Tim Murphy
Tim Murphy is co-editor of Newsroom. He writes about politics, Auckland and media. Twitter: @tmurphynz
Auckland
Mayor Wayne Brown and the new council get their first chance to ‘fix’ Auckland as this week’s first business meeting grapples with a $270 million deficit in next year’s budget
Auckland Council has confirmed a $270 million gap in its finances for 2023 and puts an urgent task on its councilors to raise rates and rates, sell assets faster, delay capital expenditures or borrow more to cover it.
The gap between the council’s projected revenue and expenditure for next year is wider than a worst-case scenario signaled in the budget passed just four months ago.
Higher-than-expected inflation and interest rates mean the deficit has widened to a total of $270 million, from the projected $90 million in budget savings, with a top forecast of $150 million as the economy and business revenues move south.
They quickly headed south. The financial black hole is described in an officer’s report as “an outright operational budget gap”.
This financial hole is not as big as the one that the previous mayor and aldermen filled in early 2020 when the pandemic cut the port, airport, public transport and other revenue streams. Watercare’s urgent capital needs to prevent the city from drying up the following summer also impacted that budget.
Then councilors scrambled behind the city’s bank and found a cool three-quarters of a billion in cuts, sales, and savings to fill the gap. It planned 1,100 job cuts (of staff and contractors).
Since then, the municipality has strived to find $90 million in annual savings, with $70 million in annual sales of non-strategic assets.
It hasn’t been enough.
At the first business meeting of the governing body (mayor and 20 councilors) on Thursday, another emergency budget process will begin. Next month, new mayor Wayne Brown is due to release his proposed solution, albeit over issues he didn’t specify directly in his campaign for Fix Auckland.
He warned at his inauguration that the city’s “storm” was already here, and after campaigning against what he called inflated costs and overcrowding, he will no doubt target the council’s bureaucracy directly.
Brown argues this can be done without cutting back on frontline staff — instead targeting overpaid middle and senior executive strata — or influencing services to the public.
But a council briefing ahead of Thursday’s meeting reminds Brown and councilors that: “As cost is a function of delivery, it would likely require some noticeable and material changes to some of the services provided by the Auckland Council. council-controlled organizations and/or other entities.”
The report says councilors have seven “levers” to pull to increase revenue or cut costs.
These are:
– use some of the council’s remaining debt facility, which is high but not maximum, to cover capital expenditures, freeing up some other money that can be spent on operations
– increase in general rates for 2023/24 by more than the 3.5 percent already forecast (general rates are only part of what taxpayers have to deal with – with special rates the figure for 2022/23 was closer on average 6 percent higher)
– further sale of assets, this time including the option to sell some or all of the strategic assets, such as shares of Auckland Airport or perhaps part of the Port of Auckland Ltd. Such sales require public consultation
– more deferral of capital expenditures (more than the $230 million in works deferred last year)
– increasing municipal fees and charges (raw materials and building permits, parking fees and fines, dog registrations, swimming pool entrance fees, etc.)
– further cuts in operational expenditure (such as the “headquarters” cuts suggested by Brown, regardless of the effect that might have on public services)
– and try to persuade the central government to come to the party with “funding changes”
That last lever sounds like the least likely. A local government review has only just landed, and any change in rating policies or the ability of councils to take money from the public hasn’t even been formed, let alone ready for a decision.
One of the conditions the councilors set is that the options in their next report “do not burden taxpayers too much or create unacceptable shocks for them in the short or long term”.
That report would focus on options that maintain the confidence of the rating agencies, are sustainable (don’t offer a quick fix for a year and leave the problem for years to come), and can be implemented in time for public consultation early next year and approval. by the council in June 2023.
Brown has often talked about the city’s immediate budget problems being further jeopardized by a projected cost overrun of the $4 billion City Rail Link project, which is half-funded by the city and government. He says the CRL company has not told the board or shareholder ministers what that excess might be.