What happens if a City Council goes bankrupt?

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Forums › Finance and wealth management › What happens if a City Council goes bankrupt?

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#1552534 14-May-2016 10:00

Bear in mind that this is the council who are so thoroughly incompetent, they purchased that ASB building that now needs $31 million of expenditure on maintenance based not on a complete engineer's report but on a visual inspection only.

That is a lower standard of due diligence than I apply to buying a house, much less a multi million dollar commercial building I am using taxpayer dollars to buy....

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Technofreak

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#1552543 14-May-2016 10:13

Geektastic:
Bear in mind that this is the council who are so thoroughly incompetent, they purchased that ASB building that now needs $31 million of expenditure on maintenance based not on a complete engineer's report but on a visual inspection only.

That is a lower standard of due diligence than I apply to buying a house, much less a multi million dollar commercial building I am using taxpayer dollars to buy....

There in lies the difference. When you buy a house you're spending your money, so you apply diligence. The council is spending someone else's money, no diligence required.

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ObidiahSlope

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#1552557 14-May-2016 11:24

Let me introduce the Local Bovernment Funding Agency;

http://www.lgfa.co.nz/

This is an organisation set up to facilitate transactions between those that have money to lend and councils that want to borrow. It was set up to allow local bodies cheaper access to loans by cutting out middle men like banks underwriters etc.

One of the drawbacks is local bodies who are members are jointly liable. This means that if a particular council does something dumb like the Kiapara sewerge scheme and defaults on its loans other councils have have to make good the lenders.

Obsequious hypocrite

Benoire

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#1552560 14-May-2016 11:39

As others have pointed out, the majority of debt exists in the capital works programme. If we paid for the works out of the rate payers money right now, not only would we barely get an improvements done but also you would be paying ALL of the costs but not receiving the longer term benefits. Transport departments (& Auckland Transport) assess capital works over a longer discount period of 40 years which 'spreads' the cost of the capital upgrades across the full 40 years so that generations of rate payers pay for the cost and benefit from the asset, rather than us right now fronting the huge bill.

Auckland Transport would not have a (circa) $1.5b per year capital/renewal and maintenance budget otherwise and they would hardly achieve anything in terms of improvements let alone maintaining and operating the network.

Geektastic

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#1552562 14-May-2016 11:48

Technofreak:
Geektastic:

Bear in mind that this is the council who are so thoroughly incompetent, they purchased that ASB building that now needs $31 million of expenditure on maintenance based not on a complete engineer's report but on a visual inspection only.

That is a lower standard of due diligence than I apply to buying a house, much less a multi million dollar commercial building I am using taxpayer dollars to buy....

There in lies the difference. When you buy a house you're spending your money, so you apply diligence. The council is spending someone else's money, no diligence required.

Surely they have a legal duty of care?

This sort of slackness is largely caused IMV by a society in which people rarely get sued and held to account for their actions.

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#1552567 14-May-2016 12:18

Surely they have a legal duty of care?

I agree. I was being a little sarcastic with my comment.

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#1552568 14-May-2016 12:19

I imagine the owners of ASB building literally were laughing their way to the bank

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#1552653 14-May-2016 16:04

joker97:

Blimey! Just found out that Dunedin CC debt is $600 million ... %$#@ me!

Oh is that all? The Brisbane City Council over the ditch has debt of two billion dollars.

Fred99

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#1552655 14-May-2016 16:12

"Visual" testing is actually the norm. They don't generally rip cladding off to see if there's good framing behind, x-ray concrete slabs to check if there's reinforcing in place etc. They might suggest such "invasive" testing to check for rot etc - if there's other indication that it might be present, high moisture levels by non-invasive test, mould etc, or leaky homes era construction, then go an extra step to drill some holes or whatever's needed to find out what's going on, but most assessment is visual, and most reports will be full of disclaimers stating what those limitations are.

I suspect that there's a bit of a beat-up in the case of what happened with that building, possibly also a bit of overkill in terms of how to resolve the problems.

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#1552660 14-May-2016 16:20

Kyanar:

joker97:

Blimey! Just found out that Dunedin CC debt is $600 million ... %$#@ me!

Oh is that all? The Brisbane City Council over the ditch has debt of two billion dollars.

Brisbane has a population of over 2 million. Dunedin has a population supposedly of 100,000. Not sure how productive those populations are, presumably Brisbane also >>> Dunedin.

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#1552916 15-May-2016 09:00

As a person who lives in Auckland these people are nothing but a pack of tax and spenders. Spending money on stuff that's not needed. Maybe they need to take a leaf out of some of the US council books where they can only spend what they have and can't go over budget without a referendum. No fancy pavements or redoing the road you just resealed last year just to keep your contractors in a job.

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#1552951 15-May-2016 10:08

old3eyes:

As a person who lives in Auckland these people are nothing but a pack of tax and spenders. Spending money on stuff that's not needed. Maybe they need to take a leaf out of some of the US council books where they can only spend what they have and can't go over budget without a referendum. No fancy pavements or redoing the road you just resealed last year just to keep your contractors in a job.

We have some roadworks in our area. It's still going. Guess when it started. June 2015.

It's important to do works yes. But something that would have been completed in 10 days in Japan, in NZ, in general, goes on forever. Completely inefficient = waste of tax payers' money.

Benoire

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#1552954 15-May-2016 10:19

With roadworks, you are at the mercy of the contractor. They control the programme, they control the materials and the workforce. I work in the transport industry in Auckland as a Principal Engineer and can say that they work the best they can (in general) given the contractors corporate structures. I'm from the UK and felt that they where slow and still are, but they do not invest in the people the same as they do in other countries; apart from Fultons, the rest generally are construction project managers and use a lot of sub contractors to under their various sub disciples.

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#1552978 15-May-2016 10:48

Thing is, the roads have been dug up and resealed at least 3 times, maybe more.

I think we need to get some Japanese engineers to give us a lesson.

Benoire

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#1552980 15-May-2016 11:00

That's an asset management issue, not an engineering issue to a certain extent.

Asset life of the surface courses is highly dependant on the lower layers and formation (the earth layer on which everything is added). IF they change from one type of surface to another (chip seal to Asphaltic concrete for example) then you can't just overlay, you have to completely rebuild the pavement structure from scratch. I can't comment on your roads near you but there may have been valid reasons; failed pavement structures, utility works that compromised the structure, increased freight loading (HPMVs etc. that the government is now allowing - much heavier lorries), or maybe even double decker bus routes etc. Asset management is not a suck and see, deterioration modelling that is used to establish when intervention needs to occur is a science and incredibly complex.

Japanese engineers wouldn't do much better, if the money is not there to build using their style of construction. For example, UK roads very rarely need reconstruction, most of the work is done fixing utility issues and failures in the underlying ground due to unexpected water ingress. The pavements are over 1.1m in depth, if we tried that here there would be no money at all to do anything, although the pavements would likely last 100+ years but they would require periodic resurfacing as the top 40mm is generally sacrificial.... NZ pays ALOT of money for construction when using oil based products as we have to import them.

The construction industry needs to improve in manpower efficiency in my opinion and programmes can be compressed but the cost of the materials is a consequence of location in the world and overseas companies owning the supply chain and charging lots. Council's have waste, there is no doubt. Politically they have to exhaust all avenues before selecting on one as they represent people who have differing opinions... What you think is right, someone else may think is wrong and the only way to protect themselves is to analyse to death; although some meeting organisers should just be shot!

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