The $270m budget hole is equivalent to a 12 per cent rates increase for Auckland households. Photo / File
The $270m budget hole is equivalent to a 12 per cent rates increase for Auckland households. Photo / File
Auckland councillors today started what mayor Wayne Brown called “a battle against rate rises and service cuts” in response to a projected $270 million budget hole.
Going into the first business meeting of the governing body (mayor and councillors) he warned 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,” said Brown.
“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.”
The $270m budget shortfall has come about from rapidly rising inflation and interest rates and rising wages since the last budget update in June, when officers were forecasting a deficit of between $90m and $150m for the 2023 budget.
Higher interest costs account for $40m of the increase, but this figure would have been much higher if the council did not have hedging measures in place to guard against interest rate rises, finance officers said.
The budget update, as of late October, shows the $270m shortfall has $90m of previously-signalled mitigations in this year’s budget but it is unclear if they have or will be achieved.
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.
What’s more, officers said, a credible plan is necessary to tackle the many financial pressures facing the council while preparing for future challenges, such as climate change, and to avoid spooking stakeholders, like auditors and credit rating agencies, that could lead to unacceptable rate shocks in the future.
Auckland Council chief executive Jim Stabback. Photo / Michael Craig
Speaking to the report, council chief executive Jim Stabback said inflation is at its highest level in decades, while the Reserve Bank has raised the official cash rate six times to try and bring inflation under control.
The inflation rate is above 7 per cent, much higher than the forecast rate increases of 3.5 per cent in the current 10-year budget.
The report outlined seven “levers” available for councillors to address the budget hole.
They included 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 appealing to the Government for funding changes.
Two controversial options are also on the table, one of which is disposing of stakes in strategic assets, which include Ports of Auckland and the council’s 18 per cent shareholding in Auckland Airport. This could see an unsolicited bid by Dubai-based DP World to purchase a long-term lease for the port operations move forward, although Brown has ruled that out.
The other option is a partial or full sale of the council’s airport shares, but this would be strongly opposed by left-leaning and some centrist councillors.
These asset sales would also require public consultation.
One option is to sell a long-term lease in Ports of Auckland. Photo / Michael Craig
Another controversial “lever” is increasing fees and charges for some council services.
Brown is not of a mind to target popular services, pledging to keep parks in good shape and the zoo or museum an affordable treat for everyone.
Instead, he has promised to target the head office costs of the council and the council-controlled organisations.
After a series of questions from councillors to officers about the report, the meeting adjourned for councillors to attend a workshop behind closed doors to receive “free and frank” advice from officers around options to deal with the $270m hole in the budget.
Brown urged councillors not to rule anything in or out as they headed into the confidential workshop, saying the “real work starts today” to meet a tight timetable for the budget, which will be finalised next June to come into effect on July 1.
