Local govts scolded for borrowing too much

Local govts’ long term plans often simply to borrow more: Auditor-General

By Pattrick Smellie

Aug. 24 (BusinessDesk) – Local governments’ long term planning still too often lacks financial strategies to deliver desired outcomes, with total council debt forecast to double during the 2009-19 period covered by the latest clutch of long term council community plans, says the Auditor-General.

Councils are required by law to prepare LTCCPs every three years to give a 10 year planning horizon, but the A-G says in a report tabled in Parliament today that “local authorities still need to improve their practices supporting long term planning.”

In particular, many councils had responded to the economic recession by increasing their debt levels, because of the short term threats to affordability of their near term plans.

“The 2009-19 LTCCPs signal that debt will almost double during the 10 year period of the plans.”

This would increase debt servicing costs and “will also affect the local authorities’ ability to manage rates in the later years” of the decade the plan relates to.

Some seven local authorities received “adverse” audit opinions, with the authority responsible for the country’s top tourism destinations, Queenstown Lakes District Council, fingered for “lack of financial prudence” and a long term plan that is “financially unsustainable”.

A similar adverse report on Tauranga City Council was removed after Tauranga changed its plan.

“Local authorities could improve their practices in completing and integrating robust underlying information, such as asset management plans … and forecasting assumptions, and complementing long-term thinking by preparing appropriate financial strategies.”

Both these issues had been “challenges for the sector for some time,” the Auditor-General, Lyn Provost, said. “Until local authorities have robust underlying information and appropriate financial strategies, the potential inherent in local authorities’ willingness to think long-term will not be fully realised.”

Other commonly raised issues were financial strategies that did not set revenues high enough to replace assets in the future; uncertainty about continued funding from central government; and risks relating to expected dividends from local authority businesses to reduce debt.

(BusinessDesk)

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