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Saving Ratepayers
  Millions of Dollars

Zero Interest Finance for Essential Capital Works

There is a way in which substantial savings could be made for ratepayers.  It will need enough of you making demands to realise these savings from your elected representatives.

Let me outline the situation here in our North Shore City.  Council's Long Term Financial Strategy 2001 projects substantial direct Capital Works expenditure to be funded by loans in the next 10 years.  The cost of interest finance on these public works will be substantial as the following abstracts from the Plan show.  Look at how this will impact on your pocket and then see what we can do about it.

INTEREST  BURDEN

The cost of interest on loans for capital works financed from open market borrowing at commercial interest rates is serious.  It will amount to $144,100,000 over the next 10 years.  Here are the figures.

INTEREST BURDEN

Year
Period

Interest

Interest Constraint - Expenditure

Interest Constraint - Revenue

$million

$million

$million

Current

2000-1

3.7

16.9

16.2

Future

2001-2

6.4

18.1

17.8

2002-3

10.5

19.2

19.6

2003-4

13.2

20.0

21.1

2004-5

14.8

20.5

22.8

2005-6

15.8

20.8

24.3

2006-7

16.5

21.1

26.0

2007-8

16.6

21.4

27.6

2008-9

16.4

21.7

29.2

2009-10

17.1

22.0

30.7

2010-11

16.8

22.3

32.4

----------

TOTAL

$ 144.1 million

Council will take $144 million dollars from ratepayers but not actually apply it to works for the carrying of capital projects in North Shore City.  This is more than the total cost of some essential projects. It is no wonder that some will have to be delayed.  The $144 million will be paid to financial institutions which will create and issue the debt.  What a waste! It is wrong.  It is actually inappropriate for any community to pay such a huge cost to hire new money for its use.

What does this level of Interest cost represent for the average ratepayer? Based on current ratepayer numbers, 70,500 it is as shown in the next table.

AVERAGE INTEREST BURDEN

Year
Period

Total
Interest

Average
Burden

$million

70,500 payers

Current

2000-1

$ 3.7

$ 51.82

Future

2001-2

$ 6.4

$ 91.35

2002-3

$ 10.5

$ 148.47

2003-4

$ 13.2

$ 187.04

2004-5

$ 14.8

$ 209.40

2005-6

$ 15.8

$ 224.71

2006-7

$ 16.5

$ 234.62

2007-8

$ 16.6

$ 235.70

2008-9

$ 16.4

$ 232.91

2009-10

$ 17.1

$ 242.62

2010-11

$ 16.8

$ 238.17

------------

Cost to Each Ratepayer

over next 10 years

$ 2,044.99

It is true that the individual annual cost beyond the second shown year will reduce as ratepayer numbers increase but the rough measure of this interest burden is evident from this table.  It is substantial.  Your pocket will be hit heavily to pay this. In my view Council must do its utmost to avoid or minimise this burden.  It has failed to do so thus far.  As one of the payers you must demand of all elected representatives that they do whatever is necessary to minimise this interest cost burden.

SOLUTION

Ask yourself this question.  Is it ethical to add to the burden on ratepayers the interest cost of hiring the money required for community works, from private banks and thereby add to their profits?  If your answer, like mine, is No!, then we must call on the Government of New Zealand to allow the Reserve Bank to provide an overdraft or loan facility for financing of local authority capital works at zero interest (administration cost only).

Can this be done?  The answer is, Yes.  It is just a matter of having  the right policies implemented.  It can be done.

More to come ....


Links

1. Article in NZ Local Government Magazine August 2001.  Click here    Article 1

2. Correspondence with Reserve Bank


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 Last modified: 24 Apr 2012

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