Auckland Mayor Phil Goff has welcomed the news the city won't be moving to level 4 but says there will still be personal sacrifices for many people under level 3. Video / Chris Tarpey
Auckland mayor Phil Goff has dismissed the Finance Minister's suggestion the city should borrow more money to help it through its second lockdown wave - stating the council is already at its "debt to revenue threshold".
The comments come as Auckland Council's chief economist has echoed ASB bankin projecting the city's second lockdown is costing the economy $65 million and 250 jobs a day.
Goff responded to comments from Robertson on Monday that the Government was not the "first port of call" to assist with Auckland's infrastructure funding.
The Auckland mayor had asked the Government for some more financial assistance with its infrastructure projects after being placed into level 3 lockdown on August 12.
Instead, Robertson referred Goff to the Local Government Funding Agency (LGFA) to increase borrowing.
Goff told the Herald while Auckland Council could theoretically borrow more to help plug a $750m Covid-19 hole in its finances, that would pose a risk council's credit rating would be downgraded.
"Auckland is at its debt to revenue threshold and will likely exceed it this year. However, we are unlikely to be downgraded because its emergency budget has a credible plan to come back under the threshold within around a year, and the cause of the higher debt is understood by the rating agencies," Goff said.
"The cost of the council's credit rating falling one notch would likely be around $110m extra in interest costs over the 10-year Budget/LTP period, and around $300m in extra costs to ratepayers if the rating fell two notches."
Finance Minister Grant Robertson said on August 17, 2020, that the Government was not the "first port of call" to assist with Auckland's infrastructure funding.
Auckland Council approved its emergency budget on July 30 to make cuts and savings to accommodate a revenue shortfall of $475m this financial year.
Part of this emergency budget was council exceeding its usual credit rating agency debt by 20 per cent for this financial year.
So, Auckland Council's usual debt to revenue threshold of 270 per cent has been allowed to be raised to 290 per cent for one year.
"The Local Government Funding Agency's covenants are not what constrains the level of Auckland Council's borrowing. Rather, it is the debt to revenue ratios that credit rating agencies - S&P Global and Moodys - consider as one of the factors in determining council's credit rating," Goff said.
"A deterioration of our credit rating creates more difficulties in terms of raising cash from the markets. Further, increased debt, particularly to meet operational costs, becomes a burden on future generations, and our ability to spend on future services and infrastructure investment is reduced by the increased cost of servicing higher debt levels."
Auckland Council's finance and performance chairwoman, Desley Simpson, agreed with Goff, and said comments from LGFA chief executive Mark Butcher that it has never been cheaper to borrow, "while true, are unhelpful".
"Debt is still debt even if it is cheap debt," Simpson said.
"It is not true to say we can't borrow more. What is true is that we can't borrow more than what is indicated in our Annual Plan and LTP without the risk of a credit rating downgrade from S&P and Moody's.
"We can borrow more under the LGFA covenants – however, it ignores the fact the we also have to live within S&P and Moody's credit rating constraints.
"We do not know how far we can go above the 270 per cent [council debt to revenue] figure."
Mayor Phil Goff at the Spark Arena food distribution centre during the first pandemic. Photo / RNZ
On Monday, the mayor and Auckland councillors were provided with a report from their chief economist, David Norman, which said that the "relatively brief" second lockdown wave at level 3 would see Auckland lose a further $3-5 billion in GDP by June 2022, and job losses in the range of 4000-8000.
Norman's report estimates that 23-27 per cent of Auckland's workers cannot do their jobs at level 3 which equates to around 210,000 to 248,000 workers unable to work.
The report estimates that Auckland is losing $440-$550m in GDP per week it is under level 3 lockdown.
However, despite the city's bleak economic outlook, Auckland Council also released the encouraging report to the Herald this week that it had already saved $55m since approving its Emergency Budget on July 30.
Simpson said the $55m savings came from across council and included a voluntary salary reduction scheme for staff earning over $100k.
"It is important to give Aucklanders confidence council is playing its part in being more efficient and saving money. $55m is a great start. In itself it is equivalent to over a 3 per cent rates rise but I know there is also a strong pipeline of savings in the months ahead," Simpson said.
"I am heartened with what we have achieved since we struck this budget.
"We are doing everything we can to cut non-essential expenditure and this is a good start to what is going to be a tough year with a lot of uncertainty."
Simpsons said there would be monthly updates on the progress of Auckland Council's goal to make $120m in savings this year.
