While it is an honour to chair Auckland Council’s Finance and Performance Committee, it’s certainly not an easy job even at the best of times. Over the past few months, it’s been particularly challenging as we reacted to Covid-19. Scoping up a second annual budget saw me chairing over 100 hours of meetings and workshops with local boards, councillors, Independent Maori Statutory Board Members and CCO’s to reach a finalised Emergency Budget for 2020-2021.
When we began our original Annual Budget process late last year, council was in a pretty good place financially – we had more money from revenue than we had budgeted for. Comparatively, when New Zealand was able to get moving again following our lockdown period, we found ourselves in a markedly different financial landscape which led to an emergency financial response and an Emergency Budget.
As much as I was aware of the difficulties council faced – a $500million funding gap caused by lost revenue – I was also acutely aware of the financial difficulties many Aucklanders found themselves in. Jobs had been lost; businesses were struggling and across the city, families were struggling. How could we consider raising rates at a time like this? In my mind at this stage, I was firmly in the zero per cent rates rise camp.
However, as council’s finance team took me through the numbers, I began to appreciate the gravity of council’s predicament. Even with initial loss of approximately 600 staff, a savings target 12 times the size it was originally supposed to be, extra debt and deferred spending, there was no viable way for the organisation to continue delivering the essential services communities rely on and the services we are legally obliged to provide, with rates set at anything less than a 2.5 per cent.
Every member of the Finance and Performance Committee (that’s all councillors, two IMSB members and the mayor) came to the same realisation and unanimously supported to consult with communities on a lower 2.5% rates increase to the 3.5% originally suggested pre-Covid. The two options both required significantly different levels of cuts to our services as a result of our revenue loss.
It was clear from the 34, 915 submissions we received that Aucklanders understood the importance of our Emergency Budget and had a lot to say. Sadly, I think some were misled in believing a rates freeze was a tangible option. Looking at other growth councils throughout NZ, they appear to have come to the same conclusion. I’ll be covering their decisions in another update but so far Dunedin has gone for 4.1% rates increase and Wellington is considering as high as 5.1 % rates increase.
Feedback showed there was a real split between those who felt we should keep rates as low as possible, and those advocating for higher rates to protect the community services they love. The results indicated marginal public support (by only 1%) for the 2.5% option. Based on that feedback, I was sitting in the lower 2.5% camp.
But then two important things happened.
Local board feedback came through. All 21 local boards looked at the impact of the two rates options for their communities, analysed feedback and responses from those living in their respective board areas, deliberated and resolved in emergency public board meetings their advocacy position.
All 21 local boards representing the varied and diverse communities of Auckland supported the 3.5% option.
Then, the impacts of our drought situation came to a head. Auckland has been through the worst drought on record, a so-called one in two-hundred-year drought. With lake storage levels already over 20% lower than average, the MetService Office is predicting another dry spring and summer, making severe water restrictions more likely.
After we went out for consultation on the budget, the mayor secured further water supplies from the Waikato but the building of the necessary water treatment plants at Tuakau and Papakura unfortunately comes with a $239 million price tag.
This compounded with our original half a billion dollar loss of revenue would mean we needed to address approximately $700 million hole in our group budget.
When we looked at both rates increase options the difference between 2.5% and 3.5% was $24.62 for the average ratepayer. Yet the impacts were much greater both for local communities and for Auckland.
After pouring over the feedback we received from you; going through multiple scenarios with our finance team; and thinking long and hard about the short and long-term impacts of this decision, I reluctantly realised that only under 3.5% would we be able to keep beloved services such as libraries, leisure centres and community halls; continue to maintain our parks and public spaces; retain the public transport concessions people rely on like our seniors super gold card; continue to invest in transport and stormwater infrastructure across the region AND solve our water crisis. In short, keep our city running.
Groups like the Employers and Manufacturers Association also strongly supported 3.5% rates increase recognising that further cuts to the building of infrastructure would slow economic recovery and stand in the way of job growth.
To help ourselves, we are raising debt, deferring capital investment, reducing operational costs and selling off non-strategic assets. This budget raises our debt above our threshold, but we have discussed this with our credit rating agencies to reduce the potential for a credit rating downgrade which would cost us tens of millions more in interest payments. We have maintained as much infrastructure investment as we can to keep people in jobs and stimulate the economy but have deferred projects that can wait.
We have set a significantly higher savings target for this year (over 12 x higher than original budget), dropped our staff spend for the council parent by $26 million and have a committee specifically tasked to look at efficiencies and value for money across our organisation, which I chair. Our acting chief executive is restructuring our organisation saying it will be much leaner as a result. Our Council Controlled Organisations (except for Watercare who are coping with the drought) have also readjusted their budgets down by tens of millions in some cases hundreds of millions to help.
Yet with all that, we still needed to set rates with a 3.5% increase.
Am I happy with that decision? no. But I’m committed to make sure we recover as quickly as we can from the economic and financial impact of Covid-19 which will continue to be felt for some time.
It felt like a dark day to have led councillors through a process that has increased rates at a time when people are hurting. However we made sure to include an extra rates remission policy especially targeted at assisting ratepayers who had been financially impacted by Covid-19. This new policy offers a deferment of rates for 12 months and is yet another option for rates assistance on top of our current rates postponement policy and our rates rebate scheme. I encourage everyone who is experiencing difficulties to contact council and learn more about these options.