Mangawhai Ratepayer Rort Continues

In this posting I provide some updates on where things have got to, now that the Government appointed Review Team has come and gone, now that the Council has been sacked (having adopted a Long Term Plan - illegally many consider), and now that four Government appointed Commissioners are in place to settle things down, implement that plan, and - presumably - get the serfs to pay up....

I'm one of the serfs who has received a shiny new rates assessment and invoice in the past couple of days. So you could say I have an interest.... which I wanted to understand.... by reading the document that the incoming commissioners have been given the job of implementing...

The Long Term Plan 2012-2022

Rattling through this document, a few things come to light. News to me, but not to all. It comes in several parts. In Part 1: Overview and Financial Strategy, we read...

7.1.1 Mangawhai Community Wastewater Scheme. 

One of the key issues Council considered as part of this Plan was the impact of the costs, both operating and capital, of the Mangawhai Community Wastewater Scheme. The debt attributable to the Mangawhai Community Wastewater Scheme is $58 million of the $79.6 million debt forecast for June 2012. This level of debt was, under the previous funding arrangements, forecast to grow significantly as interest and other operating costs were forecasted to be funded from additional borrowing until further development has occurred.
This Council is of the view that there is a need to adopt a more conservative approach to funding the Scheme, particularly in today’s economic environment. The challenges associated with doing this are increased by the fact that there are the equivalent of 1,987 users for a Scheme that was designed to have 4,300 users. It is recognised, however, that there is some ability to increase the number of users connected by extending the reticulation network within the existing Scheme area or “drainage district”. Council will be looking for economically sensible options for extending the current reticulation system so that additional households can be connected.

So that gives you some key numbers to think about.

Feedback re Mangawhai Community Wastewater Scheme As a result of the submission process we were made aware that an overwhelming number of the issues around this Scheme effectively fell into three categories: Irregular Rates, Scheme Costs and Operating Costs.
Irregular RatesA clear message we got through the submission process was “give us back our money”. We have undertaken to work with the community to resolve issues around rate irregularities and will be forming a focus group representative of the various stakeholders involved. There is no simple fix to this and it is likely that it will take 12-18 months to resolve.
Scheme CostsAnother clear message we got through the submission process was “it’s not our debt” with many saying the Mangawhai community had only agreed to a portion of the debt, everything else was a District-wide debt payable by all ratepayers. Council has accepted this argument and also recognised the need to ensure that the rates payable remain affordable for those connected to the Scheme.
We have also recognised that there is a proportional benefit to everyone in the District to have a harbour that is clean and healthy. Even if you do not use it, it is a drawcard for those outside the District who would not invest in an area where a prime holiday spot sat on a contaminated harbour.We have decided that the Scheme direct operating costs should be funded by those connected to the Scheme. The capital costs associated with building the Scheme for existing users are split between those connected/able to connect, District-wide ratepayers and the Mangawhai Harbour Restoration area. New development will also pay its share of the costs via Development Contributions.

This gives a flavour as to how Council has decided - in overview terms - to deal with the issue. But the devil is in the detail...

Sewerage and the Treatment and Disposal of Sewage 

Wastewater - MangawhaiThe Mangawhai network collects wastewater from 1,987 users in the Mangawhai Village and Mangawhai Heads areas. The system includes approximately 112 kilometres of pipeline (consisting of both gravity and low pressure sewer systems) and 18 pump stations where wastewater is pumped to the Water Reclamation Plant located just south of the golf course. Wastewater is treated and the reclaimed water pumped along a transfer main to Lincoln Downs (Browns Road) where it is stored, awaiting irrigation to pasture. The treatment plant comprises screening, tertiary biological treatment in aeration basins, granular filtration, and final disinfection by ultraviolet radiation dosing and chlorine. 

The annual operating wastewater targeted rates for 2012/2013 are as follows: 

Connected as at 1 July 2012 (100%) $1,230.00 per SUIP/pan 

Capable of connection at 1 July 2012 (75%) $922.50 per SUIP/pan

So that's the overview. (By the way - SUIP is to do with Separately Used or Inhabited Part.) Now if we want more detail we need to go and look at Part 2 of the Long Term Plan. In it we find this information....

Wastewater – Mangawhai Targeted Rate (Operating Costs) 

Background The Mangawhai Community Wastewater Scheme comprises a system that serves both Mangawhai Heads and the Village. The network currently has some 40 kilometres of sewer lines. The treatment process utilises natural biological processes, filtration followed by ultraviolet and chorine disinfection to produce recycled water which is suitable for a range of uses including farm irrigation. The system is managed and operated by Water Infrastructure Group, the designers and builders, who have a ten year contract with an option for a further five years expiring in 2024.The system connects into existing traditional gravity sewers installed by developers and Council is responsible for the maintenance of these sewers. 

Activities Funded The operating expenses (including interest on the original scheme costs) around the operation and maintenance of the wastewater treatment plant, reticulation and dam. It also includes repairs and maintenance of developer installed sewers.

Key factor in this part "activities funded" is that it includes the interest payable on the original scheme costs. But it makes no mention of the capital itself. However, before we get to that, here's what Part 2 says about the revenues from the Mangawhai Targeted Rate.

579 units (SUIPs) connectable, @ $922.50/unit = $464,459 

1,423 units (SUIPs) already connected, @$1,230/unit = $1,521,991

So that's the bulk of the revenue Council is expecting from Mangawhai ratepayers in 2012/2013 for the wastewater scheme.   (Remember in the 2011-2012 year it was $773/residence.) Now we need to look at Council's revenue and financing policies to see how it plans to deal with capital and loans (debt).

Revenue and Financing Policy
The purpose of the Revenue and Financing Policy is to describe how Council funds its operating and capital expenses from the funding sources available to Council and why it chooses the various mechanisms to fund the operating and capital expenditure of the Council. 

Mangawhai Community Wastewater SchemeThe funding arrangements for the Scheme are as follows: 

 Direct operating costs are to be funded from properties connected/able to connect to the Scheme. 

 The capital costs of building the Scheme have been allocated to those connected/able to connect to the Scheme, the Mangawhai Harbour Restoration community and District-wide community. In 2012/2013 Council is only funding the interest associated with these loans. This will occur via the Scheme operating rate for the connected/connectable community, a separate targeted rate for the Mangawhai Harbour Restoration area and the uniform annual general charge for the District-wide community. 

 Repayment of the principal associated with each of the loans will occur over a 30 year period beginning 2013/2014. A new targeted rate will be introduced for connected/connectable properties. Council is also intending to develop a lump sum contribution policy for those users who might want the ability to repay their share of the debt via one payment rather than spread it over the 30 year period. This option will be made available from 2015/2016.

So this is where you can understand the fundamental decisions that are in the Long Term Plan that was finally adopted. The key statement is: that the capital costs of building the scheme have been allocated to those connected/able to be connected to the Scheme - essentially. And that repayment of the loan itself won't begin until the next financial year - 2013-2014.

Using the numbers we have above, there are 2,002 SUIPs (connected or able to be connected).
Worst case let's assume no-one else comes and develops (see Developer levy fees below).
The loan for EcoCare is $58,000,000 (see above).

So that's equivalent to loan of $28,971/housing unit, or about $1,000/year on top of their residential rates for 30 years.

What I want to know is how much of the $1230 payable this year for wastewater operating costs, is to pay the interest on the loan of $58,000,000. I guess if we took a conservative 6%, then the interest on $58,000,000 would be $3,480,000/annum, or about $1,738/annum for each of the 2,002 SUIPs.

Doesn't add up does it, as the wastewater charge for 2012/2013 totals $1230.

Anyone help? (I note, by the way, that Part 1 of the Long Term Plan, does provide information about finance charges relating to wastewater for the whole of Kaipara District. These start at $2,526,000 for 2011/2012, and are budgetted to increase to $4,266,000 in the year 2021/2022. For 2011/2012 the split of operating costs for wastewater services in Kaipara District is about 37% for actual operating things (like plant and staff), but over 50% for interest and finance charges ....)

In addition there will be Development Contributions that will be payable for new development on new SUIPs in the Mangawhai area. These will reduce the debt/loan payable by existing ratepayers. Assuming new development actually happens. Information about these contributions is contained in Part 2....

Mangawhai Waste water Development Contribution in Year 1 = $16,900 

Mangawhai Waste water Development Contribution in Year 2 = $17,559 

Mangawhai Waste water Development Contribution in Year 3 = $18,244

That looks like a cool $52,703 payable for each new housing unit, but actually it's not. What it means is if your development is in year 1, of the 3 year period of the Long Term Plan, then it will cost you $16,900 in wastewater charges per lot in your development. (My correction dated 29th Oct 2012)

Anyone keen on a new Mangawhai development?

How will residential development be affected by these charges?

I wonder how many people have understood the full impact the new Long Term Plan will have on them now, and in future. Especially since they were not consulted about it. No wonder ratepayers are angry.