The wages bill at Auckland Council has reached $1 billion. Photo / File
The wages bill at Auckland Council has reached $1 billion. Photo / File
In the face of spending cuts on the back of inflation and Covid-19, Auckland Council could be forced to give its staff a 6 per cent pay rise costing ratepayers an extra $57 million.
Today's inflation figure of 5.9 per cent and a possible matching pay rise for staff is the first sign of a "highly uncertain financial outlook" that officers warned Mayor Phil Goff and councillors about last month.
They forecast a rocky ride on the back of Covid-19 and rising inflation and interest rates that could lead to service cuts on public transport, funding for the arts and sport, and climate change.
One option is to slash up to $10m of poorly used public transport routes in Papakura, East Tamaki, Warkworth, Hobsonville, Otahuhu and Papatoetoe/Otara.
Public transport services could be cut to save money. Photo / File
Another option is to reduce community programmes in libraries, community centres and arts facilities. Sporting and recreation grants could be chopped by $500,000.
Senior finance officers said with expenses rising faster than revenue, the council's running costs are not sustainable to deliver all the services in this year's budget and beyond.
Councillor Greg Sayers said a contractual commitment with unions to tie wage increases to the latest inflation figure and mirrored increases for other staff, would take the council's wages bill to $1 billion for the first time.
This figure is based on a 5.9 per cent increase to last year's wages bill of $963m.
Sayers, a vocal critic of council spending, said the wages bill had been overspent in the past two years and would not be surprised if it went over budget this year.
Auckland Councillor Greg Sayers. Photo / Michael Craig
"The council needs to be cutting its cloth to fit its income," said Sayers, saying one in every four staff members earns more than $100,000.
Acting chief financial officer Ross Tucker said council budgets already account for a level of staff pay increases and the effects of inflation on wages and salaries will vary according to contractual agreements.
He did, however, say the official inflation rate forms one of the "key indicators" in roles covered by union agreements, but other factors like the labour cost index and market movements come into play.
"Lower increases have been agreed to previously, especially in years where financial prudence needed to be applied.
"While the draft budgets to support the consultation that were agreed in December were based on forecasts with an inflation assumption of 2 per cent, they also included some provision for higher wage costs," Tucker said.
Services at Auckland libraries are one option to save money. Photo / File
In last month's budget update, the finance team presented an "optimistic view" showing an $85m shortfall in running costs. This did not account for higher inflation and interest rates, further wage pressure to compete for talent, significant increases in construction costs and potential caps by the NZ Transport Agency on subsidising public transport.
They included a rates increase of 8 per cent this year, cutting services levels on things like public transport and a climate change response fund, deferring hundreds of millions of dollars of capital works and selling shares in Auckland Airport.
Officers were also working to a 2 per cent inflation rate for the 2022-2023 financial year, saying every additional 0.5 per cent through the year would add about $15m to permanent running costs.
Goff flatly rejected selling airport shares and raising rates by 8 per cent in the "mayoral proposal" on December 1 - his first draft of this year's budget.
Instead, he opted for a general rates increase of 3.5 per cent and a new climate action targeted rate of 2.4 per cent - a total rates rise of 5.9 per cent.
Goff is also crossing his fingers that a cheque for $127 million from the Government will come through in July as a down payment on the $509m the council will receive for being stripped of $11b of water assets under the Government's Three Waters reforms.
He wants to use much of the $127m to wipe this year's $85m shortfall in running costs and leave the ongoing annual running costs of between $30m and $40m to be addressed later.
Tucker said in the face of "economic headwinds", officers are continuing to work through all of the challenges to ensure councillors are fully informed as they make decisions.
"The key is to have resilience and flexibility in the budget," said Tucker, adding there are no plans to increase general rates above 3.5 per cent.
Auckland Mayor Phil Goff. Photo / File
Goff was unavailable for an interview but in a statement said the proposed budget includes flexibility to manage future financial pressures, including efficiency savings and cost reductions, deferral of some lower-priority projects, prudent borrowing and sale of non-strategic assets, as well as funding from central government.
"Council is closely monitoring the financial situation, and any future changes to this will be considered in the final deliberation before the budget is adopted in June," said the mayor, saying the last two "emergency" and "recovery" budgets have already taken tough decisions around reducing staff numbers and cutting non-essential spending.
