Posted 24/6/08

MRRA's 2008 "Budget Myths"

Budget Myth # 1:  Council is waiting to be informed on the costs of Kyneton pool before making any commitment to it.

WRONG.  Council may not have final costs for the Kyneton pool but the draft Budget includes new borrowings of $3,000,000 for it so there are 3 million commitments in the draft Budget. 

Budget Myth # 2:  This is a responsible - fair - budget

No, it's not.  It's as much about what's not there as what is.  The Kyneton pool has already sucked funding from other projects which have been eliminated to cut spending to the bone.  That $3,000,000 loan for one project - the pool - means spending money or taking out small loans to deliver other projects isn't an option.  And it's not as if the time is exactly right to be over-extending yourself financially, is it!  Most people are tightening their belts, but not it seems those who support the Kyneton pool.

Budget Myth # 3:  There are no costs in this budget for the Kyneton Pool

Council has been spending money to get final costs, undertake feasibility studies, and prepare plans and tendering documents.  All up so far, reports are that the amount could be anywhere from one to several hundred thousand dollars.  That expenditure doesn't seem to be in the draft Budget. If Council is using State funding for these items, and the pool doesn't go ahead, will that funding have to be paid back?  Or are reports that the State government hasn't handed over any money yet correct?  In any event, where's the accounting for the money Council is spending?

On top of which, if the pool is approved early next year, and the $3,000,000 loan is taken out as suggested in March, ratepayers' will will pay some three months' interest (apparently, $3M x 9%pa x 3 months = around $70,000 interest), additional to interest on existing debt.

Here's how the draft Budget says that debt will look.  MRRA has added a comparison with 2007/2008 Borrowings' information:

* Refurbishment of Kyneton Mechanics Institute and improvements to Kyneton Saleyards  loan not yet taken out in 07/08 financial year
** Kyneton Sports and Aquatic Centre

*** Either this was intended to be interest payable in 2007/08, or the method of reporting has changed.

Budget Myth # 4:  We can afford the pool

This depends upon your interpretation of "afford".  If "afford" means "have the funds for", then no, we can't afford it. But if "afford" means "heavy borrowing and high rates", then how can we "afford" it?   See also Budget Myth 5.

As we still don't know what the pool will finally cost, and with interest rates and oil costs going up, isn't including any part of the pool costs in this budget like handing over a blank cheque?  

The pool was costed last year (2007) at around $9 - 10 million.  That's before oil prices and interest rates started to haemorrhage. 

Do the sums.  The State government has put in around $2 million funding, and in 2008/09, Council is taking out a $3,000,000 loan.  That comes to $5 million, out of a $9 - 10 million project.  Guess what happens in the 2009/2010 budget?  Another loan, this time $4 - 5 million... at least.

Here's what that could look like:

* This amount does not include any repayments which might be made in 2009/2010 against principal.

Somewhere along the line, all of that money has to be paid back.  It will come from your rates.

Debt this year was almost $200,000 more than this time last year. 

The proportion of interest in total repayments was higher this year than last.

If the pool goes ahead...

This time next year, debt is projected to be some $2 million more than this year.

With another multi-million dollar loaned needed, total debt in 2010/2011 (two years from now) could be around $14,000,000.

Council will need to increase rates to pay for the loans.

Budget Myth # 5:  Council's debt and repayment levels comply with Council's debt strategy

The draft Budget says (at Appendix B): "The principles of the debt strategy as outlined in the Strategic Resource Plan are that Council Will retain the amount of debt to be no more than 50% of annual rate revenue.  In addition, the annual interest and principal payments shall be less than 6% of annual rate revenue.

This principle is generally being adhered to as the balance of outstanding debt represents 36.9% of total rate revenue, and, the annual interest and principal repayments is 5.8% of rate revenue."

What the draft Budget doesn't tell you is that the way Council has calculated the debt to revenue ratio has changed from last year.  The key words are "annual rate revenue".  It seems "annual rate revenue" ain't "annual rate revenue"