Mangawhai: Fixing Faults or Validating Mistakes?

As the Mangawhai rate strike against Kaipara District Council’s mismanaged sewage scheme approaches its first anniversary, and the argument moves through the High Court and into Parliament for resolution, the fundamental role of the banks begins to loom large, requiring intervention.

The Mangawhai Ratepayer and Residents Association has been working hard toward a High Court judgment that Council acted unlawfully – particularly when taking on substantial bank loans. Last week the Association wrote to the Minister of Local Government seeking a meeting before filing its Statement of Claim for judicial review proceedings.

Meanwhile the Kaipara District Council (KDC) government appointed commissioners have been working behind the scenes on an approach known as validating legislation, and this was made public last week. As part of that announcement Kaipara District Council finally acknowledged that a number of “irregularities” occurred in the setting and assessing of rates in each of the financial years 2006 to 2012. It also conceded that it failed to meet Local Government Act (LGA) consultation requirements for its most recent long-term plan 2012-2022.

These admissions (more than fifty are listed) are good news to ratepayers because their doubts about the Council have been confirmed. Council’s admissions of irregularities, failures and breaches of the law have rendered aspects of ratepayers’ planned legal action unneccessary.

But the next question is what to do about these admissions. For example it means that the Council is, by its own admission, now operating outside the law because it has no valid Long Term Plan.

To deal with this gap, KDC’s commissioners have released draft “validating” legislation which is intended to restrospectively fix all irregularities and failures. This Local Bill is to be introduced into Parliament at the earliest opportunity. Commissioners will be hoping for a quick passage, but residents are increasingly concerned that it will just lock in their problems and concerns, rather than solving them.

By way of illustration, one of the clauses of the bill deals with Council’s failure to consult and states: “Despite the failure of the Council to comply with sections 83(1) and 93(3) of the Local Government Act 2002, the Council's long-term plan 2012-2022 is valid and declared to have been lawfully adopted by the Council.”

This is draconian stuff. It sets a dangerous precedent, not just in Local Government but for the future of democracy.  It suggests that when a council oversteps the mark and ignores the community and breaks the law, then government will step in and validate that behaviour.

A further problem with the broad validating approach is that it ignores individual ratepayer differences and the different impacts the “irregularities” and “failures” have had. A one size fits all Bill risks angering and upseting members of the community. They will be forced to make submissions to the Select Committee who probably won’t be able to take a blind bit of notice.

A cynic might suggest that’s all part of the Government’s bigger plan to amalgamate councils up and down the country. More than one MP has called for the Far North District Council, Kaipara, Whangarei, and Northland Regional Council to be merged. Sowing anti-council dissent among Kaipara ratepayers might assist that objective. 

That would be a negative outcome. These areas need effective local government, not the massive costs and distant administration of another super council.

Local Government exists for one reason. It is there to administer, provide and fund the different needs of different locals in a local environment.

The uniform validating legislation being pushed through now by commissioners is a whitewash which might fix the council, but won’t address local issues.

But probably the most profound issue all this raises is the role of the banks and the size and impact of the bank debt.

The preamble to the validating legislation bill states: “the Council borrowed $57,978,000.00 to fund the capital costs of the Mangawhai EcoCare Sewerage Scheme, and it is acknowledged that section 117 of the LGA applies to those borrowings such that they are protected transactions and remain valid and enforceable.”

Mangawhai ratepayers believe that most, if not all, of these KDC borrowings were not lawful. The rate strike has been strongly supported because of resistance to paying interest on loans ratepayers had little or no say over.

Kaipara District Council borrowed money from Amro Bank to begin with. Later, Amro Bank sold those loans to the Royal Bank of Scotland (RBS), which, during the global financial crisis, almost went bust and needed to be bailed out by the UK Government. Prior to the bailout and to increase its liquidity the RBS embarked on a fire sale of various assets and loans – including the Kaipara District Council loans.

These were purchased by ANZ and BNZ. You can be sure they would not have been purchased at face value. I am advised the purchase price for those loans would be less than 50 cents in the dollar. Yet both banks are presumably charging Kaipara District Council – and ratepayers – the interest rate agreed with Amro.

Given the disagreement over the loans and the traded nature of the borrowings, what might be a fair rate of interest from now on? How does it all work? 

Events when Councillors were sacked and Commissioners appointed illustrate the nature of the relationship between the banks and KDC. To prepare the ground for the change in governance reassurance was sought from the banks that they would not foreclose on the loans (retirement of a Council is a breach of the covenant between bank and council).

The banks, for their part, needed to be re-assured that the Council would be a “going concern”. This reassurance indicated that it would be able to fund the interest on the loans from rates revenue. It is deeply ironic that this reassurance was given September last year, in the light of commissioners’ admissions now that Council has been operating outside the law with no valid long term plan. This means that since September it has had no power to operate as a local authority in New Zealand, or collect rates, or to claim it was a going concern.

Tellingly, at a public meeting on 11 February, Commissioner Chair Mr Robertson stated that KDC only pay 10% of their interest charges using money raised from rates.  The rest they pay by capitalising the interest and borrowing more.  The rates burden that will fall on the district if they move, as they say they will, to pay-as-you-go, will be likely to double local residential rates to around $5,000/household. 

Tread carefully. Don’t rush into validation of  bad decisions. Building trust between ratepayers and Council will require careful local solutions, negotiated over time.