The Auckland Council’s first “proper” Governing Body meeting this Thursday signals that Wayne Brown’s mayoralty will need to shift away from daily press releases and onto the real work of governing New Zealand’s largest city. And it seems our new mayor, and his fellow councillors, are going to have a pretty rough ride with a $270 million operational cost gap to fill – largely caused by higher than expected inflation and interest costs. Radio NZ had some of the details:
Auckland Council has updated the NZX after confirming it is looking at a growing budget hole of $270 million for the next financial year.
In an update ahead of the council’s full Governing Body meeting this Thursday, the council said the funding gap was estimated to be $180m higher than the anticipated shortfall of $90m.
It noted “an incoming council would have a range of options and budget levers available to mitigate this”.
It said as of late October, the total ongoing operating budget pressures for the upcoming financial year are estimated to be around $270m and this operating gap needs to be addressed “in a sustainable way that also supports the council’s long-term financial position”.
The update said council had the “financial flexibility to respond to the budget situation, but tough choices and trade-offs about the mix of budget levers will need to be made given the scale of the challenge”.
It said the council needed to move towards long-term financial sustainability in addition to solving the short-term financial challenge.
In its update to the NZX, the council said it was experiencing increased pressure on operating budgets from recent rapid rises in inflation and interest rates.
It said council had the ability to respond through levers such as prudent use of debt, the level of rates increases, asset ownership options and changes to operational expenditure which could affect services.
The NZX update said the council remained strongly committed to maintaining a prudent and sustainable approach to long-term financial management.
None of this is a surprise, with the previous Council’s budgeting work (led by now Deputy Mayor Desley Simpson) having to pull a few rabbits out of the hat in response to revenue impacts from the COVID-19 pandemic in particular. Many of those challenges haven’t gone away – most notably much lower public transport fare revenue – and the more recent inflation and interest rate jumps just adding to the challenge.
The Council has actually done been quite effective in recent times to grow its revenue base while keeping general rates increases comparatively low through introducing the regional fuel tax, targets rates for water quality and environmental improvements, and most recently the climate action targeted rate. While there will forever be arguments around whether the Council and its CCOs could spend this money more effectively, and we are sure they could, the financial pressures now faced seem to be caused by factors largely out of Auckland Council’s hands.
These funding challenges mean Council will need to make some tricky decisions over the coming years – about how to raise more money and/or where to trim or delay expenditure. I can’t imagine there will be any support around the Council table to remove the regional fuel tax, for example, which brings in around $150 million a year and unlocks at least the same again from Government funding through Waka Kotahi. But what are some of the options Council could look at to get through this squeeze?
Get a better deal out of Central Government
Firstly, perhaps the best opportunity for the Council to reduce its financial issues is to get a better deal from the Government. Transport in particular is jointly funded by the Government and Auckland Council, and is such a large area of both operational and capital expenditure for the Council that a few key changes in funding arrangements could make a huge difference. As we’ve mentioned plenty of times before, the funding arrangements for City Rail Link where costs are split 50/50 between the Government and Auckland Council make no sense for such a nationally significant project. Even a small shift in this funding split could make a big difference to the Council.
The key opportunity for Auckland Council to renegotiate transport funding arrangements with the Government will be through ATAP – which we assume will be updated over the coming 12 months ahead of the next Regional Land Transport Plan. Government will presumably be keen to update ATAP too – given the previous version performed extremely poorly when it came to emissions reduction and there is now an Emissions Reduction Plan with a series of pretty hard targets around VKT reduction. Government is also likely to be concerned about some of the noises coming out of Auckland Transport, and rumours of delays to key projects, and ATAP is a good opportunity to moderate any divergence in direction with the Council.
Focus funding where it’s actually needed
Hayden Donnell had a really good column recently that highlighted how different the population growth rates are across Auckland – most notably how slow the inner suburbs are growing compared to some of the outer ones. Using some of our data on the location of building consents by Local Board, Hayden pointed out the huge mismatch between where it seems investment and effort is going (inner suburbs) and where growth is happening (places like Te Atatu).
…it’s definitely true our authorities are spending far too much on gold-standard infrastructure in his [Mike Lee’s] ward, Waitematā, which includes the rich central suburbs of Ponsonby, Grey Lynn, Herne Bay, Westmere and Parnell. Many of those areas are refusing to accept much new housing, citing the “special character” of their renovated villas.
Though the council often delusionally whimpers about creating a “compact city”, it has forbidden dense development on roughly 40% of the land within 5km of the city centre. Waitematā’s population actually dropped 9.7% last year. Fewer housing consents are issued there than anywhere else. The suburbs closest to the city centre are not just growing slower than anywhere else; they’re shrinking…
…The latest statistics from Auckland Council show it’s consenting more houses in the Henderson-Massey area than anywhere else. The influx of housing is bringing opportunity, but it hasn’t been matched by necessary large-scale infrastructure investment. Kennedy’s journey is so long because the west has almost no dedicated bus lanes, no rapid transit like the Northern Busway, and few cycleways to take pressure off the roads.
“The density of housing in West Auckland continues to increase, with no apparent plans to improve transport or town infrastructure, while people in sparsely-populated inner-city suburbs enjoy their frequent buses and thriving town centres,” she says. “The plan for how all these extra people are going to get in and out of west Auckland seems to consist of planners covering their eyes and going LA LA LA, I CAN’T HEAR YOU.”
Hayden’s at pains to highlight that this shouldn’t mean stopping important projects that are driven by a need to improve safety or rebuild a road in a way that’s actually safe for a variety of different users, but the population statistics are pretty stark and it’s clear fast-growing parts of West Auckland are missing out on investment that’s wrongly going in other places. With Auckland’s population actually shrinking in the past couple of years, investment solely driven by population growth (often the argument for vast expenditure on infrastructure to support urban sprawl) should be looked at really hard:Sell some golf courses
We’re serious here. The case against publicly owned golf courses is incredibly strong. This is especially true when the two golf courses the Council owns and manages directly (Chamberlain Park and A.F. Thomas Park) are right next to planned and existing rapid transit stations respectively and would be incredibly valuable opportunities for transit-oriented development. In fact a cool student project I stumbled across recently has proposed what the redevelopment of A.F. Thomas Park could look like – some serious value unlocked there. There are a few other examples here.
In any case, it will be interesting to see how the Council functions as it grinds into proper action over the next few weeks. We are still yet to see what the Council’s committee structure will be and who the key committee chairs are. Will Wayne Brown reach out ‘across the aisle’ to some of the more experienced councillors who have chaired major committees in recent years in an effort to build more widespread support? Or will he rely on a smaller and potentially unpredictable bunch of councillors who are perhaps more aligned with his ideology?
Only time will tell.