Auckland is facing a financial storm. Photo / Alex Burton
Auckland is facing a financial storm. Photo / Alex Burton
Auckland Council’s finance boss is not ruling out a rise in the Super City’s $270 million budget hole.
Auckland Mayor Wayne Brown and councillors have gone into a confidential workshop today to get “free and frank advice” from senior council officers on ways to deal with the hole in the midst of the cost-of-living crisis.
Unless big savings are found fast at Auckland Council and the wider council group, rates could rise up to 12 per cent.
At the first public business meeting of the governing body (mayor and councillors) this morning to receive a report on the dire financial outlook, chief financial officer Peter Gudsell could not predict what will happen to the budget hole.
“I would not be confident to call in this highly volatile situation which way that might move over the coming couple of months,” Gudsell said in response to a question from councillor Mike Lee on whether the hole would go higher.
As of late last month, stubbornly high inflation, rapidly rising interest rates and rising wages have increased the budget hole to $270m from $90m-$150m at the last financial update in June.
Higher interest costs account for $40m of the increase, but this would have been much higher if the council did not have hedging measures in place to guard against rising interest rates, officers told councillors today.
The hole does not include an expected cost blowout in the $4.4 billion City Rail Link that is half funded by the council and central government, and expected to be known by Christmas.
In a report to the governing body, officers described the hole as “an unmitigated operating budget gap” and said tough choices and trade-offs will need to be made to address the short-term challenge and move the council towards long-term financial sustainability.
Auckland councillors could consider a sale of shares in Auckland Airport. Photo / Michael Craig
A credible plan is necessary, officers said, to tackle the many financial pressures facing the council while preparing for future challenges, such as climate change, to avoid spooking stakeholders such as auditors and credit rating agencies, which could lead to unacceptable rate shocks in the future.
Heading into the meeting, Brown signalled the start of “a battle against rate rises and service cuts”.
He repeated his warning that Aucklanders face “an economic and fiscal storm” next year, with many households facing a tripling of their weekly interest payments on their mortgages.
“At Auckland Council, we must take every step available to us to not add to Aucklanders’ agony.
“We need to roll up our sleeves and get stuck in to find the savings we need to protect Aucklanders from the economic storm ahead and maintain the essential services Aucklanders value,” Brown said.
The report outlined seven “levers” available for councillors to address the budget hole.
They include using more debt to fund capital works, raising the 3.5 per cent rate rise pencilled in for this year, delaying more capital works over and above the $230m target in this year’s budget, cutting running costs and advocating to the Government for funding changes.
One controversial option on the table is to dispose of strategic assets, which include Ports of Auckland. This could move forward an unsolicited bid by Dubai-based DP World to buy a long-term lease for the port operations, although Brown has ruled it out.
Another possibility is a partial or full sale of the council’s 18 per cent shareholding in Auckland Airport, but this would be strongly opposed by left-leaning and some centrist councillors.
The asset sales would require public consultation.
The second controversial option is increasing fees and charges for some council services, but that is not favoured by Brown who “wants to keep parks in good shape and the zoo or museum an affordable treat for everyone”.
Instead, Brown wants to focus on head office overheads and inefficiencies not just at Auckland Council but throughout the wider council group.
After a series of questions from councillors to officers about the report, the meeting adjourned for councillors to attend the workshop.
Council chief executive Jim Stabback said the workshop will outlay possible solutions to the council's budget hole. Photo / Michael Craig
Council chief executive Jim Stabback said the workshop would work through potential solutions from the combination of lower revenue, such as less money from public transport fares, and cost pressures from things like inflation and higher interest rates.
The workshop would go through the seven levers and what combination of those the council might think about as a package of solutions, he said.
Lee was “a little bit uncomfortable” going into confidential workshops routinely to discuss financial business, saying it bypassed the councillor’s inauguration pledge to uphold the Local Government Official Information and Meetings Act.
Stabback said there would be a comprehensive consultation process as part of the budget process, but the first part was about informing the mayor and allowing officers to provide free, frank and open advice to councillors without triggering any disclosure obligations.
Brown, who campaigned for greater transparency at the council, said he was in favour of the public hearing as much as possible, but was unaware the council debt is traded on the NZ stock exchange, which has limitations on what can be discussed in public.
