Is Council ‘insolvent’?

Straight from city council
A personal view,
by Councillor Steve Morris

The statement by the Mayor last week that Tauranga City Council was ‘insolvent’ caught many by surprise, including Councillors and Council staff.  It was a bold statement, but is Council ‘insolvent’? Or in other words, bankrupt? No, not even close.

At the end of a debate on rates increases the Mayor said: "we're insolvent. If we were a business, we would be calling the receivers now." This statement was dutifully repeated widely by the media without challenge or investigation so let’s look at the facts.

Inland Revenue defines insolvency as when your debt exceeds your assets or when debts can’t be paid when due. In both cases, Council meets its obligations and remains solvent.

Council’s net debt by June 2021 is forecast to be $680m with net assets of $4.1b; far from insolvent. You can’t sell roads though; if we exclude all the land in the road corridor the city still has more than $1.3b in assets. What about paying our debts? Our annual interest costs are just over $20m or less than 10 per cent of our $266m annual revenue; again, quite solvent.

Alone, we have challenges funding the amount of infrastructure needed for future subdivisions but claiming we’re ‘insolvent’ and whipping up double-digit rates rises every year on current residents to pay for future residents and developers’ profits isn’t the answer. Council needs to be a credible, co-investment partner with Government and Regional Council. Exaggerated claims of insolvency undermine confidence. We cool heads and a cool set of facts to build trust.


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