The Mayor’s budget proposal and Auckland’s climate change response

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We are now getting into the difficult part of working out how to respond to climate change. We have had a few decades notice and have wasted this by engaging in incremental minimalist policy that is well meaning but not nearly up to scratch in terms of what is actually needed.

The Government recently made a climate change declaration and added in targeted policy that needs to be achieved by 2025, and that is for the Public Service to become carbon neutral by that time.

Auckland Council previously declared a climate emergency and also has declared goals, and that is to halve greenhouse gas emissions by 2030 and to be carbon neutral by 2050.

And it has a specific target for electric busses.

Auckland Transport’s Low Emission Bus Roadmap published in December 2018, proposed that Auckland’s bus fleet produces zero emissions by 2040. To do this and given that busses have an economic life only zero emission buses should enter Auckland’s bus fleet from 2025.

Funding for this is essential. Which is why the Mayor’s budget proposal is important.

He acknowledges in his report that there was a proposal for a targeted climate change rate but that a majority of the councillors did not support it.

The Mayor’s report says:

Given the critical need to progress climate action within the constrained fiscal environment caused by COVID-19, staff developed options for a climate action targeted rate. This would have created a hypothecated fund for climate action. During discussions on the 10-year Budget, Councillors on balance felt that it was preferable to fund additional action within the overall budget.

I do not know why the dedicated rate proposal was turned down. Council is full of wonderful words and great documents. But to get action you actually need budget. Without budget nothing happens. And a dedicated budget is especially important because it cannot be diverted into other areas. Sure addressing climate change is part of core business. But it an especially important part of core business and I cannot think of a more important area deserving of its own dedicated funding.

The Mayor’s report says that increased funding will “assist Council bringing forward the decision to stop the purchase of any new diesel buses from 2021 rather than 2025 as previously planned, with all new buses purchased from the commencement of this budget being electric or potentially hydrogen powered.” This is pleasing.

But, and this is a big but, the budget does not go nearly far enough to allow Auckland to fulfill its climate change goals. And the Mayor acknowledges this. Again from his report:

These proposals will help us meet our commitment to mitigating carbon emissions but much more will need to be done to halve carbon emissions by 2030 and achieve net zero carbon emissions by 2050. We will be seeking to work with the government, which has the biggest levers to achieve changes, to progress goals such as incentivising the purchase of electric and low-emission cars, increasing investment in public transport and promoting mode change and other major initiatives achievable only through central government policy changes and funding.

What are the details of Council’s goals. This week the Council launched “Te Tāruke-ā-Tāwhiri: Auckland’s Climate Plan“. It took five months to publich the report after being endorsed in July this year. Perfection is the enemy of speed and we are in a situation where we need to go as quickly as possible.

The original report says:

One of the overarching goals of the plan is to achieve net zero emissions by 2050. To transition towards this goal, we have set an ambitious interim GHG emissions reduction target of 50 per cent by 2030 (against a 2016 baseline). This aligns the plan with the objective of the Paris Agreement to limit global temperature rise to well below 2°C above pre-industrial levels and pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels.

Auckland’s emissions need to peak and then rapidly decline to move onto a decarbonisation pathway that meets our climate goals. The longer it takes to achieve peak emissions, the steeper and more severe Auckland’s emissions reduction pathway will need to be to meet our emissions reduction targets and stay within our carbon budget.

It also says this:

Reducing GHG emissions by 50 per cent by 2030 is not plausible, unless bold and ambitious climate action is taken.

And in a section with the title “What we need to do” the original report urges Council to:

1. Encourage large-scale uptake of zero and low emissions vehicles

2. Rapidly increase the frequency, affordability and availability of public transport

3. Rapidly increase safe, high-quality cycling and walking infrastructure

4. Assess road pricing schemes to reduce car travel and vehicle emissions

5. Make freight systems more efficient to reduce emissions.

This report is not the first produced by Auckland Council. For the past few years Council has been producing a variety of reports measuring Auckland’s climate change performance. The Low Carbon Auckland report 2017 update said this:

Between 2009 and 2015, net emissions have increased by 2.1 per cent while gross emissions have increased by 7.1 per cent. This increase was mainly driven by activities in the industrial processes and product use sectors, as well as from transport.

This trend shows that despite making progress on the implementation of the action plan, we need a significant shift to achieve our [eralier goal of] 40 per cent by 2040 reduction goal.

The effects of the Mayor’s proposal on emissions is indicated in this slide from this Todd Niall Stuff story.

The proposed savings under the larger rates increase, 1.35 million tonnes of CO2 emissions over the next decade sound impressive. But please note the 2015 figure of CO2 emissions was 10.3 mt of CO2 net. My perception is that things have overall not improved. To succeed Auckland is going to have to save five times the amount each year that the proposal estimates the region will save over the next decade.

Clearly the Council is hoping and anticipating that Central Government will pick up the tab on the balance. And this reinforces my strong impression that the funding model for Local Government is broken. But if Council is actually serious on its intentions it needs to do better. As an example it should pledge for the Council itself to be carbon neutral by 2030, not to have halved its corporate emissions as indicated.

The mayoral proposal is a start and reflects I am sure a well calibrated sounding of where the dominant political view on Council is. But suggesting that we should deal with the crisis presented by climate change by a further rates increase of 0.67c a week is underwhelming.

What else should it be doing? For a start build walkways and cycleways. The Waitakere Ranges Local Board for instance has a whole network planned which could be built if there was budget available.

We are running out of time. Our grandchildren will not forgive us if we do not act with determination. We need to do better.

Chair’s report – November 2020 – Derivatives, Open Studio and acknowledging a community hero

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Council’s derivative policy

There has been considerable media interest in Auckland Council’s derivatives policy on hedging and interest rate exposure. Details can be found on the council website. Council’s approach is to have a diversified portfolio approach to debt management and interest rate exposure risk.

This is something that I have personally been interested in since the consultation about the emergency budget earlier this year. The accompanying documents suggested that Council’s liability under its derivative contracts was $1.4 billion greater than its derivative assets.

The focus for Council in hedging its debt is to minimize the risk of actual financial loss through increases in interest rates, now or in the future. This protects the council’s ability to provide the essential services and infrastructure investment that Aucklanders rely on.

However, $1.4 billion is a large number. They may be bookkeeping entries but last year (2018-19) Auckland Council lost $773 million. This year the loss was $665 million.

What is a derivative? It is essentially a bet. Really intelligent people and merchant bankers throughout the world have poured massive resources into creating legal arrangements which allow people to buy and sell contracts the worth of which depend on what way things like interest rates move.

Linear derivatives are basically bets that interest rates will not move too far one way or another. There are also more exotic versions that accentuate the gain or the loss. If you are looking for the best sort of linear derivative, then the good old fixed rate loan cannot be beaten. No need for smart complex arrangements, just agree on the interest rate and the term and then move on.

As part of its feedback on the emergency budget the local board requested an urgent review of Council’s approach to derivative dealings on the basis, they open up Council, in my view, to high risk.

I think that it is important for Council to do this and the review should be conducted by someone independent. Derivatives may or may not have a legitimate role in smoothing interest rates and protecting from interest rate spikes. But Council should ensure that the amount of trading and the risk is appropriate and represents real value for money.

Open Studios Weekend

The Waitakere Open Studios weekend was held recently. This is a board sponsored event that has been occurring for a number of years now. Local artists are invited to take part and a road map is prepared showing the location of artists residences over the weekend where they have prepared their art to be viewed.

I managed to get around about half of the total and the experience reminded me how blessed the area is with its artistic talent.
With permission I took a few photos of artists in their studios. There was Ted Scott who is a renowned photographer as well as a painter with merit. Ted has been recording the beauty of the West Coast for many years now.

There was Mandy Patmore who is also based at Karekare who is not only a formidable artist specialising in native birds and the use of recycled material but is also the driver behind Kakano, a collective for young artists based at Corbans Art Centre. I cannot speak highly enough of the work that she does.

There was also Sefton Rani who specialises in the use of paint skins and discarded material to create dramatic and quite unique objects of art.
The collective response from all of the artists was that numbers were down on previous years, probably because of Covid, but the event was very worthwhile and very helpful for them.

The event improves the standing of local artists, helps them by making them better known and generating sales for them, and improves their ability to continue as artists. I think that it is extremely worthwhile, one of the more important things that we achieve.

When I was part of the group planning and pushing for the creation of the Waitakere Ranges Heritage area one of the drivers was the beauty of the Ranges and the profound effect it had on artistic talent. I am very pleased to note that after this weekend artistic talent in the Ranges is indeed flourishing.

Ian Henderson Plaque

Acknowledging local heroes is one of the simpler parts of the job but ultimately one of the most important. Many years ago Ian Henderson, a local Titirangi resident who performed a huge amount of work for the Titirangi Community was remembered by a simple bronze plaque placed in the garden at the Titirangi War Memorial Hall.

It recently went missing and this was noticed. Thanks to some sterling detective work by the Board’s PA Sharon Davies it was relocated.
Then last Saturday there was a very simple but heart-warming ceremony involving Ian’s family and Titirangi Ratepayer’s chair Mels Barton when the plaque was replaced, and Ian’s memory and contribution acknowledged.

Ian’s wife June Henderson is also a treasure and should be acknowledged. I can confidently say that she is responsible for the eradication of more weeds and the capture of more possums than anyone else in Titirangi’s history. She is one of our really outstanding protectors of our environment.

Community Waitakere AGM

Community Waitakere has been around for a while and performs an important role. It acts as a hub and support for local community organisations.

The personnel are well known. David Kenkel is the Chair, and our own Mark Allen is the Executive Officer.

It recently held its AGM and David gave what I thought was an exceptional speech outlining the effect that Covid had on our community, the importance of the community response and the lessons learned.

Some highlights from his speech:

“Communities act with grace and generosity in the face of difficulty. As the research I have been doing seems to indicate. The mad Max movies are only fiction. In reality, in tough times people pull together.

Working from home and needing to minimise social contact does not make communities go away. Instead people find creative new ways to connect.
Populations of people who are already economically and socially vulnerable become more vulnerable under Covid 19 conditions. The happy TV stories of people taking up new hobbies and learning to enjoy baking during lockdown do not reflect the stories of those who did it very hard indeed. Hence, as an organisation that supports communities, we have a duty to also tell these stories of difficulty and challenge.

We also found out that the state can do a great deal to help and support people. The story that we have heard for so long about the impossibility of funding more than minimal interventions to target social well-being is now revealed as a myth. Sometimes this is talked about as ‘crisis socialism’. I prefer to think of it as an encouraging reminder that governments owe a greater duty of care to the well-being of people than the well-being of economies, and, under the right conditions governments can do a great deal to enhance social well-being. I think this is an important lesson that we should keep at the forefront of our thinking as we move into a new future.”

I have always been a fan of Community Waitakere and its contribution to the West and I am sure that this will continue.

Guy Fawkes

Guy Fawkes day has again occurred.

It is that day of the year when we celebrate an act of terrorism that occurred on the other side of the world involving a direct attack on a democratic institution by burning fires and letting off combustible devices that scare domestic animals and threaten widespread fire.

You may notice that I am not much of a fan.

While the visuals can be spectacular the noise and the associated fire risk are not. And what seems to be an endless lead up to the event itself involving further random use of incendiary devices is a real pain not to mention destructive of sleep and of the environment.
The timing of the event is pretty bad. November is usually the start of the dry season. The West Coast with its rugged cliffs, abundant plant life, hard to access areas and dedicated but widely stretched fire brigades, is particularly at threat on Guy Fawkes day and during the lead up.
There is significant support for banning the private sale of fireworks. Local residents and ratepayers groups have supported the move and have petitioned the Government to do this. Auckland Council has formally requested that the private sale of fireworks be banned but so far the Government has declined to act.

There has been a call to change the event to Matariki day. I think the proposal has some merit.

Dusk is earlier, the risk of fire spreading is greatly reduced, and we would be celebrating something of local cultural significance, not an act of terrorism from 400 years ago.

Shadbolt House

This is another of those projects that has been talked about for a long time. It was first proposed by Bob Harvey back in Waitakere City days and the old Maurice Shadbolt House on Arapito Road, Titirangi was purchased.
The intent of the Shadbolt House Trust is to convert the house into a writer’s residence. The local board has for some time been a supporter of this.

The meeting allowed us to concentrate on what was required to advance things. Council staff with the benefit of a trust representative are to draw up a list of work required to allow Council to grant them a lease to

French Bay Yacht Club

Mark Allen and I visited the Yacht Club recently at the invitation of the Commodore Allan Geddes. The club was holding a community open day mainly for kids.

The event gave the impression of well controlled bedlam with a number of yachts out on the water and rescue boats zooming around making sure the kids were ok in conditions that were less than optimal. Big ups to the club for providing so many young people with the chance to try out sailing.

The club is well established and has a proud history. There has been some recent disagreements with Council but these are in the process of being resolved to everyone’s satisfaction.

In the near future I hope that the local board can provide assistance to the club so that it can continue to provide the strong sense of community that it does.

Auckland’s tree protection problem

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Tree protection has been a significant issue ever since 2009. That year National passed changes to the Resource Management Act that prevented trees on urban properties with dwellings or factories from being protected unless they were specifically identified in the area’s District Plan. Previously Councils had rules that protected classes of trees, for instance coastal pohutukawa or Kauri over the height of 2 metres. After the change trees were in the remarkable situation that they were the only things that could not be protected by general rules. Signs could be regulated. Tree protection could not.

There was some litigation about the changes. Council managed to get a ruling that protection provided by significant ecological areas, part of the regional policy statement for Auckland remained.

National replied by having a second go at making changes and in particular said that the tree or group of trees had to be inserted in a schedule to the district plan for them to be protected.

When the bill was being considered I went to the select committee hearing. I posted earlier about the experience and said this:

On behalf of the Waitakere Ranges Local Board I went to the select committee and made submissions.  I pointed out that trees were wonderful things, they were integral to the amenity of Titirangi and they were vital for maintaining stability in an area that is stability sensitive.  I suggested that the existing subdivision pattern in the area was predicated on current tree and bush coverage remaining.  We fell trees in Titirangi at our or our neighbour’s peril.

I also pointed out that the proposed protection mechanism, the scheduling of trees, would be cumbersome and excessively bureaucratic. A recent scheduling exercise, plan change 41, had protected 188 trees but only after 4 days of hearing, and the hearing and reading of 94 submissions as well as the arboreal examination of each of the trees. My very rough estimate is that there are approximately 1,500 affected sections in Titirangi and Laingholm, and that the average number of trees per section is 100. To protect each tree would require 150,000 arboreal examinations and on a pro rata basis 3,000 hearing days. I described the scheduling system for protection as “hopelessly unfit for purpose”. There has to be a better way to protect Titirangi’s trees.

Labour MPs on the committee said this about the changes:

Labour contends that the bill will atomise the protection of trees in the urban environment, and ignores the collective and community significance of trees and groups of trees in that environment. We support the general tree protection rules which existed previously. There is a legitimate and important case for protecting trees for wider community benefit and not simply defending the right of an individual property owner to fell any tree on their property.”

Unfortunately the law has not changed even though there has been a change of Government. I am aware that the current Government has been looking into the issue but reached an impasse last term. This term with its super majority hope for change has increased dramatically.

And scheduling is not working, at least in the Auckland situation. Since the Unitary Plan passed in 2016 scheduling has ground to a halt.

Auckland Council’s planning committee recently reviewed scheduling and decided effectively to do nothing. At a time where significant potentially priceless trees are being felled they demurred on the basis that the cost was too much.

The estimated cost of scheduling a tree is about $1500 and the cost of scheduling the 587 current candidates was less than a million dollars. But this was considered to be too expensive. One resolution put to the committee which was later withdrawn stated that “it is not financially viable to review or make changes to the notable tree schedules … at this point in time”. The resolution itself records that the review will happen when resources permit.

With the greatest respect to the Councillors I am aware that Council is under extreme financial stress. But this is the only legal protective measure available for many of our urban trees . To refuse to do anything because of cost means that the Unitary Plan is not being resourced to function the way it was intended.

Perhaps they could consider charging full price for notification applications. I know a number of people and organisations who would crowd fund for this purpose.

So what needs to be done?

Three things:

  1. The Resource Management Act needs to have a couple of snips. Take out section 76(4)-(4D) and sections 4 and 5 of schedule 12. This means that we can then go back to the situation where the democratically elected members of a local authority can determine what is the best way to protect their trees in their area.
  2. Then local authorities need to sit down with their communities and work out how proper tree protection can and should work. Existing Auckland tree protection rules, apart from the significant ecological area rules, have long disappeared and plan changes will be required to bring them back in whatever form.
  3. And in the meantime fund the scheduling of trees as an interim measure. Not all the applications need to be funded at once. A more limited budget and a screening system could be put in place so that only the most notable of applications are processed.

The status quo should not be an option. The city is losing too many of its magnificent trees.

Auckland Council’s derivatives problem

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Matt Nippert at the Herald posted this article this week that should have caused lots of jaws to drop. He noted that over the last two years Auckland Council has suffered a $1.4 billion loss because of derivative contracts it has entered into.

To put this loss into perspective this year has seen a Covid induced devastation of Council’s finances. The hit for the fiscal year has been estimated at $450 million. Over the next three years it is predicted to be a further $540 million. The announcement of this further anticipated loss came out just before Nippert dropped his bombshell.

After all it is a lot of money. They may be book keeping entries but last year Auckland Council lost $773 million. This year the loss was $665 million.

Half a billion here, half a billion there, pretty soon we are talking about real money.

What is a derivative? It is essentially a bet. Really intelligent people and merchant bankers throughout the world have poured massive resources into creating legal arrangements which allow people to buy and sell contracts the worth of which depend on what way things like interest rates move.

Linear derivatives are basically bets that interest rates will not move too far one way or another. There are also more exotic versions that accentuate the gain or the loss. If you are looking for the best sort of linear derivative then the good old fixed rate loan cannot be beaten. No need for smart complex arrangements, just agree on the interest rate and the term and then move on.

Unfortunately it appears that Auckland Council has been engaged in the sort of derivative trading that, with the benefit of hindsight, was not optimal. From Matt Nippert’s article:

Auckland Council has booked $1.4 billion in balance sheet losses on interest rate derivatives in the past two years after its strategy of fixing interest costs long-term backfired when interest rates cratered.

The pain, or rather the lack of immediate relief from the cost of borrowing, comes as local government finances come under considerable strain as the pandemic bites. This week the council forecast by 2024 there would be a $1b Covid-19-shaped hole in its budgets, and signalled years of emergency belt-tightening.

But at the end of last month when the council’s annual report was released, notes to the accounts also flagged a $665m loss in the value of its interest rate derivatives during the year, on top of a similar $719m loss the year prior.

An audit note provided by the Auditor-General said of the $1.4b in losses: “This is primarily the result of the Auckland Council and Group using derivates to fix the interest rates paid on borrowings at rates higher than current marker interest rates.”

Essentially Council decided to purchase derivative contracts just in case interest rates on its debt went up. The rates went down big time, which was good news for Council but bad news because it had spent big on contracts that would have been worth something if rates had increased.

It appeared to me earlier this year during the formulation of the Covid Emergency budget that there was a problem.

I had enough time to go through the background report. It referred to “Derivative Financial Instruments” and gave them a non current asset value of $440 million.  But they also had a non current liability value of $1.839 billion.  That was a net $1.4 billion deficit, matching what Matt Nippert said.

The good news is that these are non cash bookkeeping entries. We do not have to write cheques, just yet, this will depend on if and when the contract matures.

The bad news is that it is forecast in the Government’s recent Pre Election Economic and Fiscal Update that rates will decrease in the short to medium term and we could be looking at a negative Reserve Bank Official Cash Rate. At that time I anticipate cheques may have to be written. Rather big ones.

Time to end Guy Fawkes?

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Guy Fawkes day is fast approaching. It is that day of the year when we celebrate an act of terrorism that occurred on the other side of the world involving a direct attack on a democratic institution by burning fires and letting off combustible devices that scare domestic animals and threaten widespread fire.

You may notice that I am not much of a fan.

While the visuals can be spectacular the noise and the associated fire risk are not. And what seems to be an endless lead up to the event itself involving further random use of incendiary devices is a real pain not to mention destructive of sleep and of the environment.

The timing of the event is pretty bad. November is usually the start of the dry season. The West Coast with its rugged cliffs, abundant plant life, hard to access areas and dedicated but widely stretched fire brigades, is particularly at threat on Guy Fawkes day and during the lead up.

There is significant support for banning the private sale of fireworks. Local residents and ratepayers groups have supported the move and have petitioned the Government to do this. Auckland Council has formally requested that the private sale of fireworks be banned but so far the Government has declined to act.

There has been a call to change the event to Matariki day. I think the proposal has some merit. Dusk is earlier, the risk of fire spreading is greatly reduced, and we would be celebrating something of local cultural significance, not an act of terrorism from 400 years ago.

After the new Government is sworn in it may pay to again to raise the issue.