Tauranga in financial difficulty?

Well so thinks this Tauranga resident who has sent the following submission to the council.

Mayor Stuart Crosby

Tauranga City Council

Private Bag 12022

TAURANGA 3143



Dear Mayor Stuart Crosby,

NOTICE:

WARNING TO TAURANGA CITY COUNCIL OF SERIOUS RISK OF DEBT DEFAULT

AND BANKRUPTCY IN THE WORSENING GLOBAL DEPRESSION

Introduction:

I understand that Tauranga City Council already has the highest debt per ratepayer of any council in New Zealand, and yet still, incredibly, further plans to increase this debt enormously to fund an expensive “wish-list” in the new financial year beginning in July 2009 – and hence increase rates and other service fees and charges dramatically to fund that debt in the future.

In view of what appears to be the council’s past and current rather “cavalier attitude” towards continuing to generate high levels of debt, it seems that the council does not appreciate the full extent of the seriousness of the global economic collapse that is accelerating by the day, or is totally oblivious or unconcerned about the majority of its ratepayers ability to pay the rapidly rising rates and tax burden in this city.

When most ratepayers are on fixed incomes, declining incomes or no incomes at all in the present environment – with commercial “for lease” signs beginning to dominate the scenery of many of our commercial streets and there is a giant seven-story-high mountain of shipping containers full of unsold Fonterra milk powder towering over our port glaring at us each day as we drive over the harbor bridge – as the world plunges toward economic depression and chaos, one would think that the council and its bureaucracy would have well and truly by now got the message to drastically contain its expenditure and rates burden within prudent limits. But no, apart from “tinkering” with the system in cutting some pet projects as it has, the “cost plus” attitude and mentality still remains and the council is still planning on substantially increasing its debt in the coming year. The situation is really quite bizarre and surely, if common sense were applied, it must stop immediately and be replaced by a new mental attitude and way of thinking. The private sector is, by and large, now beginning to suffer badly, making sacrifices and trimming costs, in many cases even just to survive – so now, isn’t it about time the council did the same as well!

The reason I am providing you with this notice is largely to warn you about the true extent of the seriousness of the global economic depression we are entering and remind you of your liabilities because, in my opinion, virtually all of our country’s leading media, politicians and businessmen haven’t got a clue about what is really happening behind the scenes. Hopefully, you will heed my notice of warning before making future decisions that will affect the Tauranga area. But before I write about the global economic situation and how I believe it may seriously affect Tauranga, I’d like to tell you a little bit about myself, and a small problem I have involving the council street sign “light bulbs” in my sub-division – an issue that has angered me and helped motivate me to write this notice to you in the first place.

For want of a light-bulb the Council was lost

I’m a retired businessman, author of several books on international banking and finance among other subjects, and I moved to Tauranga about 11 years ago for the wonderful lifestyle in the BOP region – lakes, boating, trout fishing etc. settling in the Bethlehem Heights sub-division. Tauranga is a great spot and I hope it remains this way.

What appealed to me in choosing Bethlehem Heights was the superb job the developer, Paul Adams, had done in designing and constructing the development – with its outstanding public landscaping, cobbled streets and exclusive, uniquely stunning, landscaped “island street sign lighting system” which conceivably cost hundreds of thousands of dollars to build originally and would now probably cost millions of dollars to replace today. Truly, the subdivision is a credit to the developer and the lighting system is amongst the best in New Zealand.

However, since the council took over the responsibility from the developer for the sub-division after its completion, there has been a steady deterioration in the street sign lighting system as the result of it not being properly maintained, burnt out bulbs and fluorescent tubes not being replaced etc. I’ve previously telephoned the council about the problem but nothing has been done. Recently, I telephoned Mr. David Flatt, chairman of the Bethlehem Heights Resident’s Association about the issue and he told me that they had already approached the council about the problem, and were given the almost unbelievable excuse that the lighting was no longer being maintained or the light-bulbs were not being replaced because the council was now “standardizing” all the street signage system throughout the city and therefore was making all the old systems redundant, no matter how expensive or unique, hoping to remove the beautiful landscaping surrounding it as well in the future.

Now all this basic lack of maintenance is causing incredible nuisance to the residents and has been going on, while at the same time, month after month, we, the ratepayers, have been deluged with reports in the local newspapers that the council has been throwing millions of dollars away on such “wish list” luxuries as the controversial Baypark Speedway Stadium purchased for $12 million, which within a year, according to the local media, lost $1.1 million or more than the original amount on which the council based its decision to buy it. Apart from the Demolition Derby at the Speedway on 10 January, 2009, attendances have been absolutely abysmal, and unless the situation improves dramatically in the future the council is surely going to continue to lose many more millions on the debacle. Then on top of this the council now wants to borrow substantially to build a new $41 million dollar controversial Sport and Exhibition Centre alongside the stadium as well. It is well known the stadium built by Bob Clarkson is by far the best speedway facility in Australasia. If the council can’t run a $12 million speedway stadium properly like this at a profit during the summer months, how on earth can the council possibly expect simple “netball clubs” and the like with declining sponsorship revenues over the winter months in a declining global economy to provide sufficient “user-pay fees” to service a large debt on a $41 million dollar Sport and Exhibition Centre I don’t know. On top of this, the Speedway Stadium events over the summer are entirely incompatible in terms of noise, parking, traffic and event schedules with a sport or exhibition centre on the same complex. The whole proposition is a growing nightmare.

Then again, I understand, there is another budgeted $105 million for a new Southern Pipeline Project to be funded by borrowing and serviced by rates revenue until projected new developments (which probably now will not be built in the foreseeable future because of the unfolding global depression) come on stream to pay for it. Shouldn’t such a large, onerous expenditure with such a long-term repayment schedule date be at least “delayed” now for a couple of years to prudently see what happens to the global economy?

What upsets me the most as a ratepayer is that all this grandeur, multi-million “cavalier wish list” expenditure by council is continuing almost unabated – while it cannot even fix the blessed light bulbs in my own subdivision!!

Should not the question now be reasonably asked – who will directly accept full responsibility/liability for actions being taken by council generating such large sums of debt on behalf of ratepayers, in circumstances which now are becoming plainly hazardous for large borrowers as the disintegration of the global economy unfolds?

Isn’t it about time the council got back to attending to the simple “basics” first?

The whole situation vividly reminds me of the old 14th century nursery rhyme “For want of a nail the shoe was lost,” which over the centuries has been used as a proverbial rhyme to encourage children to apply logical progression to the consequences of their actions. Heinrich in 1936 adapted the concept and gave it the term “domino theory” which today is sometimes called “the chain of events theory.” His premise was that if a large enough series of seemingly “insignificant” unsafe conditions were all set up like a row of vulnerable dominos, then just one relatively minor event could start the whole lot toppling down. That is what is starting to happen to the world economy right now and, unless the council policies change dramatically, in the very near future it may happen to Tauranga as well.

Today aircraft crash investigators often use the “domino” principle to identify crash causes. More often than not, it’s usually a series of quite “inconsequential” problems, that individually in themselves are relatively harmless, but collectively produce a series of events that lead to major aircraft disasters. For example, in June 2008, the US Air Force completed its accident investigation into the first crash of a B-2 Stealth bomber. Major General Floyd Carpenter who headed the investigation board concluded that the crash was caused by moisture in three of the plane’s 24 sensors, which distorted preflight readings making the aircraft’s computer force the B-2 to pitch up on takeoff, resulting in a stall and the subsequent crash of a $1.4 billion aircraft. What upset Major Carpenter was that previously, a young apprentice engineer had warned his superiors about the problem that the sensors did not have mandatory heaters fitted, but his advice due to his low rank was scoffed at and rejected by his superiors. Similarly, (although the French authorities deny it at the present) the recent tragic crash of the Air New Zealand aircraft into the Mediterranean killing all on board is suspected to have been caused by inattention to “simple basics” in repainting and checking the aircraft after its lease had expired prior to delivery back to Air New Zealand before the test flight – where it is thought similar sensors had been inadvertently sprayed with paint thereby distorting their signals to the flight control computer. Similarly, again, the Air New Zealand crash on Mt. Erebus was also caused through a similar succession of errors which produced a chain of events that ended in disaster.

The Disaster Recovery Journal Vol.4 #4 ran a report about a giant telecommunications system that failed in 1991. It was caused by a simple bulb in a secondary visual alarm system which burnt out and was never replaced prior to the chief primary audible alarm system failing. The failure led to disaster and cost millions. All for the sake of not replacing a simple light bulb!

The point is, the failure to remedy a series of relatively “insignificant” small faults is often reminiscent of a much greater pervading evil within an organization. That is how I feel about the burnt out “light bulbs” in my sub-division that have not been replaced by Tauranga City Council! It is the small things that count! After all, we purchased ratable properties with the street sign lighting system in good working order and this system added value to our ratable properties. What is council going to offer that is the same or better than the original or does council need a simple 6% of its ratepayers to petition for change?

Now, next I will deal directly with matters of a much more serious nature about the global economy and how they may soon affect the council.

The “seriousness” of the world economic depression unfolding according to LEAP/EUROPE 2020 ANTICIPATIONS

Created in 1998, LEAP/Europe 2020, is the only independent European think-tank that sets down Europe’s strategic economic thinking on its future for high-level European bankers and political leaders to help them “anticipate” key future global events – (with the intention of soon destroying the United States of America together with the $US, dividing the former US up into administrative regions and merging it into the North American Union and transferring the political and economic control of the world away from the US, under a reformed UN, with a New World Order global cashless currency system directed from the EU). This profound transition is beginning right now, and will soon accelerate to the point where these turbulent events will substantially affect the whole world, including New Zealand, and subsequently Tauranga City Council.

The think-tank team is headed by Franck Biancheri who is Prince Albert II of Monaco’s Minister Plenipotentiary, Government Counselor for External Relations and for International Economic and Financial Affairs. He also works closely with a number a leading EU organizations, the Vatican, the British Royal Family, the Bank for International Settlements (BIS) in Basel, Switzerland (which controls all the Reserve banks of the world including our own), and with Dresdner bank, controlled by Commerzbank AG controlled by Allianz the largest financial services provider in the world with currently 182,200 employees, which in turn is controlled from the City of London.

In 2006, Frank Biancheri founded the think-tank’s confidential publication called Global/Europe Anticipation Bulletin under the acronym “GEAB.” Each month they publish key excerpts from their GEAB bulletins on the internet. For example, if you type “GEAB No. 32” (February 2009 issue) into Google-search you will easily find them.

As far back as 2006 the think-tank has been sharply warning key EU banking leaders to prepare for the current global systemic economic contagion which is now unfolding. Unlike most of the rest of the world’s political and business “experts”, led by the United States Establishment, and including our own, who still haven’t got a clue about what is really happening behind the scenes, haven’t anticipated the unfolding events and are now going to suffer immeasurably for their ignorance – those countries, organizations and individuals who have and are heeding their warnings are plainly going to survive much better.

To try and be brief, the bulletins I specifically recommend that you read are GEAB No.23, 28, 29, 30, 31, and 32. The 16 March 2009 issue will be No.33. The following is a quick summary. Remember, what happens overseas, particularly in the US, inevitably always profoundly affects us here in New Zealand.

GEAB No. 23 (March 16, 2008) predicts that by the end of 2008 pension funds will begin to go off the rails (as they are) and precipitate the total collapse of the global stock market. The reason for this is that about 60% of the shares on the global stock market are now owned by giant pension funds 45% of which are American. As US baby-boomers (people born soon after the end of the Second World War) phase out of the workforce in the US beginning in early 2009, as they collectively commence to claim their pensions, the pension funds that are already now mostly short of cash in a declining stock market will be forced to start aggressively selling their shares to continue to pay their pension obligations. As this unique phenomenon accelerates in the coming months, it is systematically going to bring the entire global stock market down like a stack of cards. Remember? – the domino theory!

GEAB No.28 – Global Systemic Crisis Alert – Summer 2009: The US Government Defaults on its Debt. (Public announcement GEAB No.28, October 16, 2008)

They write, “In this 28th edition of the GEAB, LEAP/E2020 has decided to launch a new global systemic crisis alert. Indeed our researchers anticipate that, before next summer 2009, the US government will default and be prevented to pay back its creditors (holders of US Treasury Bonds of Fanny May and Freddy Mac shares etc.). Of course such a bankruptcy will provoke some very negative outcome for all USD-denominated asset holders. According to our team, the period that will then begin should be conducive to the setting up of a new dollar to remedy the problem of default and of induced capital drain from the US. The process will result from the following five factors studied in detail further in this GEAB:”

GEAB No.29 – Phase IV of the Global Systemic Crisis: Breakdown of the the Global Monetary System by Summer 2009 (Public announcement GEAB No.29 November 17, 2008)

“Without a complete overhaul of the system inherited from 1944 by summer 2009, the failing of the current system and that of the United States at the center, will lead the whole planet to an unprecedented economic, social, political and strategic instability, and more specifically to a breakdown of the global monetary system by summer 2009 … Four key factors are now pushing the Bretton Woods 2 system to collapse in the course of the year 2009:”

GEAB No.30 – Global Systemic Crisis – New Tipping-point in March 2009: ‘When the world becomes aware that this crisis is worse than the 1930’s crisis’ (Public announcement GEAB No.30 December 16, 2008)

“LEAP/E2020 anticipates that the unfolding global systemic crisis will experience in March 2009 a new tipping point of similar magnitude of the September 2008 one. According to our team, at that period of the year, the general public will become aware of three major destabilizing processes at work in the global economy i.e.:

the length of the crisis

the explosion of unemployment worldwide

the risk of sudden collapse of all capital-based pension systems

A whole range of psychological factors will contribute to this tipping point: general awareness in Europe, America and Asia that the crisis has escaped from the control of every public authority, whether national or international; that is severely affecting all regions of the world, even if some are affected more than others (see GEAB No.28); that it is directly hitting hundreds of millions of people … National governments and international institutions have only three months left to prepare themselves for the next blow, one that could go along severe risks of social chaos. The countries which are not properly equipped to cope with a surge in unemployment and major risks on pensions will be seriously destabilized by this new public awareness … In 2008, LEAP/E2020’s success rate reaches 80%, and even 86% when it comes to strictly socio-economic anticipations.”

GEAB No.32 – Beginning of Phase 5 of the Global Geopolitical Dislocation (Public announcement GEAB No.32 February 16, 2009)

“Back in February 2006, LEAP/E2020 estimated that the global systemic crisis would unfold in 4 main structural phases: trigger, acceleration, impact and decanting phases. This process enabled us to properly anticipate events until now.

However our team has now come to the conclusion that, due to the global leaders’ incapacity to fully realize the scope of the ongoing crisis (made obvious by their determination to cure the consequences rather than the causes of this crisis), the global systemic crisis will enter a fifth phase in the fourth quarter of 2009, a phase of global geopolitical dislocation …

According to LEAP/E2020, there is only one small launch window left to prevent this scenario from shaping up: the next four months before summer 2009. Practically speaking, the April 2009 G20 Summit is probably the last chance to put on the right tracks the forces at play, i.e. before the sequence of UK and the US defaults begin. (2) Failing which, they will lose their capacity to control events … Because they persisted in bearing the ever-increasing weight of the ongoing crisis, most states, including the most powerful ones, failed to realize that they were planning their own trampling under the weight of History … It is high time for the general population and socio-political players to get ready to face very hard times during which whole segments of our societies will be modified, temporarily disappear or even permanently vanish.

For instance, the breakdown of the global monetary system we anticipated for summer 2009 will indeed entail the collapse of the US dollar (and all USD-denominated assets), but it will also induce, out of psychological contagion, a general loss of confidence in paper money altogether.

Last but not least, our team now estimates that the most monolithic, the most imperialistic political entities will suffer the most from this fifth phase of the crisis. Some states will indeed experience a strategic dislocation undermining their territorial integrity and their influence worldwide. As a consequence, other states will suddenly lose their protected situations and be thrust into regional chaos.”

Mr. Franck Biancheri can be contacted at:

contact@franck-biancheri.info

president@newropeans.org

media contact: Tel. 00-33-(o) 870449122

City Council Debt Default and Bankruptcy

In 1988, a study by Enhance Reinsurance Co. in the US looked at historical patterns of municipal defaults from the 1800s to the 1980s and concluded that municipal defaults usually follow downswings in business cycles and are also more likely to occur in high growth areas that borrow heavily. (Very similar to the situation in Tauranga now).

Following the 1873 Depression, when more than 24 percent of the outstanding municipal debt in the US was in default, the greatest number of defaults occurred in the south, the fastest growing region at the time. Factors that caused defaults included fluctuating regional land values, commodity booms and busts, cost overruns and financial mismanagement, unrealistic projections of the future, and private-purpose borrowing. The report also said that since World War II, revenue bonds have been a new source of default, largely a result of revenue over-projections.

In 1999 Fitch Ratings published its first US study of municipal defaults, which was updated in 2003. The latter study covered 2,339 cases of municipal defaults worth $32.8 billion between 1980 and 2002. The 1999 Fitch study of municipal debt defaults was followed by a revision of its rating criteria for many sectors of public finance. The study concluded that management practices were more important for predicting credit performance than had been thought in the past. The three most important management practices identified that led to stronger credit and lower defaults were:

Superior disclosure

Maintaining rainy day funds or operating reserves

Implementing debt affordability reviews and policies

Since this time, few, if any, municipalities in the US have heeded these recommendations or warnings.

Right now, as the result of widespread gross financial mismanagement, in the US virtually all state governments, local governments and city councils are up to their eyeballs in debt, running huge deficits and are technically bankrupt. Officially, 46 of the 50 states in the Union could file for Chapter 9 bankruptcy in 2009-2010. It is very possible that within the following year, you will see the end of the United States as we know it as the state governments collapse like a chain of dominos, in financial ruin, and on a scale unprecedented in world history. The United States is on the brink of something much worse than the Great Depression. The following are a few examples.

Vallego City Council in California in May, 2008, declared bankruptcy over the inability to fund a projected $16 million shortfall in its budget for the fiscal year beginning in July 2008. Vallejo is a bayside community of 117,000 residents 25 miles northeast of San Francisco. It is almost identical to Tauranga City, with a similar bayside community of approx. 116,000 residents. There are 478 cities in California alone, and many are facing the same predicament as Vallego as the economy worsens.

Stockton City Council also in California, but with a population of 300,000, is in the same dire predicament as Vellego. On February 19, 2009, the chairman of the city council’s budget and finance committee called for the council to consider for filing for bankruptcy.

San Diego City Council in California with a resident population of about 1.25 million is also bordering on declaring bankruptcy at present. Back in November 2008, San Diego City Council Attorney Mike Aguirre recommended the city file for bankruptcy, but as yet it has not been given council approval. San Diego City Council now has a deficit approaching $3 billion, a liability to balance its employee retirement pension accounts that will cost each household alone over $7,000 apiece. The bureaucracy is simply out of control, heading for disaster. The same thing is beginning to happen in other countries now as well.

Aberdeen City Council in Scotland with a population of about 210,000, is also considering bankruptcy as the economy worsens. Aberdeen, Scotland’s third biggest city, is now making all sorts of drastic cuts in spending to urgently balance its books following income falls and out of control rapid rises in bureaucratic waste. The Aberdeen City Council debt presently is in the region of just 50 million pounds, much less than the debt of Tauranga City Council.

Galway City Council in the Republic of Ireland with a population of about 73,000, is also facing bankruptcy. The continuing crisis began in September, 2008, as a result of the council having difficulty in funding a €7.9 million shortfall for the Mutton Island sewerage treatment plant. Consider this in the context of Tauranga City Council borrowing $105 million for the Southern Pipeline project alone?

Ireland Like the US, and many other countries, the Irish government now faces growing fears it may soon default on its national debt after the cost to insure against possible losses on loans to the country rose to record highs in February 2009. In early February 2009 the Irish government announced it would have to inject an additional €7 billion into its top banks, Bank of Ireland and Allied Irish Banks, which are on the verge of collapse following a rapid rise in bad loans. Thousands of Irish citizens are now struggling to pay their mortgages. Unemployment is now at a 15-year high. This is how quickly the situation is changing as the result of high debt levels. Ireland’s economy is very similar now to New Zealand’s.

Until relatively recently the Republic of Island “Celtic Tiger” was touted as the economic glamour miracle of the European Union by the majority of economic “experts,” writers and leading businessmen abroad, including many in New Zealand as well!

New Zealand The economic position that New Zealand is in at present is very precarious to say the least. Existing loans in the banking sector at September 2008 were $277.878 billion, at December 2008 were $280.292 billion and will soon hit $300 billion, dangerously high for a small country with a small population like New Zealand. As at September 2008 gross foreign debt ballooned to $235 billion (131% of GDP) most of it in the private sector. As at the end of November 2008, New Zealand banks alone had $136 billion in overseas borrowings exposure, again very high. We have a huge, current account, annual overseas trade deficit. At the end of December 2008 it was running at $15.5 billion, or 8.6 percent of gross domestic product. This deficit means that foreign claims on the economy exceed New Zealand investment abroad by $166 billion or 92 percent of GDP. Previously Argentina’s economy collapsed with much better figures. At present this deficit is being reduced artificially by drastically lowering the currency by the Reserve Bank. As the currency declines the repayment liability on the foreign debt is quickly rising proportionately, and combined with recent projected massive increases in government deficit spending as a result of the growing depression, it will soon reach dangerously high levels and adversely affect the country’s credit-rating. The situation is serious.

On top of this, most of the key assets in New Zealand have previously been privatized and sold off to foreign interests, in collusion with successive governments, the Bank for International Settlements (that indirectly controls the Reserve Bank of New Zealand and hence the country’s growth in credit largely through the Basel II Capital Accords), the Treasury and NZ Central Securities Depository Ltd (NZCSD) of the Reserve Bank, to the big four Australian-based, British-controlled banks (Westpac Australia could be seen as an exception being controlled from N.Y. by two nominee companies owned by Chase Manhattan, and Cede & Co, but which in turn are all London-controlled) and other foreign corporations controlled through a devious system of cross-directorships both in New Zealand and Australia.

Contrary to what the aligned business media in New Zealand parrot to the masses, that “kiwis have now got too much money invested in residential property” and “we need the introduction of capital gains taxes on housing” and the like, because this is supposedly “the cause of the country’s dire economic decline” – the real cause of New Zealand’s economic ills and rising trade deficit are the four big, foreign, Australian-based British-controlled banks, their creditors, and the corporations that they control, that are literally, like giant parasitic leeches draining the economic lifeblood out of the country and repatriating billions in profits and dividends back overseas each year to their shareholders without putting anything of substance back into the country’s economy. This is the primary cause of our nation’s economic decline.

Add to this the dramatic worldwide collapse of general commodity prices, projected declines in returns for New Zealand kiwifruit and forestry industries, planned reductions in production at Comalco, the current growing global butter mountain, the global massive stockpiles of unsold milk powder that are growing ever bigger by the day, the growing lake of unsold wine in Europe and the rise in EU protectionism against many of our primary export products – the general outlook for New Zealand in the growing depression is very grim indeed. My personal view is that, for example, if a large company like Fonterra were to collapse in the future, which produces about 25 percent of New Zealand’s export income, as a result of falling commodity prices and sales which are increasingly becoming worse at the present, there will very likely be a “negative run” on the kiwi dollar. Because of this and the fact the kiwi is only a very small, peripheral currency, (I believe that most of the banks will in all likelihood collapse as the result, irrespective of government guarantees because the government in reality has no surplus cash at all and would have to borrow astronomical sums itself to bail them out). In this event, it is very likely that kiwis may clearly lose all of their pensions and life savings, and the foreign creditors of those banks, will all end up either directly or indirectly owning most of the country, before the banking system is recapitalized with a new regional currency. This situation may be a lot closer than many people expect.

Responsibilities of Councilors and Directors

May I remind you that, under the New Zealand Companies Act 1993:

Responsibilities of directors; (s131-s135 etc.)

Directors must act honesty in what they believe to be in the best interests of the company and with such care as may reasonably be expected of them in all the circumstances.

Directors must not carry on the business in a manner likely to create a substantial risk of serious loss to the company’s creditors (so-called “reckless trading”).

Director’s duty of care and skill (s137); The courts in New Zealand have been very clear on responsibilities of directors in this respect. It is vital to understand that it is no longer acceptable to sit back and let others run the show. It is clearly established that even directors who are scarcely involved in management of the company can still be held liable when financial difficulties arise. All directors should be capable of reaching a reasonably informed opinion of the company’s financial capacity.

Further Liability of Directors; A court can order that any directors or former directors are personally responsible for all or any part of the debts of the company, unless they can show they took reasonable steps to ensure compliance (s300). In this case the past voting records of decisions made are critical.

Liability in tort; A director can be held liable for a tort (for example, negligence) committed primarily by the company.

Criminal Liability; (ss373, 374) Some offences can carry penalties up to 5 years imprisonment or a fine of $200,000.

The Solvency Test;

The Companies Act 1993 requires directors to abide by a two-step test at all times:

1) The company must own more assets than liabilities.

2) The company must be able to pay all its accounts as they fall due.

Personal liability of members under s 43(1)-s44(6) of the Local Government Act 2002

Under this section of the act all members of a local authority are indemnified by the local authority for any liability if they acted in good faith and in pursuance of the responsibilities of the local authority.

This indemnity does not apply to directors of council-controlled organizations.

Individual members are not liable if they establish that the act or failure to act that resulted in loss incurred was done (a) without their knowledge (b) with their knowledge but against their protests (c) contrary to the manner in which they voted on the issue.

More generally, members are not liable if they establish that in the circumstances, they acted in good faith and in reliance on reports, information, or competent professional or expert advice.

In New Zealand, while this section of the act has not yet been tested, members are only liable for the losses if the Auditor-General issues a report on those losses to the Minister of Local Government. The Crown is entitled to take proceedings against members to recover the losses, which when recovered are payable to the local authority.

In Porter v Magill [2002] All ER 465, Lord Bingham summarized the principles underlying the equivalent provision in English law as follows:

If the councilors misconduct themselves knowingly or recklessly it is regarded by the law as willful misconduct.

If the willful misconduct of a councilor is found to have caused loss to a local authority the councilor is liable to make good such loss to the council.

Local Government Act 2002, Public Act 2002 No.84

3, (d) Provides for local authorities to play a broad role in promoting the social, economic, environmental and cultural well-being of their communities, taking a sustainable development approach.

Resource Management Act 1991

Part 2-Purpose and principles, 5, (2) In this Act, sustainable management means managing the use, development and protection of natural and physical resources in a way, or at a rate, which enables people and communities to provide for their social, economic, and cultural wellbeing and for their health and safety …

Conclusion

Clearly we are all living in momentous times. I hope I have at least succeeded in part to convey to you my deep concern, (I trust from the best credible sources), about the deteriorating world economic situation that may in the reasonably near future possibly quite dramatically adversely affect the council’s finances, if not even our whole nation’s.

Generally, I believe that the council debt is now becoming far too excessive in view of the turbulent economic times we are entering, and it must be brought back to prudent levels urgently. The idea that a monopolistic organization, like the council, can just keep ripping rates and charges up at will with increases far above the average increase in the earnings of those who have to pay them – must stop! Ultimately, all debt has to be paid back by somebody, and inevitably, if existing ratepayers do not, then the responsibility will fall on their children. Like the case in any prudent individual’s finances, there must now be a clear line drawn by council between what exactly are its “needs” and what precisely are its “wishes.”

Now is a time, surely, to be economically “conservative” – while we concentrate on our “needs” and set aside our “wishes” for awhile. Perhaps many of the most expensive capital works projects in the region requiring a large debt component should be at least delayed for a couple of years while it becomes more clearer to see where the global economy is going.

I appreciate that there already are strongly opposing views within the council, some I support, some I don’t. The purpose of my submission is not to disparage any individual councilor, other than to say, ultimately it is the collective decisions of all of us that will determine soon whether we sink or float. My purpose is to influence everyone.

I believe Tauranga is really a great spot, and it is not my purpose to inhibit necessary growth and development, only to provide a word of “warning” in the current turbulent environment. After all, reality will always prevail, and even if we have the best of intentions, but neglect to keep debt at sustainable levels and develop the best little paradise here in the world, (like we already have) and can’t afford to live here because of excessively high rates imposts in the future, or worse, the council goes bankrupt – what is the point in that?

Hoping you may heed my warning, and many thanks for your time.

Best regards,

(and, please, don’t forget those blessed “light bulbs” in my subdivision!?!?!)

Yours sincerely,

Jack Phillips