Unsubstantiated speculation?

Our Council is planning to transfer over more assets to its holding company GHL in the coming months. We got close to stopping the transfer of the municipal buildings at the October hearing, only missing out by three councilor votes. It is our intention to be better prepared and lobby more effectively when this issue comes up for consultation in the near future.

The recent transfer of the municipal buildings to GHL was justified by the Council making several bold claims. No increase in debt, no increase in rates and extra revenue from new commercial activities.

In the minds of some Councilors and the Mayor, by having GHL raise the debt, even though GHL is 100% owned by GDC, they believe somehow it will not show up in the Council books. There is a statutory obligation for GDC to declare any subsidiary debt when it presents its financial reports each year, it would be fraudulent not to do so. There is no question that total ratepayer debt will increase by at least $11m.

Again some Councilors are misrepresenting the question of the increased cost to ratepayers from renting the municipal buildings from GHL. Their claim is that because the new rental from GHL will not be significantly more than that already charged internally by GDC, there will be little additional cost to rates. This misconception is understandable if they have no appreciation of basic accounting. For every internal rental charge there must be a corresponding rental income entry. As soon as GHL charges a rental this will be an additional/ external cost (real money) with no revenue to offset it.  The only offset will be if GHL can achieve a profit margin on the rental, after paying the interest, principal, other landlord expenses and then pay this to GDC as a dividend. The projected deficit of this transaction is expected to be approximately $1M or a 1.2% increase in rates.

The claim that GHL will be in a position to leverage on the $100m of Council assets, the new balance when all proposed assets are transferred, to borrow funds to launch new commercial activities that will generate profits, is total speculation and unsubstantiated. After funding the new municipal building it will be close to exceeding its debt to asset limit anyway. Claims that there will be significant tax benefits from GHL managing the assets is also nonsense.  Tax deductions only have a value if you are paying tax, GHL has not paid tax for many years. GHL will continue to be in a position to offset any profits against GDC losses.

Since the Local Government Act 2002 was amended we have seen community owned assets progressively transferred to commercial boards on the assumption they will be better managed and provide better services to their beneficiaries. Without the political interference of elected representatives, these CCTO’s can make the commercial decisions necessary to transform these non profitable assets into much needed revenue generators.

In Tairawhiti we have seen the management of our port, electricity network and airport transferred to EGL and the Tauwharepare Farms managed by GHL. Profits and asset values have significantly improved over the years, and in EGL’s case, successful expansion into to other utility activities. With healthy dividends paid back to ECT every year the community enjoys total grants of approximately $5m. Is this not compensation enough to give away the control of these community assets, to relinquished our democratic rights and allow the decision making to move from the council chamber to the boardroom?

Perhaps we should also consider that our electricity charges have increased by 100% over the last ten years and that EGL has been held to account by the commerce commission not just for excessive network charges but also excessive port charges. Should we not be applauding them for doing a great job? Isn’t this what we ask them to do, maximize profits, even if it is our community that is footing the bill? The EGL net profit from the electricity network in 2015 was $10m and is why we have some of the highest power charges in the country.

Is it perhaps time to consider other community asset management models where the ‘common good’ for our community is the primary objective instead of capital gain on a balance sheet?

Rick Thorpe, 9 February 2016

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