$200m debt debate
LAINE Harth is worried that Rockhampton Regional Council's borrowings are out of control. She's not alone. As the authority's debt spirals towards $200 million, some experienced councillors have expressed concerns that the financial position is unsustainable and could place future generations at peril. But Mayor Brad Carter is equally confident that the debt poses no threat and local government economists describe the amount the council owes as low to modest So who's right? Below we've published in full Ms Harth's thought provoking letter and a response from Cr Carter.
Laine Harth's letter:
BRAD Carter's validation of this council's huge debt is a betrayal of a generation.
On November 23 this year, Brad Carter held a business breakfast to debunk the myths about a council in financial trouble and explain why almost $200,000,000 was a debt we just had to have. At that breakfast mayor Carter explained that our current debt was manageable and that it was reasonable to expect the next generation to help pay for infrastructure we put in place now. At the time I felt something wasn't quite right about this statement, however I went on to listen to the rest of the explanations which all sounded very rational and valid for these economic times. But wait… "the next generation will help pay for infrastructure we put in place now". It is now almost Christmas and the words keep reverberating in my mind throughout my festive consuming.
As a baby boomer, I can remember the days of free university and becoming a home owner in your 20s. I remember when our mortgage and/or rent was 25 to 30% of our take home pay. I remember when the role of mother was valued and we were affluent enough to have a choice to be a stay at home mum or a working mum. I remember a time when my grandparents, my parents and our community elders, felt an inherent responsibility to leave us with more than what they had, such as an inheritance.
When did this concept change, have I been the proverbial frog in the pot of slowly heating water? When did we make the decision to betray our children? Was it when the bumper sticker appeared, bragging of spending our children's' inheritance or perhaps when living on credit became acceptable? Whenever this idea of our children paying for what we spend came about, it has me wondering, will the next generation be called Generation J for " jilted"?
There has been much discussion recently about the problems with young people in our community and youth behaviour is often discussed as a threat to society, whether it be binge drinking, teenage pregnancy, youth crime or inappropriate use of social medias (Facebooking). Are we demonising our young so we won't feel so guilty about leaving them with massive debt? The younger generation who were born into the concept of living on credit are so accustomed to community leaders justifying massive debt, they probably don't even realise that we are doing them an injustice.
I come from an age where it was a shameful thing to leave debt to your children and yet I am so accustomed to the idea of flying now and paying later, that it took me a month to realise that something about Brad Carter's rationalisation of our local government debt was very wrong. Mayor Brad Carter says that our debt is manageable and that the next generation should help pay it off. I say this is a betrayal of the next generation and I for one, will never agree to leaving my grandchildren the legacy of high rates and more local government taxes. The borrowing must stop now. The Rockhampton Regional Council needs to live within its means and the elected members who agree with leaving our children more than $200,000,000 debt, need to go get a different job.
Mayor Brad Carter's response:
I REFER to the issues raised by Ms Laine Harth in relation to my position on council debt and note that she has referred to her memories of her youth when things were different to today. I certainly agree with her on that point, as our lifestyle today, particularly for our younger generation, is very different to what I experienced in my formative years.
I wish to point out to Ms Harth, that when I was young, I vividly remember the establishment of a major sewerage scheme for Brisbane initiated by the late Clem Jones, mayor of Brisbane City who transformed Brisbane into a magnificent city. It was interesting to note that the Brisbane City Council had extended its debt during tight financial times to 10.39 million pounds in the financial year ended June 1963. The major sewerage project to sewer Brisbane was initiated and sewerage works totalling 2 million pounds had been allocated that year. This project ensured that the community and children did not suffer from disease and death as a result of the old unhealthy pan system that existed at that time. This is an excellent example where councils borrowed to fund major community infrastructure projects and shared the costs by way of loan repayments with future generations who would be the beneficiaries and users of this much needed community infrastructure. Infrastructure charges were also levied on developers in a similar way that we do today to reduce the full debt costs being absorbed by ratepayers. Today, council is required to provide major trunk infrastructure and then recover these costs through infrastructure charges from developers.
This is what local governments have done throughout history and the Brisbane example highlights that if debt was not established by Brisbane City Council, then many parts of Brisbane could be without sewerage today or at least in a much tighter fiscal environment. Clem Jones has been hailed as one of the great mayors of Australia and will be forever remembered for his social and health reforms to sewer Brisbane.
I now wish to address the issue of the debt of the Rockhampton Regional Council. First up, I must reiterate that council is very much regulated in how much it borrows and what it borrows for. A 10-year financial forecast must be approved by the Queensland Department of Local Government each year. This is also reviewed by the Queensland Treasury Corporation (QTC). The forecast includes all aspects of financial and asset management such as rate revenue, capital investment, debt and cash. Intermittently, the Department of Local Government instructs QTC to carry out a credit review of a local government as a pulse check so to speak.
This has just been completed for this council and confirms the path we have taken has been the correct one for this community.
This path includes the very successful $53 million pipeline to supply water from the Fitzroy River to the Capricorn Coast to allow for population growth. This was partly funded with council debt and has been supplying water to the coast for over 12 months.
Without this pipeline, the coast would be restricted in its future growth. Future generations will continue to use this pipeline for at least 100 years. I cannot imagine what the rate rise would be for our current generation of ratepayers if they had to fully fund the full cost up front of this pipeline.
Council's debt to asset ratio currently stands at about 8.56%. At the end of June 2011 our debt was $195 million against an asset base of $2.278 billion. This is the same as borrowing $50,000 to buy a $500,000 house and would be considered to be a good form of debt.
The Rockhampton Regional Council has invested $318 million in community infrastructure and assets since it has been in office where the debt has been increased by about $113 million.
I wish to pose the following question for Ms Harth. Which items of community infrastructure would she like to see removed as all of this infrastructure has been provided during my term to meet the needs and expectations of our community?
One key issue that Ms Harth has not understood is that the issue of establishing debt allows for the provision of community infrastructure today and the costs shared by our current ratepayers as well as future ratepayers will move to this great region as it grows.
Contributions from developers by way of infrastructure charges are also levied to ensure developers pay for major trunk infrastructure to their development. It is incorrect to assert that our youth will bear the full responsibility of debt in the future.
I have a key goal to ensure that those new-born bubs today will be able to grow up with the best possible community infrastructure including parks, a clean water supply and most importantly access to sporting facilities and outdoor recreation facilities to support them in their development during those formative years.
I wish to assure the youth of today that they will not have to wait until they are old and grey to access community facilities.
Mayor of Rockhampton