Wellington mayor Tory Whanau says suggestions of some sort of “coverup” regarding financial challenges the city council is facing are laughable. Photo / Mark Mitchell
Wellington mayor Tory Whanau says suggestions of some sort of “coverup” regarding financial challenges the city council is facing are laughable. Photo / Mark Mitchell
Wellington mayor Tory Whanau says suggestions of some sort of “coverup” regarding financial challenges the city council is facing are laughable.
Whanau has hit back after a city councillor applauded Auckland mayor Wayne Brown for being upfront about the city’s financial horror show and says the capital needs to be just as transparent.
Brown has revealed the numbers are going to be nasty for ratepayers if councillors are not prepared to make cuts to services and sell assets.
Wellington city councillor Diane Calvert welcomed Brown’s openness.
“It’s high time Wellington City Council was just as transparent with the people and businesses of Wellington.”
Councillors had been briefed on financial challenges but this was behind closed doors and in confidence.
But Calvert was able to say publicly they have been told tens of millions of dollars, if not hundreds of millions of dollars, in capital expenditure, will need to be cut.
She has called the situation a looming debt crisis.
Councils around the country faced similar challenges to Wellington, but some were dealing with it sooner, Calvert said.
“The longer we leave it, the harder it will be to recover from.”
Wellington city councillor Diane Calvert says the council is facing a looming debt crisis. Photo / Mark Mitchell
Whanau said external pressures like inflation, interest rates, building costs and insurance premium increases are being experienced by councils all over the country.
“These are not new concerns, but they are now coming to fruition as expected and we are preparing to chart a steady course.
“We are now thinking carefully about how we can continue to have a resilient balance sheet that respects financial contributions from our citizens, whilst also continuing to deliver ongoing improvements to the city we love.
Council staff are working on a range of options which will be presented to elected members in November and made public, Whanau said.
“The community will have full opportunity to make their views known on these spending and affordability issues over the next few months and into the New Year.”
In response to the state of Auckland’s finances, Labour Wellington City councillor Ben McNulty posted on X (formerly Twitter) that the capital was fortunate to be starting from a healthier debt position for its long-term plan.
But he said the challenges facing Auckland Council were universal - from Wellington to Gore.
Local government was oversubscribed and underfunded, he said.
McNulty agreed that projects similar to the city’s recently opened convention and exhibition, Tākina, should be nowhere near the council’s books any time soon.
We're fortunate in Wellington we start from a healthier debt position for our long-term plan (debt:revenue ratio 225% vs. 260%~) but the challenges facing Auckland Council are universal from Wellington to Gore. LG is oversubscribed and underfunded. https://t.co/mSxFZdy6br
In 2021 Wellington City Council increased its debt ceiling from 175 per cent to 225 per cent.
This debt ceiling, or debt-to-revenue ratio, is self-imposed.
A significant proportion of council borrowing is done through the Local Government Funding Agency (LGFA).
The LGFA is how local authorities use the scale of debt issuance and collective security of rates revenue to get increased access to debt, and lower interest rates than would be possible individually.
In doing so, shareholder councils sign up to covenants that restrict borrowings to mitigate the risk of failure and default.
The LGFA increased the upper limit for borrowing from 250 per cent to 300 per cent in 2020, freeing up capital for councils with a credit rating of “A” or higher to manage their way out of the Covid-19 crisis.
The limit will be reduced to 285 per cent by 2025.
Wellington City Council officials have previously said the council’s self-imposed 225 per cent limit recognised increasing financial risk related to growing costs and accessibility of insurance.
In 2021 officials were keen to leave additional headroom for borrowing within the LGFA limit in the event of something like a major earthquake.
A review of the future of local government has recently been completed.
In the resulting report, released in June, many people suggested local government’s finance system is “broken” and that we have reached “peak rates”.
It recommended an annual transfer of funds from central government to councils starting at $1 billion, which is roughly equivalent to the amount property owners paid in GST on their rates during 2021/22.
Another recommendation was to establish a fund for climate change adaptation efforts across the country which could be funded through the likes of the Emissions Trading Scheme, specific levies, or general taxation.
Central government agencies pay limited or no rates and charges on their properties.
The report said there is nothing to stop this from being changed now - all that is needed is the political will to do so.
“Central government paying rates would be a signal of good faith and a sign of central government commitment to a more equitable funding model.”
Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.
