Tuesday, July 16, 2013

Mangawhai - Summary and Update

This post provides a few dates, but mainly is my big picture explanation of how and why the Mangawhai fiasco happened, and was allowed to happen. But first a few dates:

- a hearing has been obtained in the Whangarei High Court for August 16th 2013
- submissions for the Validation Bill are due by Thursday 25th July. Here's how to submit. 

The heart of the Kaipara District Council matter is the debt.

I have been doing some research on how the provisions in the legislation that has been relied upon to justify the loans and the ability of KDC to rate ratepayers for them, came about. The following bullet points are a very simple (probably too simple) summary of what happened.

  • On or about 18 July 1996 Parliament made a suite of financial management changes to the Local Government Act. The then Minister of Local Govt Graeme Lee explained to Parliament: "The predominant objective is to require local authorities to identify explicitly the reasons for their funding proposals. In turn, this will engender public consultation, and will promote funding decisions that are more clearly representative of the wishes and the values of local communities....". This included a section about "protected transactions" and borrowings. Richard Northey - an opposition member told Parliament: "....Government members, and members of the other parties were happy to see the abolition of loan polls on the basis that the consultation and forward planning provisions for revenue raising and borrowing, in particular, that are provided in this Bill provide a fairer accountability and a level playing field in terms of revenue raising for local government...." The idea of a separate loan poll was dropped by Parliament on the basis that borrowing decisions would be accountable.
  • Then in 2002 Parliament introduced a new Local Government Act. This included the idea of General Competence - that Councils could do what the community wanted (subject to consultation), rather than being constrained to provide specific services. When the new Bill was introduced to Parliament it did not contain any "protected transactions" provisions. Several Councils made submissions about this to the Select Committee. Parliament was persuaded to include the old 1996 Local Government Act Section 122ZG(3) (which protected bank transactions). This change was made seemingly at the last minute - and without properly integrating it into the consultation, transparency and democratic provisions of the new Act. Without that integration it is likely that it should have been included with a Loan Poll requirement. But it was not.
  • On 24 August 2005 Kaipara District Council (KDC) resolved to accept an offer from EarthTech Consulting Limited (EarthTech) to design, construct and operate the proposed EcoCare Sewage system. The idea was to establish an arm's length company to do this. Local Authority Trading Enterprises and suchlike were envisaged in the new Local Government Act.This was a bit like a "Build, Own, Operate and Transfer" arrangement. (BOOT).
  • On 21 March 2006 KDC publicly notified the statement of proposal for EcoCare (EcoCare SoP) and LTCCP 06-16 for consultation. The EcoCare SoP indicated that the capital cost for EcoCare was estimated as $35,600,000. (You can see the sequence - decision first, consultation later.)
  • On 26 September 2007 KDC resolved in confidential to adopt Modification 1 (the expansion of the sewage scheme - doubling its size and cost), confirm the EcoCare Agreement and concluded negotiations with EarthTech and ABN Amro Bank to activate the necessary funding and borrowing arrangements. At this stage the public were none the wiser about the expansion.
  • On 7 December 2007 KDC decided - in secret - to give effect to Modification 1. It also executed a term loan facility agreement with ABN Amro Bank for the amount of $53,000,000. Ultimately KDC borrowed $57,978,000.00 from ABN Amro Bank - including capitalised interest. This debt did not show on any public KDC balance sheet for several years. It stayed hidden from public knowledge - presumably on the accounts of EarthTech - despite the fact it was the Council that had negotiated the loan - and presumably offered rates revenue as security.
  • In April 2011, ratepayers were consulted about KDC's changed Long Term Community Plan. For the first time KDC's Annual Plan showed the $57,978,000 loan - and the interest payments - and KDC's proposals for getting it paid off by ratepayers. (You can see that the decision to take the loan was totally disconnected from any public consultation - a million miles from what Parliament intended in 1996 when it first provided proper provisions for Councils to borrow from banks.)

The ratepayer revolt began. The rest is history.

Ratepayers could NEVER have found out about the $57,978,000.

It was hidden in EarthTech and described in deals between KDC, ABN Amro and EarthTech. No amount of LGOIMA requests for information could dig deep enough.

But ratepayers had good reason to be concerned. That was why they tried to alert the Office of the Auditor General and the Audit Office. These institutions - had they looked - would have seen what was happening and could have blown the whistle years ago.

The High Court Judicial Review is an opportunity to unpack and explain the chronology of what has happened, and to persuade the Court that Parliament never intended for Councils to go out and borrow money without first checking with ratepayers, and getting their support.

The validation Bill Select Committee is an opportunity for a good sized group of MPs to learn about the consequences when Government's system of checks and balances fails. Then they need to act.

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Tuesday, July 16, 2013

Mangawhai - Summary and Update

This post provides a few dates, but mainly is my big picture explanation of how and why the Mangawhai fiasco happened, and was allowed to happen. But first a few dates:

- a hearing has been obtained in the Whangarei High Court for August 16th 2013
- submissions for the Validation Bill are due by Thursday 25th July. Here's how to submit. 

The heart of the Kaipara District Council matter is the debt.

I have been doing some research on how the provisions in the legislation that has been relied upon to justify the loans and the ability of KDC to rate ratepayers for them, came about. The following bullet points are a very simple (probably too simple) summary of what happened.

  • On or about 18 July 1996 Parliament made a suite of financial management changes to the Local Government Act. The then Minister of Local Govt Graeme Lee explained to Parliament: "The predominant objective is to require local authorities to identify explicitly the reasons for their funding proposals. In turn, this will engender public consultation, and will promote funding decisions that are more clearly representative of the wishes and the values of local communities....". This included a section about "protected transactions" and borrowings. Richard Northey - an opposition member told Parliament: "....Government members, and members of the other parties were happy to see the abolition of loan polls on the basis that the consultation and forward planning provisions for revenue raising and borrowing, in particular, that are provided in this Bill provide a fairer accountability and a level playing field in terms of revenue raising for local government...." The idea of a separate loan poll was dropped by Parliament on the basis that borrowing decisions would be accountable.
  • Then in 2002 Parliament introduced a new Local Government Act. This included the idea of General Competence - that Councils could do what the community wanted (subject to consultation), rather than being constrained to provide specific services. When the new Bill was introduced to Parliament it did not contain any "protected transactions" provisions. Several Councils made submissions about this to the Select Committee. Parliament was persuaded to include the old 1996 Local Government Act Section 122ZG(3) (which protected bank transactions). This change was made seemingly at the last minute - and without properly integrating it into the consultation, transparency and democratic provisions of the new Act. Without that integration it is likely that it should have been included with a Loan Poll requirement. But it was not.
  • On 24 August 2005 Kaipara District Council (KDC) resolved to accept an offer from EarthTech Consulting Limited (EarthTech) to design, construct and operate the proposed EcoCare Sewage system. The idea was to establish an arm's length company to do this. Local Authority Trading Enterprises and suchlike were envisaged in the new Local Government Act.This was a bit like a "Build, Own, Operate and Transfer" arrangement. (BOOT).
  • On 21 March 2006 KDC publicly notified the statement of proposal for EcoCare (EcoCare SoP) and LTCCP 06-16 for consultation. The EcoCare SoP indicated that the capital cost for EcoCare was estimated as $35,600,000. (You can see the sequence - decision first, consultation later.)
  • On 26 September 2007 KDC resolved in confidential to adopt Modification 1 (the expansion of the sewage scheme - doubling its size and cost), confirm the EcoCare Agreement and concluded negotiations with EarthTech and ABN Amro Bank to activate the necessary funding and borrowing arrangements. At this stage the public were none the wiser about the expansion.
  • On 7 December 2007 KDC decided - in secret - to give effect to Modification 1. It also executed a term loan facility agreement with ABN Amro Bank for the amount of $53,000,000. Ultimately KDC borrowed $57,978,000.00 from ABN Amro Bank - including capitalised interest. This debt did not show on any public KDC balance sheet for several years. It stayed hidden from public knowledge - presumably on the accounts of EarthTech - despite the fact it was the Council that had negotiated the loan - and presumably offered rates revenue as security.
  • In April 2011, ratepayers were consulted about KDC's changed Long Term Community Plan. For the first time KDC's Annual Plan showed the $57,978,000 loan - and the interest payments - and KDC's proposals for getting it paid off by ratepayers. (You can see that the decision to take the loan was totally disconnected from any public consultation - a million miles from what Parliament intended in 1996 when it first provided proper provisions for Councils to borrow from banks.)

The ratepayer revolt began. The rest is history.

Ratepayers could NEVER have found out about the $57,978,000.

It was hidden in EarthTech and described in deals between KDC, ABN Amro and EarthTech. No amount of LGOIMA requests for information could dig deep enough.

But ratepayers had good reason to be concerned. That was why they tried to alert the Office of the Auditor General and the Audit Office. These institutions - had they looked - would have seen what was happening and could have blown the whistle years ago.

The High Court Judicial Review is an opportunity to unpack and explain the chronology of what has happened, and to persuade the Court that Parliament never intended for Councils to go out and borrow money without first checking with ratepayers, and getting their support.

The validation Bill Select Committee is an opportunity for a good sized group of MPs to learn about the consequences when Government's system of checks and balances fails. Then they need to act.

No comments: