Auckland Council’s derivatives problem

By 0 Comment

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?

By 1 Comment

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.

Chair’s report – Asset sales and Glen Eden intensification

By 0 Comment

Asset sales and 300 West Coast Road

I have had a deep involvement in Glen Eden since 1988.  Back then I wanted to set up a law practice close to where I lived.  I looked around West Auckland and found some rooms in the Sunde Building.  It was close to home, the rent was cheap and it was in the middle of a vibrant and interesting area.

It reminded me of Mangere Bridge where I grew up.  A similar sense of community built up by working class people wanting to raise their kids and live their lives perched out on the edge of the city.

Since then I have developed a deep affection for the area.  The people are great.  The institutions are strong and there is real pride in the area.

Development of the area has been slightly haphazard.  A new library was constructed back in 2003.  I was on Council at the time and was happy to support this.  But other plans have not progressed as well as they could have.  A number of proposals for change over the past few decades have been made by different councils but not progressed.  This board’s One Local Initiative, the creation of a Glen Eden town centre is still firmly in our plans but implementation could be five years away.

Electrification of the rail and improved rail services have had a dramatic effect.  Suddenly Glen Eden is a transport hub.  And with the promise of quick efficient train trips taking 30 minutes to get to the centre of Auckland after completion of the City Rail Link Glen Eden’s popularity is bound to increase.

In anticipation of this intensification is already happening.  The twin towers are practically complete and soon over 300 new residents will call the place home.  Nearby on Wilson Street another apartment house is being constructed.  A fair chunk of Glen Eden is zoned terraced housing and apartments and fairly intensive developments are occurring at a rapid space.  I am aware of developments on Routley Drive, Glendale Road and Brandon Road that will significantly change the area.

To cope with and prepare for this change Council needs to take an active role.  There will be huge pressures on local parks and facilities.  Letting kids play in the cemetery just is not going to cut it.

There is a piece of Council owned land at 300 West Coast Road that the local board has been very protective of.  Originally it was slated for sale.  We saw a need for some of the land for our Greenways Plan, to allow residents of Verdale Circle and Barnea Circle to walk to the township rather than drive and managed to get this retained.  But the balance is for sale.

It was previously used as a Glen Eden Borough works depot.  And it has contamination issues.  To prepare it for sale will cost a significant amount of money.  Ot it could be sold as is but this would severely hurt the sale price and may destroy any financial benefit from doing so.

Council recently considered its future.  We urged Council to retain all of the land.  We have pointed out the growth that is already happening in the area and the need to preserve open space is strong.  We are worried that if it is sold then this part of our greenways plan may become a dead end because road side access will be lost and current access to Glendale Road depends of the neighbours’ good will.

Intensification is inevitable.  It is also important.  If we want to address homelessness and at the same time make Auckland more sustainable then intensification around transport hubs is vital.

But to make it work properly we have to make sure that our urban centres have plenty of open space and parks and walkways are protected and enhanced.

There is one further reason that the local board opposes the sale and that is privatisation of assets never seems to work.  A nearby example at 265 West Coast Road provides a classic history of how privatisation can work out.

The land was sold originally by the Crown in the 1990s for less than $150,000 and then leased to Council.  Near the end of the lease’s term a few years ago the yearly rental paid was the same as the amount gained from the sale.  The QV of the land is now $1.775 million.  And instead of the section being the centre of Glen Eden’s future development there is a gas station on it

Council confirmed sale of the balance of the land.  I appreciate the Councillors were in a difficult position.  The financial pressures on Council are huge and the need to release cash is vital.  But I cant help but think that this decision is not optimal for Glen Eden.

The process has the doublespeak description of being “asset recycling”.  There will be a sale process and the local board will be able to continue to advocate for protection of our Greenways routes.  But this example highlights that in dealing with the short term emergencies posed by Covid we need to also remember the long term imperatives.

On a positive note I mentioned in last month’s report that there were two other potential asset recycling proposals involving the sale of land in Laingholm and on Scenic Drive.  The Local Board wrote to Council seeking that they not be proceeded with primarily because of environmental considerations.  I am pleased that the decision has been made not to proceed with the sales at this stage and further consideration of their future use will occur.

Westlight apartments

They are getting close to opening and it is anticipated that within the next month or two the first residents will be moving in.

There has been some speculation about who will be selected to live in the social housing which accounts for 60% of the total units.  Compass NZ which will manage the facility advises that there will be a mix of older and single person households, couples  and families with children. It is expected  that many of the people selected will be currently living in West Auckland in properties that do not meet their needs.  The Department of Corrections has confirmed that it will  not use the Westlight Apartments to provide temporary accommodation to its clients.

It is important that we welcome the new residents to our community and integrate them into Glen Eden. 

The Welcome Home campaign, spearheaded by the capable Jade Tang Taylor’and associates, is ready to launch and already has its website www.welcomeneighbours.nz up and running.

I am confident that Jade’s project will be an outstanding success.  And provide us with a model that we could use for other projects occurring in growth areas.

Covid 19 and local meetings

As I write this the end is in sight for level 2.5 and we should be back to Covid level 2 and, fingers crossed, we will be back to level one in a couple of weeks time.

This last lock down has at one level been easier but at another level more difficult than previous lockdowns.  Easier in that we all knew what to do and have stuck to it.  More difficult in that the sense of novelty has worn off, and being housebound in the middle of winter is more difficult than during a dry warm Autumn.

It is clear that many people have made permanent changes to their lifestyles.  Working from home is now more common.  Zoom meetings have become in a remarkably quick time a permanent feature of modern life.  The benefit of not having to travel at night to attend meetings in the area is a boon.  And behaviour is adjusting.  Originally on line meetings were somewhat stilted but people are learning how to engage online.  I don’t think we will be going back from this, for better or for worse.

Hopefully we will be back to normal meetings soon.  But I hope that we do build in technological advances and techniques that we have learned this year.

Council’s ten year budget

It feels sometimes like Auckland Council is always consulting on one budget or another.  No sooner has the emergency budget been completed than Council is getting ready to discuss the next budget with the Auckland community.  The next budget to be discussed is the long term 10 year budget.

The next one will be especially important.  Addressing the medium and long term effects of Covid will be a priority.  I suspect that for the next two years at least the effects will still be dramatic.  We may have to wait for a widely available vaccine to be available before the borders can be reopened and normal tourism resumed.

But this is not the only future problem.  Auckland Council’s infrastructure deficit will continue to be a major issue.  The disruption to the city’s transport networks caused by the damage to the Harbour Bridge shows how fragile our infrastructure is.  And the pressure on our water supply this coming summer could be intense.

Climate change continues to be the emergency around the corner that will make the effects of Covid appear to be minor in comparison.  We urgently need to transform the city into a sustainable city.  This means a fundamental rejigging of our transport networks prioritising public transport, especially rail and light rail.  And provide for growth and intensification around our transport hubs.

We will need brave political leadership.  And to bring the people of Auckland along every step of the way.

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

By 0 Comment

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

By 1 Comment

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.