the 2021 councillors is so woeful and that they fail to understand where money actually comes from and that the council doesn’t have a bottomless pit of funds to spend on anything they wish.

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