As Art Deco Weekend brings its usual vibrancy to our region, it also marks a sombre milestone – two years since Cyclone Gabrielle devastated Hawke's Bay. While our resilience and heritage is worth celebration, this anniversary serves as a powerful reminder of our vulnerability and the critical importance of sound financial management.
Over summer, a friend commented that our local council debt was forecast to head north of $700 million by 2030. I was gobsmacked and sought to dig deeper into the mire. What I uncovered was a concerning pattern of escalating debt, questionable spending priorities, and an increasingly heavy burden on ratepayers that demands immediate attention and action.
Nobel laureate economist Milton Friedman's wisdom seems particularly relevant here: "Keep your eye on one thing and one thing only, how much government is spending. Because that's the true tax... If you're not paying for it in the form of explicit taxes, you're paying for it indirectly in the form of inflation or in the form of borrowing."
His words ring especially true for Hastings ratepayers today. While we survived Cyclone Gabrielle, the financial forecast ahead is deeply troubling.
With our resources already stretched thin, we must ask ourselves: what happens when the next act of God strikes? The cupboard is already bare.
A Wake-Up Call on Council Spending
The numbers tell a sobering story. The council recently reported an operating loss of $14.3 million, spending about 10% more than the Annual Plan. Even more concerning, the council expects a rates deficit of $10.95 million, which will be funded primarily by borrowing… effectively, they’re using the credit card to pay for everyday expenses.
As Friedman warned, these borrowings aren't free money. They're future taxes in disguise – with interest added.
The projected debt trajectory to $700 million by 2030 suggests deeper structural issues in financial management that extend well beyond cyclone recovery efforts. [I]
This becomes even more alarming when examining the substantial overruns across multiple facilities: Toitoi ($937,000 over budget), Splash Planet ($1.1 million over), Cultural facilities ($231,000 over), and Corporate & Governance ($508,000 over). [ii]
Each overrun represents a failure in fiscal discipline that ultimately falls on ratepayers' shoulders.
The Mounting Burden on Ratepayers
The future looks dire for local residents: A series of punishing rate increases that will compound to approximately 65% over the next four years.[iii] The breakdown paints a grim picture:
· 19% increase in 2024 (including 8% cyclone targeted rate)
· 15% increase in 2025 (including 7% cyclone targeted rate)
· 10% increase in 2026
· 10% increase in 2027
These increases come at a time when many households are already grappling with rising living costs, mortgage rates, and economic uncertainties.
Every parent hopes their children will have the same opportunities they had – to own a home and raise a family in our community. But with rates increases running at three to five times the rate of inflation, in a region where earnings typically lag well behind our big city cousins… that dream is becoming increasingly out of reach.[iv]
The Splash Planet Dilemma: A Case Study in Council Overreach
The ongoing saga of Splash Planet perfectly illustrates why councils should avoid running commercial enterprises.
Recent figures reveal the facility has overspent its budget by $1.1 million in the 2023-2024 year alone, including a massive $779,000 overspend on staffing and $628,000 on operational costs. While the facility earned revenue of $3.37 million, its operating expenses ballooned to $4.47 million, requiring $1.4 million in ratepayer funding.[v]
One can only imagine what the numbers will look like after the abnormally cold summer we have just experienced.
Adding to these concerns, the Long Term Plan[vi] commits another $5.54m in capital expenditure over the next decade; that’s $1.87m for capital works, and $3.67m for attractions. This comes after a recent $2.4m upgrade, prompted by a review revealing numerous issues with the facility.
The Frimley Pool saga comes to mind as a cautionary tale. With ratepayer contributions reaching $39.44 per visit in 2022/23 when only 5,600 visits were recorded, the facility's sustainability was clearly compromised.
Yes, you’ve read that right – ratepayers effectively paid $39.44 per person. Not per season, but per swim.
The total cost to keep it open for another five years would have approached $1.9 million; a burden that ultimately proved unsustainable.[vii]
Beyond these recreational facilities, the council maintains other significant discretionary spending that warrants scrutiny:[viii]
$370,000 annual operating cost for the Waiaroha Discovery Centre
$3.8 million annually for 'arts, culture and creativity' (with almost half going to Toitoi)
$500,000 contribution to the Regional Economic Development Agency
$344,000 for Arts Inc Heretaunga, including $120,000 for the arts festival
Meanwhile, core infrastructure desperately needs attention. The wastewater treatment expansion project alone estimated at $230 million over the next decade, with total wastewater spending approaching $375 million.
Charting a Course to Financial Stability
Several immediate steps could help address these fiscal challenges:
Return to meaningful public consultation through referendums on major financial decisions, following the successful model of the Nelson Park development. Major spending decisions affecting generations of ratepayers deserve direct community input.
Implement a comprehensive review of all discretionary spending, particularly facilities with persistent budget overruns. Every dollar spent must be justified in terms of community benefit versus cost.
Develop a clear debt reduction strategy that doesn't rely heavily on rate increases. This should include exploring alternative revenue sources and operational efficiencies.
Prioritise essential infrastructure maintenance and upgrades over non-core amenities. As Cyclone Gabrielle showed us, robust infrastructure isn't a luxury – it's a necessity.
Establish stronger financial controls and accountability measures to prevent budget overruns. When departments exceed their budgets, there must be consequences and corrective action.
We must remember that today's decisions shape tomorrow's possibilities. The current trajectory of spending and debt accumulation isn't just unsustainable – it's dangerous for our community's future resilience and prosperity.
We need leadership that understands Friedman's fundamental truth: There's no such thing as a free lunch when it comes to government spending.
Whether through rates, reduced services, or debt servicing costs, ratepayers always foot the bill.
The financial challenges facing Hastings District Council require immediate and decisive action. While some rate increases may be unavoidable given the current situation, they cannot be the primary solution to the council's financial woes. And with our financial reserves depleted and debt levels soaring, we are dangerously exposed should another natural disaster strike.
As we mark both Art Deco Weekend and the anniversary of Cyclone Gabrielle, we're reminded of both our community's resilience… and its vulnerabilities. The time has come to return to the proven practice of meaningful public consultation on major decisions, focusing our resources on core services, and ensuring our community's financial sustainability for future generations.
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 394.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://baybuzz.co.nz/hdcs-financials-not-pretty/
https://cdn.hbapp.co.nz/news/news/hastings-district-council-debt-could-peak-at-701m
[ii] https://cdn.hbapp.co.nz/news/news/hastings-district-council-looking-for-revenue-opportunities-for-waiaroha-discovery-centre
https://baybuzz.co.nz/reda-or-not/
https://baybuzz.co.nz/arts-culture-funding-in-hb/
[iii] https://www.nzherald.co.nz/hawkes-bay-today/news/hastings-facing-one-of-highest-rates-rises-in-country-council-could-hit-700m-debt/RSI6UI44ANCHTA6KDHH5TJGCSM/
[iv] https://businessdesk.co.nz/article/economy/the-turbo-charging-of-rates-must-stop#:~:text=Prospective%20successive%20rate%20rises%20of,expected%20to%20have%20risen%2010.6%25.
[v] https://www.stuff.co.nz/travel/350447787/splash-planet-amusement-park-blows-out-budget-11m
[vi] https://www.hastingsdc.govt.nz/assets/Document-Library/Plans/Long-Term-Plan/Long-Term-Plan-2024-2034.pdf; https://www.hastingsdc.govt.nz/documents-and-forms/plans/
[vii] https://www.hastingsdc.govt.nz/our-council/news/article/3229/frimley-pool-to-close-following-council-decision; https://hastings.infocouncil.biz/Open/2024/09/COR_19092024_AGN_6003_AT.PDF
[viii] https://cdn.hbapp.co.nz/news/news/hastings-district-council-looking-for-revenue-opportunities-for-waiaroha-discovery-centre
