Support for Labour slumps, Clarks Beach capsize and a big night for league fans in the latest New Zealand Herald headlines. Video / NZ Herald
Auckland Mayor Wayne Brown says the prospect of steep rates rises is not acceptable and will not happen as a result of a huge financial hole in the council budget.
Brown was responding to a story in today’s Herald saying stubbornly high inflation, wage rises and interest costs have seen the projected budget hole of between $90 million and $150m balloon to $270m.
He confirmed the council’s governing body needs to find $270 million quickly to cover its growing budget hole for the 2023/24 financial year.
“The $270 million budget hole is a legacy of former mayor Phil Goff papering over the fiscal cracks and passing the buck to the new Governing Body, and not being prepared to confront poor performance by Council Controlled Organisations (CCOs) and Ports of Auckland Ltd (POAL) over six years,” Brown said.
“Twelve per cent rate rises are not acceptable and will not happen,” he said.
Brown said the new governing body needs to find the $270m for the 2023/24 financial year through a combination of head office savings, operational efficiencies, relentless scrutiny of the expenditure and commercial performance of CCOs and the port, and limited rates rises.
“We must also protect the essential services Aucklanders value and keep Auckland Council’s waterfront land in public ownership in perpetuity.”
The $270m budget hole does not include expected cost blow-outs from the Central Rail Link project, estimates of which Central Rail Link Ltd has declined to provide to its three shareholders, Finance Minister Grant Robertson, Transport Minister Michael Wood and Auckland Council.
Brown was commenting on Auckland Council’s budget situation this morning after a report in the NZ Herald and a market update to the NZX.
The budget update, as of late October, released today, shows the $270m shortfall has $90m of previously signalled mitigations in this year’s budget but is unclear if they have or will be achieved.
Council officers said inflation and interest rates have risen higher and more rapidly than economic forecasts had projected at the time the last budget was prepared.
“Tough choices and trade-offs,” will be needed to respond to the budget situation, said the paper, signed off by council chief executive Jim Stabback and group chief financial officer Peter Gudsell.
Today’s Herald story said unless big savings are found fast at Auckland Council and the wider council group, that could spell rates rises of up to 12 per cent, according to sources.
Falling revenue from things like resource consents as the economy heads south next year is also adding to the deficit.
Auckland Mayor Wayne Brown is looking for savings from the council, council-controlled organisations and Ports of Auckland. Photo / Michael Craig
The dire financial outlook presents a big headache for Brown, who during the mayoral contest would not say how much he would raise rates in his first term until he understood the state of the council finances.
In a gloomy inauguration speech 10 days ago, Brown warned Aucklanders are “sailing into an economic and fiscal storm” but he planned to keep rates low, parks in good shape and the zoo or museum an affordable treat for everyone.
The latest financial update - the first since former Mayor Phil Goff presented his final budget proposal in June for a 5.6 per cent rates rise this year - has been released this morning.
The current 10-year budget has a 3.5 per cent rates increase pencilled in next year.
The financial update will be discussed at the first proper business of the governing body on Thursday, comprising the mayor and 20 councillors. This will be followed by the mayor and councillors meeting behind closed doors to discuss the possible mix of options and levers to respond to the financial challenges.
It is understood Brown will set out a plan to tackle the $270 million shortfall through a combination of rates rises, savings and demanding better performance by the council, council-controlled organisations (CCOs) and Ports of Auckland.
One option for the governing body is selling the council's shareholding in Auckland Airport. Photo / Dean Purcell
The new mayor has already backed away from a campaign promise to force the port to pay rates and dividends of $400 million a year, now saying that is not possible through port operations.
One option Brown could consider to reduce debt and the cost of debt servicing is selling the council’s 18 per cent shareholding in Auckland Airport, valued at about $2 billion.
Any suggestion of selling the airport shares would face strong opposition around the council table, particularly from left-leaning councillors.
Mayoral sources say Brown accepts inflation and falling council revenues are part of the problem, but he also blames head office overheads and inefficiencies in delivering services not just at Auckland Council but throughout the wider council group.
The Herald understands Brown will ask councillors to agree to a forensic, line-by-line analysis of the council, CCOs and port company. This work will have to happen in a hurry as the mayor has to publish the first draft of next year’s budget before Christmas.
The governing body’s work of finding savings is made harder by Brown ruling out cuts to what he calls " the essential services Aucklanders value”, although he has yet to spell out what he means by “essential”.
In a statement last night, Brown had a crack at former Mayor Phil Goff for using a $127m payment from the Government to “paper over the fiscal cracks” in this year’s budget and push out hard decisions to the new council.
Former Mayor Phil Goff. Photo / Dean Purcell
The council received the money as part of a $500m “better-off” payment for handing over $11 billion of council water assets under the Government’s Three Waters reforms.
At the time Goff defended using the money to help plug a $175m budget deficit, saying it helped ratepayers burdened with inflation and higher interest rates.
On the CRL, Brown said the board and management of the country’s largest infrastructure project have not told either their central or local government shareholders the expected cost of the blowout, despite multiple requests.
