Chair’s report – June 2020 – International media goes wild about Titirangi’s chickens

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It has been quite a week.  My last chair’s report referred to the re-emergence of Titirangi’s chickens and it appears that the media picked up on this.

Seven Sharp ran a light hearted piece on the re-emergence of chickens in Titirangi post Covid.  Then the Guardian ran with the issue and I was interviewed and provided some comments.

The author Stephen King (yes the real Stephen King) picked up on the issue and retweeted the Guardian’s article which had the headline “‘Like a Stephen King movie’: feral chickens return to plague New Zealand village”.  The reference to him was from a comment made by a local.

The Guardian article trended for a while and was among its most popular articles.

Canadian media also picked up on the issue.  Media requests came thick and fast.  I can fairly safely say that for a day I was enjoying more international media attention than Prime Minister Jacinda Ardern was.

The stories were all quite funny and had the theme that since New Zealand can beat Covid 19 why can’t we beat a bunch of feral chickens?  I was happy to be the subject of some levity given what the rest of the world is going through.  I really prefer living in Waitakere right now.

The chicken situation is way better than it was last year and the rat infestation that we experienced has been dealt to, thanks in no small part to staff and contractors and also to the sterling efforts of the South Titirangi Neighbourhood Network.  But we can’t afford to let the problem get out of hand.

So just as the message for Covid 19 was simple yet effective, keep social distancing and wash your hands, the message for chickens is also simple, PLEASE DON’T FEED THEM.

Emergency Budget

Council’s consultation on the emergency budget is coming to a close.  The issue is important and the decisions made will have a major effect on the local area.  The board has not formally resolved on its response as yet but already there are a number of themes emerging from our discussions.

Certainly Council is working within very difficult parameters.  Its income has been and will be hit, there are real issues of affordability and the Council is afraid that the credit rating agencies will review downward Council’s debt.

But its role in leading the rebuild will be severely curtailed if significant cuts are made.  Currently the suggestion is that with the proposed 3.5% rates increase local board discretionary funding our discretionary funding would be cut by 10%. 

This is funding that the WRLB provides to local community activities, community houses, environmental projects, grants programmes and support for community organisations and marae.

A 2.5% rates increase would double the cut to 20%.  A 10% cut we can hopefully manage.  A 20% cut would be catastrophic.

And while the decision to prioritise capital projects to those where there is a legal obligation to do so at one level is understandable it does mean that smaller quicker but important projects, such as walking and cycling projects, are sidelined.  Council is favouring the projects that will do the least for climate change.

The city only has a decade left to get itself into share for a carbon free future.  We cannot afford to have this sort of delay occur now.

The local board is working on its feedback and this will be reviewed at our next meeting.

Local Board tracks completion

One of the repercussions of the budgetary pressures is that completion of tracks on local parks in the area will be delayed.  Following is the latest table of works showing approximate completion dates.  I am afraid these dates will be pushed out further.

Regional Park Management Plan review

Auckland Council is conducting a review of the Regional Parks Management Plan.  Local Board members attended the Committee meeting where the review was kicked off and asked that the local board be fully engaged in the process.  We are in a unique position.  The Waitakere Regional Park occupies over half of our local board area and the Waitakere Ranges Heritage Area Act means that our commitment to preservation and enhancement of the area is all important.

Council will be holding a workshop in the near future and it has been indicated that the local board can be involved from this stage.

Glen Eden BID

By the time this meeting has been held the local board would have met with members of the Glen Eden Business Improvement District.  Rebuilding the local economy will be of utmost importance.

The BID has launched a buy local campaign and I would want to fully endorse this.  The local economy is now in an awkward stage.  The first wage subsidy payments have now been used up and a second payment for businesses still struggling is in the process of being paid.  But this will run out soon and there are already redundancies taking place.  As our community’s spending power lessens the effects will be felt.

One of the best things we can do is for us to support local businesses and buy local.  For those of us able to afford the luxury of overseas holidays they will not be a feature.  We should do our local community a favour by buying local instead.

With our boarders closed and with globalisation on the retreat local will be even more important than before.

He waka eke noa, we are all in this together.

Karekare Surf Club blessing

The old Karekare Surf Club is being demolished and a new building erected in its place.  As part of the transition a ceremony was held to mark the closure of the old club and to acknowledge the club’s history.

Former Waitakere mayor Bob Harvey who is now club president and chair Andy Shaw both spoke and talked about the history of the club and the beach and the special role that it plays. 

Bob displayed a photo which I understand was taken in 1939 when the club was first opened and showed the exuberance of youth.

Deborah Russell MP and former Portage chair Ross Clow who played a significant were also present

Like our other surf lifesaving clubs the Karekare Surf Lifesaving club performs outstanding work based on the contributions of volunteers.  I am sure their new home will allow them to continue to achieve the good that they do.

Living Wage

The local board has been a supporter of the living wage since its inception.  It has been my privilege to have moved the resolutions supporting Auckland Council being a living wage employer.

Locally a living wage would have a profound effect on the working lives of people who we rely on.  Such as our cleaners and people working for our community houses and people working in our libraries.

I recently received a letter from the Living Wage Movement which said this:

“Dear Greg & Members of the Waitākere Ranges Local Board,

Warm greetings!

On 20th March 2020, just few days before the COVID 19 lockdown, the Living Wage Movement Network in Auckland supported the Auckland Council Annual Plan 2020/21 with the hope and expectation that the Council would ensure that workers, employed by Council contractors on a regular and ongoing basis, are paid the Living Wage. We ask the support of your Local Board in endorsing the Living Wage for inclusion in the “Emergency Budget” this year.

The Living Wage Movement represents 85 member organisations from faith based-organisations, Unions & Community sectors, and over 200 accredited Living Wage Employers from AMP to Wellington City Council, Western Springs School and Oxfam New Zealand. Together we honour and value low paid essential workers, especially the contracted workers in this very challenging time of global pandemic.

We understand the Auckland Council is facing enormous challenges with the looming economic recession, but this makes it more important than ever to pay the Living Wage to contracted workers. This will be a step toward realising the vision in which all Aucklanders can participate in community and civic life of a World Class City. We are all in this together.

The Living Wage Movement believes that the Auckland Council has the power to end this in-work poverty by requiring all contracted workers be paid the Living Wage. We believe that the Auckland Council is also guided by Ethical and Sustainable Procurement that defines ethical procurement processes, as those which

  • Respect fundamental international standards against criminal conduct (like bribery, corruption, and fraud) and human rights abuse (like modern slavery), and respond immediately to such matters where they are identified, and
  • Result in progressive improvements to the lives of people who contribute to supply chains and are impacted by supply chain decisions.

The Auckland Council paying the Living Wage will give life to Auckland Council’s Procurement Framework, Policy and Strategy. The Framework explicitly states the procurement principles to

  • Work together
  • Value te Ao Māori
  • Be sustainable
  • Act fairly
  • Deliver the best value for every dollar.

The Auckland Living Wage Network representatives are available to speak in support of this.”

I do not think it is necessary for them to speak to us.  But I would like the local board to reconfirm it’s commitment to Auckland Council being a living wage employer.

Resolutions:

  1. That my chair’s report be received.
  2. That the Waitakere Ranges Local Board reconfirms its commitment to Auckland Council being a living wage employer for both staff and contractors that provide services to Auckland Council and requests that this resolution be conveyed to the Mayor and Councillors.

Auckland Council Emergency Budget – Time to have your say

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Dear Citizen of the West

Future West is a group of progressive Westies – Labour, Greens and independent – serving on the Waitakere Ranges Local Board. We want to talk to you about the Council’s Emergency Budget and what we think is needs changing. We hope you will join us in making your voice heard.

The background

Like many other organisations Covid‐19 has caused a dramatic drop in income for Auckland Council. About 60% of the Council’s revenue comes from non‐rates sources like investments, selling assets, fares, fees and charges, the Ports and Auckland airport. This is higher than any other Council in the country. Auckland Council is now proposing an Emergency Budget to reduce its budget by $400 million by cuts and asset sales to balance the books. This would result in putting on hold or canning most new spending and making cuts to even essential services such as parks’ upkeep and libraries.

The Council is consulting on this proposal with a deadline of 19 June, so there is not much time to make your views heard.

As part of this, the Council is consulting on whether to go ahead with a 3.5% rate increase as planned, or only raise rates by 2.5%. The lower increase in rates would result in even more savage cuts. The difference for the average ratepayer is an increase of $1.82 a week at 3.5%.

This proposal is not future focussed enough.

Future West views the proposed budget as a lurch to the past. Planned climate change projects would be gone, walking and cycling projects are delayed or cancelled, public transport is reduced, charges may be made for park and ride, but road work is generally retained.

Two big losers in the emergency budget ‐ “Parks and community” and “Environmental management and regulation” are very important in the West. Capital spending could potentially be halved. We are particularly concerned at how some of the proposed cuts will impact on our local groups, such as the proposal to have no regional grants for environment or arts next year. Valued family‐friendly events such as Waitangi, Matariki, Ambury Park Farm Day, and Movies in Parks are canned or reduced but massive spending on the America’s Cup and surrounding events is retained. Delays in pest animal and plant programmes will simply undo the good work Council and volunteers have been doing. Note: That at this stage it is difficult to know exactly which parks, community facilities and programmes will be affected as the detail has not been worked out.

It will hurt our community when it most needs support.

It is also proposed to cut Local Board’s discretionary spending by 10% under 3.5% rates increase or 20% under 2.5%.

This is funding that the WRLB provides to local community activities, community houses, environmental projects, grants programmes and support for community organisations and marae.

The Council says this “austerity budget” is the only way to balance the books. The Council has rejected borrowing much more as they say any increase in debt might affect its credit rating. We believe further savings can be made by Council‐Controlled Organisations CCOs such as Watercare, Regional Facilities and ATEED, rather than cutting into core Council services.

Council wants to sell off more public land. In WRLB area this includes land on West Coast Road and Scenic Drive that should be retained for flood mitigation and as potential parks for future generations at a time when smaller sections and apartments mean people need more open space. Future West also opposes a proposal by Panuku to shelve local boards rights to oppose the disposal of locally based Council assets.

Now is the time to join others in voicing your concerns

Here’s how. There is a questionnaire at

https://www.aucklandcouncil.govt.nz/have-your-say/topics-you-can-have-your-say-on/emergency-budget/Pages/default.aspx

or Google Auckland Council Emergency Budget.

You can also make submissions in writing to akhaveyoursay@aucklandcouncil.govt.nz.

What to say?

Support a 3.5% rates increase because the lower amount would cripple your community and your Council.

Future West suggests that you include some of these comments in answer to Question 4.

 Keep walking and cycling projects, free park and ride, safety improvements on roads and footpaths

 Keep Climate Change actions such as decarbonising the Council vehicle fleet, electric buses and replacing gas boilers at swimming pools

 Keep regional community grants for environment and arts

 Say No to 28% reduction in library budgets, one‐third reductions in collections, which will result in reduced services and staff redundancies

 Say No to reductions in pest control programmes, delayed track upgrades for kauri dieback, cuts to kauri dieback research and environmental services staff redundancies

 Keep more funding for parks’ equipment, such as playgrounds, and activities e.g. at Arataki

 Continue projects that address flooding and pollution on our beaches

 Retain Local Board discretionary funding at current levels for our community

 Say No to a major delay in the local board’s Glen Eden town centre renewal project

 Oppose the wholesale sell off of Council land.

Make your voice heard. Keep supporting Waitakere as a thriving, creative, environmentally healthy, community centred place to live.

The Future West team on Waitakere Ranges Local Board

Greg Presland (chair), Saffron Toms (deputy chair), Sandra Coney and Mark Allen.

Auckland Council’s emergency budget

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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.

Chair’s report May 2020 – Vision West’s food bank, Council’s emergency budget and Titirangi chickens redux

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Vision West and food parcels

It has been good to get out of lockdown.  While I enjoyed the slower pace of life, the quietness of our streets and the cleanliness of our skies it could not last forever.  Although I hope that we do not lose what we have learned during that time, including that we do not have to drive as much as we used to.  We can spread our time working between the office or workplace and home.  And we don’t have to consume as much as we used to.  I have not visited a mall since the lockdown has finished and I suspect many others are in the same position.

But it is important that the economy gets back to work.  I am quietly confident that the devastation that we have seen overseas will not happen here.  Certainly our health system is in good shape.  The expected surge of hospitalisations did not happen and we did not experience what China or Italy went through or what the United States, Brazil and England are currently going through.

But the repercussions are significant.  Already unemployment is increasing although not at the rate that it is in the United States.  And the people most affected are those at the bottom of the socio-economic pile.

I spent a morning delivering food parcels for Vision West.  They are doing tremendous work making sure that locals most in need are getting groceries.  The operation is quite extraordinary.  Large areas of the Glen Eden Baptist Church have been set aside for the storage and collation of hundreds of packs.  Vision West and in particular Brook Turner and Lisa Woolley deserve our thanks and gratitiude.

I am keen for the local board to do what it can for Vision West and hopefully some logistical assistance can be provided by Council.  We are also seeing what we can do to give them a presence in the township. 

Unfortunately it seems clear that food parcels will have to continue for a while.  The country will see a surge in employment as the effects of the wage subsidy wear off.  Council staff have been identified that those on the bottom of the economic pile are and are going to feel the effects of Covid worse.  So thank you to Vision West and its many volunteers.  Can you please keep your efforts up.

Council’s Emergency budget

Can I commend Councillors Desley Simpson and Shane Henderson for their efforts in giving local boards the opportunity to feed into Council’s formulation of a draft emergency budget.  There is a concept in the Auckland Council legislation of co governance, and Desley and Shane, both former chairs have done the best to make sure that it happens.

It is a difficult job.  Estimates have been made that Council could take a $250 million hit to its income next financial year.

So what does Council do?  It has a few options to cover the deficit, sell stuff, cut costs, postpone capital projects, increase income by putting up rates and charges or borrow more.

These are not mutually exclusive, a combination of “levers” can be used to achieve the desired result.

Council’s response is being worked through.  A summary of the local board’s position is as follows:

  1. We thought that most of our activity is “core activity” and cuts would have a dramatic adverse effect on the local community.
  2. Council’s spend in the environmental area is well below the spend needed to provide meaningful protection to the Waitakere Ranges. Postponing environmental protection work undoes any progress made, and makes restoration efforts more expensive overall, as we must pay extra just to get back to where we were before work was put on hold. And there are benefits for all Aucklanders in keeping local and regional parks open and properly maintained.
  3. Support for local communities is vital given the need for resilient communities to get us through the effects of Covid 19.  Libraries, community centres and parks are and will be incredibly important for local’s mental and physical health and wellbeing. 
  4. Council’s current funding formula adversely affects our local board area because our land mass is so large yet our population is relatively small.  We have many communities that are remote and that rely on networking and community strength to deal with emergencies and Council and Board support is very important.
  5. Short term savings are possible in areas such as events although we are exploring ways to continue to support events that are valuable to our communities in the near future.
  6. We thought there were options for cost savings across maintenance contracts should be investigated.  We are not convinced that current contractual arrangements are optimal. 
  7. We thought that increasing debt was the simplest and most straight forward way to deal with the current situation.  Borrowing rates are at historic lows, and the cost of borrowing is still better than in the past even if Council has to pay marginally higher premiums because of an anticipated risk profile change
  8. We did not accept the validity of threats to Council’s credit rating from credit rating agencies as being justified or appropriate.  Council should engage with credit rating agencies to get them to review their assessments of risk. We accept however that there are valid concerns about managing extent of debt as future economic climate is  uncertain and could be impacted by foreign exchange changes
  9. Capex deferrals is our second-most preferred lever.  We consider that investments that respond to climate change should be prioritised.  In particular we do not want to push back the Glen Eden beautification project.
  10. We did not favour cuts to operational budgets although minimal reductions could be tolerated.  We also noted that there are emerging needs in the community which may require increased investment in some areas. 
  11. There was no support for the sale of Assets.  We are against asset sales because it involves the transfer of wealth to private ownership and the loss of public benefit of ownership. Council’s Asset base actually gives the organisation resilience and a base to borrow against. Historically the privatisation of assets has been to the detriment of public finances and the public good.
  1. We support retention of the targeted water quality rate and environmental rate.  The money collected should continue to be spent for the purposes it was collected for and approved by the public and there should be a regional spread of the use the budget is put to.
  2. We emphasised that a climate change lense should be utilised at all times in these considerations.  We believe that Council has a significant role to play in helping Auckland recover from the effects of Covid 19.

Council is now getting ready to consult on its emergency budget.  This is a really important consultation with wide ranging effects and I recommend as many people as possible has their say on this issue.

Libraries and Community Centres

As part of the return to normal life Council is staging the reopening of its libraries.

Glen Eden has recently reopened to the relief of the local community.  There are various steps in place to help people keep in their bubbles and the number of computer terminals has had to be reduced.  But the

Titirangi library should be open within the next month or so, also with distancing measures in place.

Events

Part of the post Covid developments is to work out what will be happening to events which play an important part in the support of community.

The local board has conceded that our flagship event, the Kauri Karnival may not be possible to plan and organise in the next few months and we are accepting that it may have to be deferred for a year.

Other events have also had to be cancelled or dramatically changed.

The Glen Eden Beats and Eats events will not happen in the meantime.  This is a shame as the young musicians we were using from Crescendo Trust were magnificent and spine chillingly good.  They have regular performances on their facebook page and can I recommend you try these out.

The Going West festival, which has been a highlight of the social calendar for many years, will be in a digital form this year.  They have a lot of historical video which deserves to be preserved for posterity and we will be discussing with them their plans and how we can help them achieve their goals.

The Heritage Festival is another that will be changed dramatically for this year and it is exploring virtual ways to continue its work.

Hopefully next year the country will continue to be Covid free and we can then plan for events that reflect the more historical model.

Street beautification and walkways

One benefit of the lockdown and people walking is that they are so much more aware of the walkability of our community.  The local board has been seeing what we can do in Glen Eden to enhance the greenways plan.  I have had approaches from locals on Konini Road, Titirangi and Valley Road in French Bay to see what can happen there.

Other suggestions and proposals are welcome.  Our budgets are limited but we will see what we can do.

The water crisis

As well as the effects of Covid 19 Auckland is in the midst of a drought.  It seems strange typing this as we head into winter but rainfalls have been sporadic at best and dam levels are at historic lows.

I went to check things out just after we went into level 2.  The above photo is of the Lower Nihutopu dam.  You would expect in winter that the water level would be not far from the causeway.  Instead it was meters below.  Even in the middle of summer I have never seen it so low.

The immediate cause is clear.  Since the drought started in November we have received less than half of the normal rainfall.  Dams are on average 42% full when they are normally 75% full at this time of year.  And if it was not for Auckland pumping as much Waikato water as it was able to things would be much worse.

Given climate change and the increasing variability of weather systems

The solution?

Apart from pray for rain we have to change our relationship with water.  And instead of some big engineering projects we could look at the way we build and renovate our homes.  Stormwater tanks could provide water for toilets and gardens.  Higher tech toilets could also achieve considerable benefits.

This is one of those discussions that will continue for many years.

Titirangi’s chickens

After almost getting rid of these creatures there has been a slight resurgence in numbers.  The firm used for the original collection visited just before lockdown and captured a further eight chickens.  They will be visiting again soon and will hopefully round up the remainders.

Can I urge all members of the public, PLEASE DO NOT FEED THEM.  I understand the desire to look after creatures but this will only cause numbers to again surge.

Local board meetings

In the meantime we are still holding these in the digital world.  The country will hopefully be back in level one and we can then think about how face to face meetings will work.  Distancing requirements may still cause problems in terms of meeting size and we are still working out the implications of this.

But please contact us with your comments and suggestions.  And if you want to spend time on Skype talking to us during the public forum slot please let me know.

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.