Guerin says budget cuts will fund airport loans with no extra rates required

ROTORUA 28.02.11: Rotorua District Council chief executive Peter Guerin says the council can meet its repayment commitments on airport infrastructure loans from within existing budgets. He said this would alleviate the need to collect any additional revenue from ratepayers for this purpose.

Mr Guerin said he would be putting a detailed report to the council meeting on Thursday this week that would set out the current situation in full along with his recommendations and options for funding existing airport loan payments.

"Over the last few days and nights I have been going through next year's draft budgets with managers on a line-by-line, item-by-item basis to identify possible budget cuts and efficiency savings.

"The challenge I've issued to our staff is to reduce their department budgets without affecting the range of services we provide or the levels of service we deliver to our ratepayers.

"We know we have to tighten our belts even further this coming year meaning all staff will have to work harder and smarter, and with fewer resources at hand to maintain the high standards our community expects.

"I believe we have now identified all the savings necessary and we have a commitment from managers and staff to live with these reduced budgets."

Mr Guerin said the council had been working on draft budgets for the 2011/12 financial year for some time and remained committed to holding rates increases to around 3.5% which is within the forecast level of inflation.

"We're confident we are still on track to fulfill all our obligations and to maintain service levels with a rates increase of no more than 3.5%, and with no extra rates required for loan repayments. This would
mean Rotorua has one of the lowest rates increases in the country for the third year in a row."

Mr Guerin said there had been a lot of confusion in the community and a number of mischievous comments around the loans the council had taken out for Rotorua's airport infrastructure. He pointed out that the loans were not the responsibility of the airport company as it was the council that owned airport infrastructure and was responsible for servicing loans.

"The money the council spent upgrading our airport was not just for trans-Tasman services as some people have made out. In fact nearly 80% of recent airport infrastructure expenditure had to happen if we were to retain a fully functioning domestic airport with the capacity to take the latest jet aircraft and to meet more stringent CAA safety requirements.

"Suggestions that the airport company could be at risk of insolvency are also nonsense and this has been backed up by the Auditor-General. Rotorua Regional Airport Ltd is in a sound financial position and is generating more than enough income to cover its operational costs. The company is well managed, has a lean and effective board of directors and a strong balance sheet.

"However what has changed since original revenue forecasts were made for the airport is the world economic situation. Every business has had to review its income and expenditure expectations and financial arrangements as a result of the ongoing global financial crisis. RDC and the airport company are no exception. However in Rotorua's case on top of the recession we have been dealt a double whammy with Qantas pulling out and Air New Zealand reducing capacity between Rotorua and the South Island. These events have cost Rotorua millions in revenue.

"Had these unforeseen developments not arisen, Rotorua could have expected more visitors through its doors and many more domestic and international services operating in and out of the city today. Earlier
professional advice showed that the airport company would have been generating a substantial surplus in due course, which the council planned to use to service loan repayments. That extra income is not
currently being achieved but optimism remains that the airport will in due course be successful and will make an even more significant contribution to the Rotorua economy.

"We also remain confident that the Bay of Plenty Regional Council will accept it has a responsibility to financially support the airport's development because of the benefit it brings to the wider region and beyond. The airport is not just a facility for Rotorua residents."

Mr Guerin said borrowing and repayment levels for airport infrastructure developments were spelled out in the council's ten year plan which was adopted back in 2009. He said the document involved widespread public consultation at the time and careful scrutiny by the Office of the Auditor-General.

"There has been no sudden revelation and there has been no financial information hidden.

"A review of budgets and forecasts of revenue and expenditure should come as no surprise to anyone. People should only be surprised if we failed to take the action along the lines of what we are recommending to the council this week."

"The level of loans we have for airport development is in the region of $58 million and for all our other loans about $80 million. This is well within the loan thresholds set under council policy and is backed by council owned assets worth nearly a billion dollars.

"I'm absolutely certain that this community would never support a decision to abandon our domestic and trans-Tasman airport as some have suggested, as it is a vital lifeline for our future economic progress," said Mr Guerin.

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