Auckland Council’s finances and Covid-19

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I interviewed westie Councillor Shane Henderson recently.

We had a talk about Covid-19 and the implications for Auckland Council. The audio is here if you want to listen.

We reviewed the first six months of the new term. It certainly is an interesting time to be in office.

Neither of us had any idea it would develop in the way that it has. If you said last October that in the next year Auckland would be in lock down, the country’s borders would be closed, economic activity would have mostly ceased and overseas major countries would be brought to their knees I would have quietly questioned your mental health. But clearly it is happening.

There is a Chinese curse may you live in interesting times. And the Chinese word for crisis is made up of characters signifying danger and opportunity. We are clearly in the midst of a crisis but in extracting ourselves from this we need to think of what sort of future we want to have.

The implications are profound for Auckland Council’s finances.

Wellington Council has indicated a likely $70 million hit to its income this year. I can say confidently that the hit to Auckland Council’s finances will be worse.

Fees and charges account for about half of Auckland Council’s income. Nationally the figure is more like 40%. It means for Auckland that any change in conditions will have a dramatic and very quick effect.

In working out how to respond there is always the fiscally disciplined approach, cut the expenditure back until fiscal equilibrium is reached. Unfortunately as shown by the great depression this is the wrong approach for a public entity to take, and all that it will do is make the recession worse.

Every Kensyan economist in the world will tell you that public institutions have to be counter cyclical, when economies crash public entities have to start spending. The neoclassical ideas proposed by the Chicago School of Economics in the 1980s that has dominated economic approaches through most of the world are in decline. We are all Keynesians now.

The problem though is that Auckland Council is nearing its debt ceiling of 270% of debt to income ratio.

This is a ratio set by rating agencies to measure the fiscal health of Auckland Council. The fear is that the rating agencies will downgrade Auckland Council’s credit rating if this cap is breached and borrowing will be more expensive. But at a time when even the strongest of corporations are having their balance sheets battered and public institutions are the only safe entities standing I think it is time to review this.

Sure the debt will have to be repaid. But interest rates are at a historically low point and to get us through this is an option I think Council should be considering.

The Government has effectively trashed its fiscal responsibility rules and is spending up large. It is time I think for Auckland Council to do the same.

What about rates increases? There has been calls from entities such as the Tax Payer’s Union to freeze rates and while I normally have no truck with their ideas some families are going to face considerable hardship for the next year or two at least.

Auckland Council is in a difficult position. Its job, if it wants to accept it, is to spend up large, keep people in jobs, get major projects under way, not breach the Council’s debt ceiling and not hurt already struggling ratepayers.

Something has to give!

The next 12 months will be important, and we face the prospect of unemployment ballooning.

The Government’s wage subsidy scheme has clearly in the short term kept businesses open and pay checks flowing. But I think it inevitable that some businesses that are currently closed will not reopen.

This underlines the importance of Government’s infrastructure spend up. It has announced that shovel ready projects with a cost of $10 million or more will be funded. Shane and I, as well as other local councillors and board chairs, have advocated for the North Western busway and the extension to Waitakere Hospital. The Whau Coastal Walkway is another project that I have supported. Disclosure I am one of the trustees of the trust trying to put it into place.

The local board has also urged support for the Waitakere greenways plan, which is not quite shovel ready but close in parts. It is a series of walkways and cycleways that will make the area less reliant on cars. Predator free projects and Waitakere’s war on weeds are other projects that are ready to go once funding is approved.

Auckland Council is actively working with the Government to get as many local projects approved as possible. It is vital however that we don’t let response to Covid-19 deflect us from longer term response to climate change.

The temptation will be to build more roads.

But now is an ideal time to build more walkways and cycleways.

The effects of climate change are already being felt. Now at this time where there is an imperative to keep the economy going and provide jobs Auckland Council should also take the opportunity to prepare the city to become more sustainable and more resilient. Covid-19 presents to us both a crisis and an opportunity to improve our city.

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