Simon Wilson: The harsh reality of Auckland Council's new budget

People at the elephant enclosure on a wet weather day at Auckland Zoo. The zoo has not brought in revenue for the council during much of the Covid-19 lockdown. Photo / Alex Burton

COMMENT:

Auckland Council expects to lose half a billion dollars in revenue this year and has proposed a new emergency budget to cope. It's not pretty. They'll sell $200 million worth of property and other assets. Almost all new projects are on hold. Services will be cut and facilities closed. Many staff will lose their jobs.

Also, the new draft budget turns the council round and leaves it facing backwards. Measures to confront the climate emergency, deemed vital just a few months ago, will now not happen or be diminished in their impact. Public transport routes and frequency, for example, will be reduced. As will almost everything designed to make it more attractive to leave the car at home.

A crisis is a chance for a reset, or so they say. It's hard to see, in the emergency budget, much evidence that council agrees.

The council year starts July 1. The proposals are online now for public input; that process closes on June 19. Decisions will be made on July 16 and formally signed off on July 30.

Blame Covid-19. Council has lost revenue from transport ticketing, fees for building consents, parking and facilities like swimming pools and the zoo. The dividend from Auckland Airport, which it part owns, will disappear. Ratepayers suffering Covid-related hardship can apply for a postponement of their rates. Council will lose over 7 per cent of its combined $7 billion annual capital and operations income.

But there's another reason for this crisis: Government inaction. In theory, Auckland is soon to receive around $1 billion in funding for "shovel-ready" infrastructure projects, with much of the money to be funnelled through council. But where is it?

The programme was in the hands of Infrastructure Minister Shane Jones and Economic Development Minister Phil Twyford and decisions were due last month. Now it's on the desk of Finance Minister Grant Robertson, but the Government won't say what's going to happen or when.

So Auckland has to set a new budget, even though it may be redundant within weeks.

Cr Desley Simpson is chair of the finance and performance committee. She says they decided what to cut by asking, "Is that absolutely essential? Would the world fall over if we didn't do it?"

Auckland councillor Desley Simpson, chair of the finance and performance committee. Photo / Jason Oxenham

In truth, there's far more to it than that. The new budget was drawn up with two simple tools: a pencil and a ruler. They put a line under everything that's already happening or is contracted to happen. Everything above that line proceeds, everything below is cancelled, or postponed, or trimmed.

That might sound brutal but fair. But it's not, because it means every existing inequity gets reinforced.

If you live in an older suburb with established parks and playing fields, for example, you'll be relatively fine. If you live in new-growth parts of the city or in areas like Mangere that have always been under-resourced, it's a different story. Your desperately needed new facilities – for recreation, community care, transport, you name it – are now on hold.

There are so many more examples of such inequity. Much-needed road-safety improvements are back on the shelf; essential expansion of the cycling network has been stopped. The reason such projects aren't already underway is that Auckland Transport has been extraordinarily reluctant to commit to them.

A $10 million cut to "major events" and more to other event programmes means little or nothing for Matariki, Music in Parks, the Heritage Festival, Sculpture in the Botanic Gardens and more. No longer vital components of the diversity and inclusiveness the council is so proud of, such activities are now deemed nice-to-haves.

Meanwhile, spending on the America's Cup – an expensive nice-to-have, if ever there was one – will proceed. Why? Contracts already signed.

Not that council has gone into this crisis sitting on its hands. At the end of last year it was tracking 7 per cent ahead of budget, partly because it was in the process of cutting over 1000 staff. Its "value for money" programme, run by Simpson, has targeted a cost saving of half a billion dollars in the current 10-year plan.

And last year council found another half billion to pay for cost overruns on the City Rail Link.

All of that, says Simpson, means they are running out of options. While "value for money" is about "how to be more efficient at what we do", the new budget means "we now have to question everything we do". Not just how to do it better, but whether to do it at all.

Is there another way? Could council borrow more, as the Government itself is doing?

Simpson says they could borrow the $500 million they need now and the interest would be only about $10 million a year. "It's cheap debt."

But council's debt ceiling is 270 per cent of revenue and they're close to that now, which means they risk a fall in their credit rating. "If we drop a notch," she says, "it will cost us an extra $21 million in interest." Two notches down, she thinks it would cost $40-$50 million.

"That's a lot. It would undermine the confidence of our bond holders and it would have an intergenerational impact."

Is anyone questioning the future of council's biggest assets, Ports of Auckland and its shares in Auckland International Airport? Simpson says neither is under review in this exercise, because by law any change would require a separate process. But that doesn't mean it won't be proposed.

What about those council-controlled organisations, the CCOs that everyone likes to think are wasting so much money?

Auckland mayor Phil Goff (left) with Stephen Town, who retires this month as Auckland Council chief executive. Photo / Michael Craig

They're already under review, independently and internally, and their operations are definitely included in the current budget exercise. But any changes to the structure of the Super City will require new legislation. That won't come quickly.

The exercise now is focused on whether the rates rise should be 3.5 per cent, as approved earlier this year, or reduced to 2.5 per cent. Both mean big cuts.

Meanwhile, council gave itself a wake-up call in a meeting this week, when it was talking about the Innovative Streets programme run by Waka Kotahi (the NZ Transport Agency). It's the second funding round; in round one, Cr Chris Darby revealed, several of Auckland's submitted projects had been rejected because they weren't good enough.

In addition, the programme requires councils to contribute 10 per cent of the money themselves. With a half-billion dollar budget cut, some councillors asked, where would that money come from?

Auckland Council is at a crossroads. Can it manage its finances within the framework of becoming a safer, more equitable, more liveable and more resilient city, or will it simply retrench?