How Hard is it to Budget?
Another round of articles, another round of our Councils spending more than they are earning. I am beginning to wonder how hard is it for Councils to set a budget and try to keep revenue exceeding expense at least just once this decade? Probably the answer is: impossible with the current crop.
And so from TVNZ I have two articles:
Published: 12:48PM Tuesday September 11, 2012 Source: BusinessDesk
New Zealand‘s 11 regional councils and 68 territorial authorities spent $145 million more than they earned in the second quarter, continuing an almost unbroken run of deficits reaching back to 2007, government figures show.
Total operating income, which includes rates, investment returns, grants, subsidies and donations, regulatory income such as building consent and dog registration fees, and operating income such as admissions and service charges, rose 7% to $2.16 billion in the second quarter from the first quarter.
Operating expenditure rose about 12% to a record $2.3 billion, according to Statistics New Zealand. The figures are seasonally adjusted.
You can read more over at TVNZ
But OPEX expanding by 12% while Revenue rose 7%. Ok if that is not a case of LOL-FAIL then I do not what is… But by any accounts someone (or more likely a whole lot of people) need to be sacked if expenditure outpaced income rather than the other way around – either that or a serious dose of financial literacy needs to be installed.
For those of us living in Auckland we have this from TVNZ:
Published: 5:25PM Thursday August 30, 2012 Source: BusinessDesk
Auckland Council – New Zealand’s biggest local body after its amalgamation of eight of the region’s councils into one in November 2010 – widened its full-year loss as growth in expanses outpaced income.
The loss widened to $233 million in the 12 months ended June 30, from a loss of $110 million in the eight months of the previous year that the amalgamated was in existence, the council said in a statement.
Income rose 37% to $2.9 billion, with rates jumping 50% to $1.39 billion, and income from services gained 61% to $1.4 billion.
The council said the result included a $167 million charge relating to the unrealised cost of contracts to fix interest rates currently at historic lows and $83 million for asset impairment, legacy costs and provisions including weathertightness.
The council’s assets increased by $1.5 billion as a result of new acquisitions and revaluations, even as slower economic growth across the city reduced property developer contributions and vested assets.
During the previous eight months, New Zealand’s largest council began implementing the Auckland Plan, a 30 year ‘prospectus’ for the region, which includes a plan to identify stable housing, job growth, skills development and the environmental enhancement of South Auckland.
A City Centre Masterplan, Waterfront Plan and Economic Development Strategy have also been adopted.
The council signed off of its 2012-2020 long-term plan, a ten-year plan totaling $59 billion for operational and capital expenditure.
“Auckland Council is now focused on transforming our organisation and we have defined how we will continue to improve our delivery,” it said.
“Successful transformation will free up the resources needed for us to deliver on the Auckland Plan, the strategy to create the world’s most liveable city, and also deliver value for money for ratepayers.”
In October, rating agency Standard & Poor’s affirmed the council’s AA long-term and A-1 short-term issuer credit rating, with a ‘stable’ outlook.
In April, Moody’s Investors Service gave the council an Aa2 credit rating, its third-highest, with a stable outlook.
Now that is eye watering stuff all round especially the stuff I highlighted in the article in bold. Hmm rate rises account for that much folks?
But even with the hefty jump in income, we still get a damn OPEX deficit that basically just over doubled…
Something is seriously wrong with Auckland Council and its Strategy/Finance Committee which oversees the Budget (revenue and expenditure) of Auckland Council if the deficit blew out by over double!
I have a policy idea and a simple one at that when setting the budget:
You set your annual revenue figures first, THEN you set your expenditure figures so that (OPEX) expenditure is no more that 98% of revenue for the year. Further more any form of revenue collection should not rise more than the average of inflation and population increase combined per year – thus expenditure should still not exceed 98% of all annual revenue after the annual adjustment.
I wonder how hard that policy would be to follow?
But in any case 2013 would be a good time to sack councillors who endorse this spend then set income budget approach, as well as being implicit in the operating lose expanding by over double. 2013 is when we have our Local Government Elections, in which we decide if we endorse this current fiscally illiterate council or bring in a new one that is more fiscally literate.
I know for me I will be campaigning on, as well as looking at in my candidates down in Papakura on the following aspects on all things financial:
- Finances: If my family has to live within its means then so does the civic institutions that impact on us greatly (that being Council and Government). You work out your income, then what you can spend on – NOT THE OTHER WAY AROUND as with Auckland Council
- Basics first: One thing I learnt when I moved out from the parents’ home and struck it out in the real world (including getting married and owning our first house) is that with the limited resources you have got, you did the basics first then with anything left over you just might be able to afford a luxury. Same applies to our civic institutions; they have limited resources so get the basics right first then “treat yourself or others” to a luxury if you are able to do so once the basics are taken care of.
It is time for us to take back of Council and restore both fiscal responsibility and literacy – for a Better and Healthier Auckland
BEN ROSS : AUCKLAND
Shining The Light –
To a Better Auckland
Auckland 2013: YOUR CITY – YOUR CALL