Submissions on DCCs Draft Long Term Plan 2012/13 - 2021/22

Submission on DCC Long Term Plan 2012/13 - 2021/22

Alex King
Quarantine Island
PO Box 8015
Gardens
Dunedin

alex@king.net.nz

I wish to speak to my submission.

Thank you for the opportunity to submit on the Council’s Annual and Long Term Plan.

I believe that given global risks that we face, the Council should be planning to aggressively reduce debt levels.  The less debt we have, the more flexibility we will have to cope with major shocks which are likely to happen.  In the unlikely event of continued economic growth and no significant environmental problems in the next 10 years, we would still be in a better position having paid down our debt.

Peak Oil and Economic Shocks

The world faces some economic uncertainty.  During the recent global financial crisis, governments and the US government in particular poured large amounts of money into the banking system to keep banks and financial markets functioning.  Large amounts to the point of unaffordability, amounts that stretch the ability of governments to service, and that put countries at risk of credit downgrades or worse.

Meanwhile there is the “soverign debt crisis” in Europe, where some countries may default on their debts, and this has serious consequences for financial institutions and neighbouring countries in Europe.  The “weak” countries may bring down stronger neighbors in the Euroan Union, and the impacts will be felt worldwide.

There is a risk of another worldwide financial crisis.  Such a crisis could see a collapse of international trade, a consequent collapse of technology dependant industries and industries with long and complex supply chains, a collapse of heavily oil dependant industries, a collapse of banks and the financial system or of credit, and of rapid deflation.  Deflation would occur if there was a reduction of the money supply through a collapse of credit.  This would happen if a future financial crisis was larger than governments’ ability to bail out troubled institutions as they have done in the past.

If such a crisis were to occur, entities with debt would suffer.  Because of deflation, real interest rates would be high; while growth and inflation rewards those who borrow to invest, economic collapse and deflation will punish them.  Assets fall in value while debt remains, equity disappears, sources of income dry up.  Were this to happen, Council’s debt would be a millstone around our necks.

Behind this crisis is the problem of peak oil and resource limits; the economy cannot continue to grow without growing its use of energy and resources.  If we avoid an economic crisis, we still have to deal with a reduced supply of fossil fuels and increased costs of mitigating climate change.  So in 2020 there will be less petrol and diesel used in Dunedin, and less bitumen, steel and cement.  Food will cost more and there will be a move back to household and neighbourhood food production.  Will there be growth in household incomes and ability to pay rates?  Only if there is a decoupling of economic growth from energy and other physical resources.  But even if this can happen, it still means less traffic on our roads, less construction activity, less trade and transport of physical goods.  It is likely that real incomes of Dunedin citizens will be static or declining.

In this environment, citizens’ ability to pay rates, and the city’s ability to service debt will deteriorate.  A debt free council would have much more flexibility face economic challenges.  Keeping the interest cost to revenue ratio to at or below 8% may seem like a conservative figure right now, but what if council revenue is static, or drops by 45% instead of rising by 45% as you forecast?  What if the value of city assets fall?  Then, not only will the ratio be breached, but the city may loose it’s ability to repay the debt at all.

So what should the Council do in the next 10 years? Dunedin needs to strengthen our resilience to economic and environmental shocks, and reduce our exposure.

Strategies to strengthen resilience and reduce exposure

The council can protect its revenue by encouraging households and businesses to build their own resilience.

• Energy independence; less reliance on imported energy reduces our exposure to energy price rises and supply problems.  If we are not paying a huge energy tax to outside suppliers, we are more able to pay rates.
• Transport diversity; with a culture of cycling, walking and public transport usage, people can more easily adapt when car travel becomes unaffordable.  Active people save money on the commute and gain health; they are better able to pay rates.
• Economic diversity and localization; the more we can do for ourselves, the less problems we will have if national or international trade fails.  The more diverse our economy is, the less we rely on each particular section of industry.  People who are well fed and in a job are better able to pay rates.

The council can reduce it’s own exposure by

• Reduce debt; get out of the way of economic shocks
• Planned Retreat; get out of the way of environmental shocks.

Specific Recommendations

1. Allow for a significant rates increase, for example 10% per annum, until all council debt is paid off.  Some of the revenue could be set aside for a fund to assist ratepayers in genuine hardship and unable to pay rates.
2. Keep any increases in operating expenditure pegged to the rate of inflation, until all council debt is paid off.  If input prices rise faster than inflation and efficiency cannot be increased, service should be reduced.  Ratepayers cannot be indefinately insulated from the effects of rising input prices; rising prices are a market signal to reduce our use of those goods.
3. Delay all planned capital expenditure until debt is paid off, unless the expenditure will increase our resilience to a major environmental or economic shocks
4. Adopt a complete streets policy where the needs of all road users are taken into account at all stages of transportation planning, and to apply these guidelines whenever minor or major roading work is done, and when urban redevelopment is undertaken.
5. Reduce the speed limit from 50km/h to 30km/h on North Road, and reduce traffic speeds around schools, suburban centres and residential streets.
6. Reduce the scope of maintenance of the roading network.  Suburban streets  could be narrowed (reduce bitumen and paved area; return to council owned verge or sell to property owners), and work done to reduce traffic volumes and encourage active transport modes. Less road area and less usage will lower maintenance work and allow a reduction of costs, or at least to keep costs static while input prices rise.
7. Re-instate and accelerate funding for the Strategic Cycle Network. Past roading work for many years has been heavily biased to serving motor vehicles, so our current infrastructure is car-focused.  To re-balance our transport infrastructure, we will need to invest in cycling and walking infrastructure in future.  Work which effectively improves our roading network for active modes and public transport gives us resilience.
8. I support a modest increase council support for the Fortune Theatre.
9. Decide a strategy to deal with climate change and in particular sea level rise. Before spending 2.5 million on bulldozers and diggers on Ocean Beach, we need to know whether a 0.5m rise in sea level this century will make it a futile effort.  Do we really need much more extensive storm protection measures like dykes or other storm surge protection, or to plan a managed retreat from vulnerable low lying areas?  If so we should start now.  If the council should take a responsible leadership position on this issue to avoid a much larger problem in future.
10. Sell the stadium, sans debt, in a transparent public sale process ensuring no liability, contingent liability, subsidy obligation, guarantee or any other obligation remains with the council or any council related organisation.  Use the proceeds (if any) to repay debt.  I do not support a stadium rating differential, but a realistic valuation based on the price paid in such a sale would mean a more modest rates bill for the new owner.  We would realise our losses to date on the stadium, but minimise our exposure to future losses.
11. Sell the Waipori Fund and pay down debt.  Investment in financial assets (even bonds) is at risk in the event of an economic shock or major downturn; and debt holdings used to fund these holdings also represent a risk.
12. Reduce council and CCO debt to nil.  Inter-generational debt is justified as spreading the cost of an asset on to future generations who will benefit from the use of those assets.  However, some assets we are building may be of less use than we imagine.  Our current roading network is not very suitable if future generations don’t drive cars, waste and water networks and public buildings may be seen as overcapitialised to future generations with lower real incomes.  In addition to considering fitness for use and impairment of assets handed on to future generations, we also need to consider external costs we are passing on such as reduced biodiversity, degraded and erosion prone land and climate change mitigation costs.  Given these considerations, it’s appropriate not to leave future generations with a financial debt too.
13. Open the Caversham Tunnels to walking and cycling traffic.  The council should fund this and do it for under $200,000. $1.6 million is bureaucratic inefficiency.