Further thoughts on Auckland Council’s emergency budget

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Council is in the process of preparing an emergency budget.

Clearly Covid19 is having a dramatic effect on Council’s finances. I wrote earlier about the effect could be that Council loses hundreds of millions of dollars in revenue.

I also said this:

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 invite the rating agencies 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.”

Council’s fear is that there will be an interest rate increase if the borrowing cap is breached and the cost of borrowing ill increase. But its debt maturity profile suggests that less than a fifth of the debt is due to expire in the next couple of years so I can’t imagine the effect to be significant. The following graph provides a view of what Council’s debt profile looks like.

How big a problem is it? Total debt last September was $8.9 billion and total assets were $52.9 billion. And income was $4 billion.

It is impossible to say how much disruption Covid-19 will cause to Council’s finances. You would need a well functioning crystal ball to guess that. But lets say that it causes $250 million dip in income over a period of the next 12 months before things return to a relatively normal level. This represents about a 6% loss of income and is one of the scenarios that staff have suggested Council considers.

To put this into a household context it is comparable to owning a million dollar home with a $180,000 mortgage when the household earns $80 thousand a year. Covid19 caused problems cuts off $5,000 a year of income.

To respond you can obviously cut back on expenses, borrow more or sell stuff. Or put off the house extensions that you were planning to do.

Philosophically I am opposed to Council selling any strategic assets and by this I include land holdings in growth areas. Too often I have seen this end in tears. Like the property in the middle of Glen Eden which Council sold for $150,000 and then rented the land back from the landowner. Eventually it was paying in rent each year the same amount of money that it received from the sale. And the land is now worth millions. The interests of the ratepayer would be well served by Council taking a longer term view of the matter. It always seemed bizarre to me that Council would sell something to corporate interests and expect to do well from the transaction. Corporate interests are not known to do things out of the goodness of their collective hearts.

I am also opposed to cutting back on expenses unless they are for activities that are not needed in which case they should be reprioritised. Now is the time for Council to be active, to keep people in employment, and to ensure as far as possible that firms that provide goods and services to Council can continue to operate.

Should Council defer projects?

Again philosophically I am opposed to this as it will also have an adverse effect on the local economy. But it seems inevitable that Auckland’s population will grow much slower than previously anticipated. And the Government is ready to step in with projects of its own. Some deferrals particularly of growth projects would therefore help. Although any project that assists the mitigation of and adaption to climate change should not be delayed as we are running out of time to deal with this most pressing of challenges.

Which leaves borrowing and I think why not?

This is the sort of rainy day where the normal rule book should be thrown out. And at a time where the cost of borrowing is at historic lows. By law Council is meant to run a balanced budget unless it resolves not to do so because of special circumstances and these are special circumstances.

What is the cost? Recently I have seen first mortgage rates for home buyers at under 3%. In 2016 they were over 5%. Currently the Reserve Bank Official Cash Rate is 0.25%. In 2016 it was 2.5%.

In the financial year to June 2017 Council paid $422 million on debt of $8.3 billion. The figure to June 2018 it was $454 million. This suggests that it was paying in the vicinity of 5% interest for its borrowing.

Given Auckland’s asset base and overall income the cost in interest would not be high.

I think that the debt ceiling policy is hard to understand and somewhat irrational. Economist Shamubeel Eaqub thinks the same. From Dileepa Fonseka at Newsroom:

Sense Partners Economist Shamubeel Eaqub said there was a simple solution to averting a debt ceiling breach during the “mother of all recessions” – central government cash.

Council revenues would rise if they were given more money via a Government grant. They could then borrow more off the back of that and never breach their debt ceilings. 

“I have no idea why that debt cap is where it is at anyway … it makes no sense to me. I think it’s idiotic.

“Essentially the current rules stop you from being able to invest in the future at a time when interest rates are very low [and] the private sector investment cycle is in a slump.””

To expand on my individual analogy it is as if Auckland Council is a landowner with a million dollar house, a mortgage of $180,000 and household income of $80,000. Because the household income has been hit by a $5,000 cut because of a reduction in working hours the household decides to run the debt up by that amount to keep the household budget in kilter. There will be some extra bank fees but on the scale of things they will not be high.

The figures are big but the proportions are manageable.

Now is not the time for major service cuts or selling council assets. Some short term borrowing to get through this difficult time and to make sure that the Auckland Region as a whole is not hit too dramatically is in my personal view the right thing to do.

Chair’s report April 2020

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I trust everyone is well and is adapting to this new way of life.  The actions taken by everyone so far have led me to be cautiously optimistic that we can beat the threat posed by Covid-19.  New Zealand may do better than most nations and we may get back to a relatively normal way of life in the near future.

But please keep up the social distancing, the washing of your hands and most importantly be kind to each other.

The local board is still getting to grips with the implications of Covid-19.  It will have a profound effect on council activity for some time to come.

Community support

I am always pleased to see the power of community and how people immediately adjust to help others in difficult times.  Locally I am aware that Vision West is providing significant support to local families in need.

Council itself has stepped up and is providing support.

There is an Emergency food parcel delivery service – 0800 22 22 96 – which has received 8,000 calls at the time of writing, 5,000 of which required assistance.  So far 3,250 deliveries have been made.

Amongst those seeking help are people who have never needed help in the past.  They are people who have lost their jobs and are suddenly struggling.

Council is also running a call system.  Staff are ringing people aged 70 years or older to check them.  Over 50 library staff being used.

Finances

The implications are significant 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 increasing debt 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 to freeze rates and 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 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!

Staff are preparing scenarios for Councillors to consider.  There is the urgent procedure for changes to the ten year plan that can be used.

These discussions could be the most critical that Councillors will undertake.  In the spirit of co-governance I trust that local boards will be included in these discussions from an early stage.

Infrastructure

As one of the measures the Government is undertaking to stimulate and preserve employment it has asked Councils to nominate “shovel ready” projects that Councils wanted accelerated.  After a remarkably quick round of consultation Council has drawn up a list of projects that it wanted advanced.

The local board was asked for our view.  Our requested additions included Greenways Plan projects the Te Whau pathway, the North Western Busway, Project Gigwatt (solar power rollout), Kauri protection initiatives, and Sportsfields development.  These have mostly made the process so far but details are not clear.

The three westie local board chairs, Chris Carter, Kay Thomas and myself also took the opportunity to separately lobby for extensions to Waitakere Hospital.  By a happy coincidence an application was submitted last month to the Government for a significant increase to the Waitakere Hospital base.  It has plenty of land and there is a growing need in the west for its own hospital.  Again I am quietly confident that the request will be considered in a positive manner but time will tell.

The main concern that I have is that Council and the Government takes this opportunity to concentrate of infrastructure that will be needed to address climate change. 

Climate change is this second crisis that is developing more slowly but in a more dramatic fashion.  We should be taking every chance that we have to get ready now.

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.

Meetings

Normal meetings could be a while away and the meeting where this report will be considered is planned to be held via skype.  Future meetings may be held in the same way.

The agendas will be put up on Council’s Infocouncil page when it is available and I will make sure it also goes up on our facebook page.  All board members are contactable by email.

So if you have any comments or questions let any of the board members know.

And if you have any proposals for what you think we should be doing feel free to communicate these to us.

Already we have had a zoom meeting with residents involved in local emergency management.  The meeting, organised by Mark Allen, went well and I hope that we repeat this type of meeting with other groups.

Local Board Plan

Amongst everything that is happening is our drafting of the local board’s three year plan.

This is a legal requirement.  We are working on a draft and hope to have it released for discussion in the near future.

The circumstances are fundamentally different to what they were three years ago when we prepared our last plan.

A major downturn in the economy is inevitable.  Foreign trade will be rare and trips overseas the exception.  Local production of goods and food will become essential.  Oratia may again become a major fruit basket.

Ideally our lives will become simpler and less materialistic.  And we may be better placed to deal with climate change.

In preparing our draft I have wanted us to emphasise the importance of Manakitanga, of hospitality, kindness, generosity, and support and care for others.

Kaitiakitanga, the care and stewardship of our environment, will also be very important as will the care and support for local businesses.  Without good local jobs and the regular supply of goods we cannot achieve our goals.

The continued fostering of our art sector will also be critical.  Our arts sector is very vibrant and something for us to be proud of. 

I am sure that we will want to make sure that our parks and facilities are maintained to a good standard, that our social programmes reach across the local board area, and that we are effective with the resources that we have available. 

I am also sure that Glen Eden will continue to receive our attention. We will want to advance renewal of Glen Eden as quickly as possible. 

In our discussions so far members have wanted to emphasise that we are the local custodians of the Waitakere Ranges Heritage Area.

The draft plan should be available for comment in May.  We will want as much feed back as possible so that we can make sure the plan faithfully represents local aims and aspirations.

Finally I often use a lot of pictures in my reports.  I found it difficult to find appropriate pictures for this report.  But I thought I would add this picture taken at the Glen Eden Christmas festival in November last year at a much more innocent time.  May we get back to that situation soon!

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.

Chair’s report – Corvid-19 is changing everything

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I am sure I have no need to tell you that we are living in a difficult time.

So far locally we have been shielded from the direct effects of the Covid-19 virus but throughout the world we are seeing the effects that the virus is having on health systems and communities.

And the economic effects are already being felt.

At a local board level we are also feeling the effects. Last weekend I planned to attend five different public gatherings. Four of them were cancelled.

Further cancellations have also happened. I have recently heard of the cancellation or postponement of the Titirangi Festival of Music, the Ethkick soccer tournament, the Ecofest festival and the board’s own Eats and Beats in Glen Eden. And local libraries and recreation centres have shut on an interim basis.

Social distancing is critical and the reasons for it are clear.

Because of this the local board is changing the way that we perform our functions.

We can reassure you that council remains open for business, which includes our essential services such as rubbish and recycling. This situation is unprecedented and fast moving, and changes may happen from time to time. But we will keep you informed.

Social media will be increasingly important and I intend to use our facebook page to allow for communication of ideas and Council news. If you have not done so already please like the board’s facebook page.

The way we conduct our formal meetings will be changed and will be more digital than physical. We have cancelled our next meeting.

Auckland Council is planning ahead so that the essential services we provide continue to be delivered to Aucklanders. We have a crisis management response underway looking at continuity of our essential services and to support our staff as COVID-19 develops.

Please look after yourselves and your families and your neighbours.

As our Prime Minister Jacinda Ardern has said be strong, and be kind and we will be ok.

Water shortage

Second up in terms of major problems our area is facing …

Last month I referred to the Auckland drought and the need to preserve water.  And after writing my report and before our last meeting it rained!  I should obviously write about these issues more often.

But we are not out of the woods yet.  Although there has been rain it has been intermittent and not sufficient to resolve matters.  Dam levels are at a healthy 62% at the time of writing although this is down from about 70% a month ago.

And the reason why they are so healthy is that Watercare has been using Waikato water as much as possible.  It is estimated that if it was not for this the dams would be 25% full and then we would all be facing a crisis.

And the weather patterns are, thanks to global warming, changing.  We are going to have to find long term solutions to this problem.

Waitakere Hospital

The Henderson Massey local board chairperson Chris Carter arranged a briefing for local board members out west from senior managers at the Waitemata Health Board.  As well as a presentation on Corovirus we were told of the Board’s future plans for Waitakere Hospital.

The hospital provides some current provision of services but many more services are provided at North Shore Hospital.  The Waitemata DHB has the largest population of any DHB in the country.

The west has special requirements.  We are a poorer area and because of this health needs are more intense.  We also have areas of intense growth.

The Henderson-Massey and Waitakere Ranges combined population makes us bigger than Dunedin, Tauranga and Hamilton.  And the large geographical area makes travelling to the North Shore a long and stressful process.

The hospital needs to become a full acute hospital site capable of handling all sorts of medical issues.  This will take pressure off Auckland Hospital and North Shore Hospital.  It will also allow people to be treated locally and reduce the stress of travel for families

I understand that a decision is to be made in the near future by the Government.

The local board chairs for the west intend to advocate strongly in support of full development of the Waitakere Hospital and to make representations directly to the Minister of Health.

Watercare hearing

With Saffron Toms and Ken Turner I recently presented the local board’s submissions on the Waima Watercare application.

The evidence has now all been filed and some interesting issues have become prominent. 

The most significant is kauri dieback.  The fear has been expressed by a number of experts including Council’s expert that the earth works in an area that has Kauri dieback spores will mean that the spores are spread throughout the area.  Every time it rains spores will be washed through the valley in an area that has significant groves of magnificent Kauri.

And on this the expert evidence, from both Council and from experts briefed by the opponents, which interestingly enough includes the Department of Conservation, is terrifying.

The basic premise as I understand it is that the huge amount of earthworks will accelerate the spread of Kauri dieback.  Water trickling down broken up soil is the best way to achieve its spread.  To stop the spread would require a rather large structure resembling a moat.  And the area downstream is home to some of the most significant groves of Kauri in the region.

I wondered what a safe worksite would look like.  I suggested that Watercare would have to construct a moat around the site to gather the water and then pipe it to the Manukau which is quite a few kilometers away.

My concluding comment to the hearing was as follows:

“In assessing the merits of this application the board’s concern is that the risk of spreading kauri dieback through the valley is far too high and the potential consequences catastrophic.  The local board remains opposed to the application.  In fact based on the expert evidence our opposition is now more determined.”

The panel has recommended that the various experts caucus and present a brief to the panel indicating what is agreed to and what is disputed.

The valley immediately below the site is the home of some of the most significant and magnificent Kauri out west.  I trust the panel will take all necessary care in determining this application.

To add to this the planned mitigation is not enough.  To mitigate the clear felling of a forest would require funding for a hundred year plan.

This discovery has reinforced my view that the Local Board was correct in its opposition to the plant.  We will see in the future what the commissioners conducting the hearing think.

Waitakere Heritage Area Gateway Sign project

This has been on the Local Board’s work programme for a while and until recently progress has been slow.  But the board recently had a very welcome presentation by a new staff member Keren Alleyne and by Claire Walker, a contractor also recently involved in the project.

The board’s thinking is that some form of artwork is preferrable to signs, that a generic design with local variations would be better, and that the artwork should act as markers on the edge of the Waitakere Ranges Heritage Area.  In terms of the artwork a suggestion is that for cost and durability reasons laser cut steel could be an option.

We want consultation with Te Kawarau a Maki and with local ratepayers groups including the group of residents who had worked on the proposal to occur.  We will hopefully then be in a position to work out selection of an artist to provide us with a concept for the project.

Funding will be sought from different sources as to do it properly would be beyond the means of the local board.

Annual Plan and Local Board Agreement consultation

This is now under way.  The one particular proposal that affects the  Waitakere Ranges local board area is the future of the septic tank pump out service.  This is a service paid for by residents with older style septic tanks and ensures that every three years they will have their tanks pumped out.  The way I see it there are two benefits, we get the advantage of scale and fees can be kept reasonable for everyone, and secondly all relevant tanks are pumped out.  To my way of thinking there is a significant risk to the environment if the scheme is discontinued and this is why the current scheme, with a regional subsidy, should be continued.  After all we are dealing with the Waitakere Ranges Heritage Area and special care should be exercised.

We have also been talking to local communities about our three year plan and what people think should be in it.  So far there have been two drop in sessions, a meeting with the Trustees of the Glen Eden Mosque, and a meeting with the Methodist congregation.  Feedback was received during Waitangi day at Hoani Waititi Marae and on line and further meetings are planned although adjusting to Corovirus is making this problematic.

By all means let us know your views.  What do you think is important for our area in the next three years and what should the local board be doing?

Kauri Karnival

After receiving advice Council decided to proceed with the Kauri Karnival.  The risk was assessed to be low and the nature of the event, with crowds spread out and no identified people facing threats was not the sort that demanded cancellation.

Numbers were down on last year, which given the circumstances was understandable.  But the event delivered top quality music and some very interesting stalls as well as a number of activities which were child friendly and child pleasing.

Shadbolt House

This has been on the local board’s work plan for a few years.  The Going West Trust has expressed an interest in converting the house into a writer’s residence.  The house was originally purchased by Waitakere City Council with this intent.  The Colin McCahon House shows what can be done with this sort of model.

Staff are being cautious and have raised health and safety concerns.  I am confident that this can be taken care of however and that working with the trust they can be overcome.

There is a feeling that Titirangi’s art sector is more than adequate.  I am a fan of it being exceptional.

Remember March 15

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Twelve months ago the unthinkable happened to Aotearoa New Zealand.  A right wing extremist armed with weapons of mass destruction went on a rampage through a Christchurch mosque and killed 51 human beings and injured another 49.

I can recall the day well.  I had been to Aotea Square at Auckland where thousands and thousands of young people protested against climate change and how it was destroying their future.  Their demands for urgent action cannot be ignored.

Then on the way back on the train I tuned into twitter and saw disturbing tweets that talked about an incident in Christchurch.

The news became worse and worse.  A facebook live streamed video ignited social media.  It was an attack based on prejudice against race and religion and contained all the nutty disturbing thought processes that the internet has been able to bastardise.

The country’s response was swift.  Armed police appeared on the street.  And people joined together.

Jacinda Ardern responded in a most human way, by declaring that they are us and we are one.  She captured the country’s revulsion to what had happened in a very simple but perfect way.

The next morning I was at the Ethkick football competition, a locally organised competition where teams from different communities join together and play the beautiful game.  The organisers had thought about cancelling the event but had decided that it was important that it proceed.  And it was so reassuring to be part of a diverse crowd joined together to celebrate what we share and what makes us distinct.

And over the next week many kiwis reached out to our muslim brothers and sisters.  A group of us westies visited the Mosque in West Auckland to pay our respects and to show solidarity.  This simple act of solidarity was repeated throughout the country.

Since then the gun laws have been tightened.  Some of the parties are paying political games with the second tranche of changes but changes are coming.  Our security infrastructure has been beefed up.

And the shooter has failed in his attempt to ignite a race war.  New Zealand is still a peaceful place, albeit somewhat older and still scarred by the event.

Kia kaha to the local Muslim community.  We are one.

Reprinted from the Standard.