Auckland Council’s emergency budget
The Emergency Budget consultation is now under way.
Auckland Council’s budget consultation documents suggest there is no business as usual option for Auckland Council. And they are correct.
But I am worried that the draft focusses entirely on financial matters and ignores the community and environmental repercussions of what is clearly an austerity budget.
The fiscal emphasis is marked by these paragraphs:
It was agreed that the key principles for developing this budget would include maintaining a strong commitment to long-term financial prudence, while maintaining critical council services and investments to support economic activity and the overall wellbeing of our community.
The latest financial projections, based on the best information currently available, include a $550 million reduction in cash revenue, a $400 million cash operating deficit and 305 per cent debt to revenue ratio for 2020/2021. This is the position after all savings to date have been accounted for.”
The document then sets out different scenarios depending on whether a 2.5% rates increase or a 3.5% rates increase are put in place. The implications of a 2.5% rates increase are frankly too horrific to consider. Significant cuts to basic services including libraries, large sales of assets and any climate change measures can basically be forgotten.
The responses of the Council Controlled Organisations to a request to find savings is disappointing. For instance Watercare thinks that “there were no viable opportunities to further reduce their operating or capital expenditure” although it did find some extra revenue, paradoxically expressed as a reduction of income. We do need Watercare to be on top of its game. But surely they can find some operational savings.
Council has set itself eleven guiding principles in formulation of the budget. The tenth is “supporting our communities” and the last is “climate change”. To my mind these considerations should both be at the top.
Debt is discussed. The report says:
Relying solely on the use of debt would be a significant departure from the council’s current strong commitment to long-term financial prudence. This path could lead to higher borrowing costs, reduced access to debt markets and a reduced ability to progress long-term strategic objectives while keeping costs affordable for future ratepayers.”
In the lead up to the formulation of the Emergency Budget the local board advocated for the use of debt, delay in some capital projects not climate change related and the trimming of some budgets to help with the rebuild.
The higher borrowing costs that the report refers to is the worry that if Council breaches the current 270% debt to income ratio private credit rating agencies may downgrade the Council’s credit rating and cause interest costs to be higher. As I have said before this ignores the carnage that is happening in the market right now. I can’t imagine a safer investment in the country than Auckland Council apart from in the New Zealand Government. And this is a time when Council needs to support communities and jobs by spending, not cutting. Interest rates have never been lower. As a temporary measure during these extraordinary times increased debt must have a part to play.
The details of what Council capital projects will be deferred is concerning. These include:
• 35% of planned Kauri track upgrades.
• A major delay in the local board’s Glen Eden beautification project.
• All unallocated locally-driven initiatives (LDI) capex and uncommitted LDI projects.
• 80-90% of planned 2020/2021 renewals for buildings, playgrounds and open space.
Under the proposal Auckland Transport will have $205 million shaved off its capital budget. The effects will be:
• Pausing or cancelling of road safety improvements including further rollout of red-light cameras in urban areas, the rural road delineation programme, and improvements to high risk intersection and pedestrian crossing improvements.
• Pausing or deferring work on all walking and cycling projects not in construction.
• No further investment in electric buses.
The savings on footpath and walking and cycling projects is about $21 million. The savings on the electric busses and charging infrastructure is $1.8 million. The budget for region wide LDI projects gets cut from $17.5 million to $5 million.
Elsewhere the document displays a sea of red ink, with a few startling exceptions. Staff wage increases will be suppressed, which in my view is acceptable for anyone on more than $100,000 but for lower paid staff this seems unfair.
Public transport provision will not be increased, defensible because in this Covid 19 time public transport usage has been severely reduced.
The Local board’s discretionary funding will be hit:
We propose to reduce the Local Board funding Locally Driven Initiatives (LDI) funding by 10% for 2020/2021. Local boards will reprioritise their planned programmes for next year to meet the funding reduction. Flexibility will be provided for local boards to identify some reductions in Asset Based Services (ABS) spending if that is preferred to finding all savings from LDI funding.”
One of the most startling proposals is the spend of $20 million on Americas Cup celebrations. The report says:
We were planning additional funding of $30m to support the large programme of events in 2021 including the 36th Americas Cup. We are proposing to scale this back to $20m. This will mean less activation and promotion with less ability to leverage wider economic benefits from the events.”
With international travel exceedingly unlikely to return to former levels any time soon I would severely cut this budget. Perhaps pizzas and a few beers in the Aotea Centre. That way spending on walk ways and cycleways can be restored.
And despite all the red ink the document suggests that Council will still run an after tax surplus for the year of over $300 million. I appreciate the need to have funds available for contingencies but given the current circumstances I would urge Council to drive the surplus closer to zero.
There is another matter of note. For years Council has been reducing the proportion that businesses pay. Instead of at least stalling this process during this time it is planned to continue. That means that the rates increase for residential ratepayers will be higher than it is for business ratepayers. Speaking as someone who pays both for tax reasons I would much prefer to pay more in business rates. The only people pleased with this policy will be business owners and shareholders who are not resident in Auckland or those whose businesses are hugely more valuable than their homes.
We can get through this. But all parts of Council including the CCOs need to play their part. And we need to recognise the importance and strength of community in the rebuild. And realise that climate change is waiting around the corner ready to clobber our society in a way that will make the Covid effects on Council look like a slap with a wet bus ticket.
Submissions close on June 19. Don’t forget to have your say.