I’ve previously noted that the proposed Emergency Budget for Auckland is drastic. And given the current and looming economic outlook, it needs to be. While there are plenty of people claiming to have crystal balls, the reality is that there is a significant uncertainty about the economic future.
Therefore Auckland Council has decided to use what they believe is the most likely scenario and is expecting a massive drop in revenue ($525m) which means they’ve had to recut the budget. Most of the missing revenue isn’t from rates ($65m), but from other revenue sources such as Ports of Auckland ($65m) and Auckland Airport ($60m) as well as less transport ($120m), less building ($70m) and reduced recreation ($80m).
Balancing the budget - less revenue means more debt
Hopefully these will only be short-term reductions but unlike the government, which can just continue to borrow, Council is required by law to attempt to balance the budget. Council is increasing it’s borrowing to the maximum, while in theory focusing investment on which will have the greatest economic stimulus and recovery. In the short term, debt will grow to 290% for one year (breaking their banking covenant) before dropping down to 270%. Council has said that because it’s short term with a planned return to below the maximum, the banks are willing to accept it.
But even with record borrowing, there just isn’t the revenue to maintain the capital investment or operating expenditure so there are cuts to both. The Mayor had proposed a 3.5% average rates increase but given the need to review the budget, Council has also considered what an average increase of 2.5% would look like.
Less than 2.5% would mean no capital programme unless the project was already underway as well as many $100m more in reduced services. The short fall would mean a greater potential impact on credit ratings which can mean worse interest rates and restricted borrowing potential in future.
So all three options means cutting services and projects, some more critical than others. Some have suggested we solve this by cutting the pay of the executive, but half the staff would need to go to cover $525m which would reduce services well below the proposed cuts. And there are cuts - 868 staff have already taken a voluntary salary pay cut, including 32 under the $100k threshold.
What this means for East Auckland and beyond
The consultation document doesn’t do a bad job of laying out the challenges, but there’s a lot of details missing, buried deep in the details (including a 113 page supporting document). I’ve been working through it all, noting the city wide impacts and anything specific for East Auckland. I’ve used the same categories as the consultation document, although there is some crossover (especially in the environmental space). I have not captured everything and I strongly recommend that you take a look at the consultation document.
Transport
While not consulting on a 0% increase, the document notes that that would mean reduced road and footpath maintenance standards for a year, with potential risks to safety and whole of life costs. Maintenance activities such as fixing pot-holes, repairing cracked surfaces and repairs of road side furniture would be delayed until they are deemed to be critical.
Last night I finally got an sensible answer to the Eastern Busway funding - there has been a delay to purchasing of properties for the Pakuranga to Botany stage which will save money now and be funded in the near future. This won’t delay the delivery of the project or any of the stages which is good - this should’ve been laid out in the document and avoided a lot of headaches.
The details on the Community Safety Fund are lacking - this was once the flagship safety programme for Auckland. We don’t know what this means for Botany Downs Secondary College or Te Uho o te Nikau Primary School which were both meant to get safety improvements for students funded through this programme.
The cuts to transport are particularly painful when the Howick ward has historically under spent it’s allocation - for years we missed opportunities to address safety and congestion. Most of that funding will now be gone or under tighter restrictions while we’re left with those same issues.
Water, wastewater and stormwater
Given the current drought and water shortages, it’s good to see that there are no major cuts here. Although concerning to see reduction in preventative maintenance and capital programmes - if anything we need more, not less focus in this area.
Parks and Community
Some pretty big assumptions in here about drop off in people wanting to attend events, which I don’t think will hold out. Many of our parks and community assets are already in a dreadful state and further deferrals will not help. But selling off assets for short term gains needs to be done very carefully.
I’ve questioned the spend on the America’s Cup especially given that the economic payoff is break even, but I suspect we’re locked into contracts already.
City Centre and Local Development
Panuku largely runs outside of the public’s view so I doubt many will notice the cuts. We really need to know what is happening with Ormiston but Council has not responded to queries.
Economic and Cultural Development
Zero percent would mean further cuts would be made to economic development activities and Council say “this would put economic recovery of the region at risk”.
Some reasonable cuts here, again based on assumption that there will be less demand. I know ATEED has a mixed past, but ensuring our economy recovery is quick and steady will need resourcing. Much stronger oversight needed to ensure we’re getting a good return on this.
Environmental management and regulation
Zero percent would mean delaying the climate change initiatives proposed in the first round of consultation and not resuming inorganic collection services leading to increased illegal dumping.
It’s great to see investment into automation and process improvement, although it shouldn't take an economic crisis to get underway. Auckland Council has never excelled at ensuring compliance to regulations and I’m concerned that we’ll see more issues with damage to our waterways and environment.
Council Support
I suspect there are a lot more efficiencies that can be gained here, although some are structural which can’t be addressed without dealing with the CCOs. Some of that will mean convincing parliament to pass legislation, which they haven’t shown any interest in.
So what does this mean for rates?
Council has just signed a new contract for the collection of refuse in the former Auckland City Council and Manukau City Council areas. The cost of the new contract has risen so the refuse rate will also be increasing. For context other parts of the city pay for their refuse collection with $3.95 bin tags each time they put their rubbish out.
Rates postponement scheme
Auckland Council is proposing a rates postponement scheme, which will be open to
residential and lifestyle ratepayers with a mortgage
financially stressed business and farm ratepayers. 85% of businesses.
Not-for-profit applications for residential property will not be required to have a mortgage
If you’re eligible, you’re able to postpone the first $20k (GST incl) of rates and carry forward up to $5k (GST incl) of any rates Q4. Applications can be made up until 31 December 2020 to allow time to fully understand situation.
In summary - a crisis budget
The proposed budget is drastic, cutting a lot of short term capital and operational expenditure. It’s tempting to suggest that this will mean less waste at council, but that wasn’t the focus of the proposal. There are some efficiency programmes planned which is great, but improvements should have been started years ago, not waited for a crisis.
I’m deeply concerned about the cuts to safety programmes, environmental management and public transport which will all have an impact beyond just money. I worry about our parks and community centres, already in a sorry state and further starved of funds they will become liabilities.
The missing information on the Community Safety Fund and Ormiston Town Centre make it difficult to fully understand the impact. I asked about these over a week ago and four days from when feedback closes I still don’t have an answer.
Driven by a looming economic crisis, quick decisions need to be made. But as we better understand the situation, we must reconsider investment. We must also take this as an opportunity to reflect on what we haven’t done when times were better - had we focused on park renewals, investment in transport and improving efficiencies we wouldn’t be so short today.
This budget is more than just a reflection of the economic realities, it’s also a portrait of a council that lacks discipline and robust governance. The public is being asked to respond to incomplete information, with cuts to what can be cut (rather than what should) and an ever growing backlog of under investment in infrastructure.
Feedback is open until midnight on Friday 19 June 2020.
https://www.aucklandcouncil.govt.nz/have-your-say/topics-you-can-have-your-say-on/emergency-budget/