City heads for $6.7m budget hole

Saturday, 29 April 2023

Hamilton city's projected operating deficit for this financial year has jumped $6.7 million, meaning a potential annual plan budget blowout of more than 45%, mainly attributed to higher interest rates.

The revelation – at this week’s finance and monitoring committee meeting – follows intense discussions recently over how to get next year’s deficit down to $15 million, a level out for public consultation till next month.

Deficits generally need to be funded by borrowing, adding to overall debt.

A report to the committee said the annual plan forecast a deficit of $14.4 million for 2022-23 but this was now forecast to be $21.1 million.

“The largest single contributor to the unfavourable deficit is ($13.8 million extra in) … higher interest costs,” the report said, a figure partially offset by interest earned elsewhere.

Extra borrowing costs reported were “the single largest unanticipated cost to council”.

Personnel costs, professional costs, and depreciation and amortisation were other key extra expenses, totalling $3.5 million.

Economic development committee chairperson Ewan Wilson – who’s been a leading proponent of trimming next year’s deficit – said Friday that more financial rigour generally was needed to keep deficits down.

Staff at this week’s meeting had basically said “we recognise we’ve got a problem” over the deficit, he said.

Chief executive Lance Vervoort had outlined plans to potentially delay recruitment into roles and a range of other measures to cut costs, Wilson said.

“This should have been something that started at day one, every financial year.

“These sorts of disciplines should be business as usual.”

However, finance and monitoring committee chairperson Maxine van Oosten said Friday it was important not to be “hysterical” about the problems and to react in a “measured” way.

“A measured pace is absolutely the best approach.”

Van Oosten praised council staff who she said provided excellent financial advice and stressed they in fact gave the committee regular budget updates throughout the year.

Hamilton was facing economic and interest rate circumstances well beyond its control and was far from alone in being affected by such problems, she said.

While the council had access to lower interest rates on borrowing than many others, any increases in rates “still have considerable impacts due to the size of the city’s debts”.

Debt itself was necessary to provide for the city’s needs, she said.

Hamilton was “a growing city and the need to respond to that…requires debt today”.

“So a long-term view needs to be taken.”

Van Oosten said Vervoort was very aware of the need to deliver the right response to mitigate the short-term pressure on the deficit and also to plan for the longer term when it came to finances.

Some cost-cutting measures to be considered, such as a short-term cap on recruitment, weren’t sustainable.

“It’s not a long-term panacea.”

A Future Fit programme at the council was looking at longer-term strategies to manage finances, particularly in light of local government changes such as waters reforms, van Oosten said.

The difficulties in trimming costs were highlighted at last month’s council hui where councillors only managed to carve off just over half of the targeted $6 million in budget deficit cuts they sought for next year.

They landed on an agreed $3.13 million in reductions, including some $320,000 to flow from a proposed doubling of the non-resident entry fee into Hamilton Gardens to $20.

However, councillors largely shied away from frontline services and events-related reductions.

At the time, mayor Paula Southgate – noting the proposed 2023-24 rates rise remained at 4.9% during a cost of living crisis – felt councillors had followed a good process to slice more than $3 million off the draft budget.

But she said “tomorrow we pay for what we spend today”, a reference to the fact that deficits have to be funded by debt.

“We do need to balance the books.”