Auckland Council comfortable with debt levels but says debt will continue increasing over the next few years due to the city’s ongoing growth and capital expenditure requirements

Auckland Council comfortable with debt levels but says debt will continue increasing over the next few years due to the city’s ongoing growth and capital expenditure requirements

Auckland Council chief financial officer Matthew Walker remains upbeat about the Council's financial performance despite its latest annual report showing it now has a net debt of $8.7 billion after a $445 million increase in the 2018/2019 year. 

“In terms of our actual debt for the year we’ve come in below the settings that we put in place for the Long Term Plan (LTP),” Walker says. “The real challenge is to make sure that the profile of that debt is in line with growth and revenue and the population base of the city. And we’re comfortable that that is in balance and we’re not concerned about council debt at the current levels we have.”

He admits it remains a balancing act for the council which is trying to maintain a net-debt-to-revenue ratio of less than 265%, while supporting a growing city.

“And as we sit here today we are still reasonably well within that, but we’ve got a pretty full capital programme over the next two to five years, including the City Rail Link, so it’s important that we have that headroom.”

The annual report shows the Council now has a net debt-to-revenue ratio of 247%. While it has retained its credit ratings of AA from S&P Global Ratings and Aa2 from Moody’s. 

In June the Auckland Council Group Performance Overview predicted it would come under the year-end debt target of $9 billion for the 2019 calendar year.

Increased debt projections

Walker says he expects the Auckland Council Group’s debt levels to increase over the next few years due to the city’s ongoing growth and capital expenditure. But he says it will still needs to remain within its self-imposed debt to revenue cap.

“The discipline that we’ve got to make sure we hold ourselves to is that we maintain a very high credit rating and we continue to do that. And we’re confident we will continue to do that over the next five, 10, 20 years.”

The annual report shows the Auckland Council Group's revenue grew to a record $4.9 billion, including $1.79 billion from rates. While the Regional Fuel Tax generated an additional $156 million which is being used to fund transport projects.

And Walker says despite the fact the Council invested $2 billion in the 2018/2019 financial year, only 22% of this needed to be funded from extra debt. This included $700 million on transport infrastructure and a further $550 million on water infrastructure.

Increased costs

But the report does highlight some of the increased costs the Council has faced in 2018/2019, including the $1 billion City Rail Link cost blow-out, which saw it have to commit an extra $500 million to the project. While it also approved a $63.3 million dollar bail-out package for Eden Park.

And its staffing costs have also increased by 5.2% to $911 million. Auckland Council general manager of corporate finance and property Kevin Ramsay says the number of full time equivalent staff has also increased and will continue in the 2019 calendar year. The number of staff earning over $100,000 has also increased.

“There has been an increase in the over $100,000 band and there’s probably two real reasons for that, one is literally the cost of living increase each year, which is around 2% and that just slowly pushes people up through the bands, that’s part of the reason.”

He says the other reason is council initiatives around the likes of water quality, which require people with expertise.  

“And those people are costing us more than $100,000 dollars.”

But he says the Council is keen to decrease the number of back-office staff it has and increase its frontline staff in areas like regulation and building and consent services.

Fiscal balancing act

The Auckland Council's Annual Report 2018/2019 illustrates the difficulties the city faces as it attempts to manage its debt levels, while funding ongoing growth and need for infrastructure. A delicate balancing act recognised in the report which states:

“The challenge Auckland faces means that the group alone can’t fund the level of investment required. Auckland is the economic powerhouse for New Zealand, and so the strength of the New Zealand economy relies on a strong Auckland.”

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Solution: Increase rates significantly levied against land values only. Auckland has the lowest rates in the country as a percentage of land values.

Effects: Lower land values, more money for city infrastructure, lower household debt, which leads to less interest draining our economy through Australian banks, less land banking, more efficient and productive occupation of land, which leads to lower rents due to improving infrastructure and landholders pressurised to optimise use of their land and offer more tenancy space, including utilising more of the existing empty properties, as well as brownfield development.

According to AC website, there are currently about 540,000 dwellings in Auckland. Increase the rates by $1500 each dwelling per calendar year, and introduce a whole range of local taxes. All will be paid off in 10 years or less, simple!

Why should we pay extra tax due to prices having being shoved up massively by Foreign Buyers who mostly leave their homes empty. We have 40,000 unoccupied private dwellings in Auckland. Why not use the Canadian system which other countries are adopting including the USA to tackle funding. This puts a 1% annual tax, based on their property value on these empty homes. You'll be surprised how much Overseas Investors are will pay extra to keep their NZ bolt hole.

Why should Auckland pay more for things like the CRL which gets funded at 50% when LGWM is being funded at 60%?

Why shouldn't the other 500,000 home owners who want free "wealth", created by virtue of the infrastructure, not pay for it?

Well first of all, the City Centre already pays targeted rates, so there's that. Secondly, I'm not seeing Wellington getting regional fuel taxes like Auckland did - they just went straight to getting their infrastructure paid for at a higher rate by Central Government than the Government share of the CRL in Auckland. Funny how there was no talk of 'nah just raise more tax on Wellingtonians to pay for it instead' when it comes to the bit of the country that holds the rest of New Zealand back.

There's a very easy way to solve any debt for Auckland and fund the building of new homes. And that's is to simply tax empty homes. The latest Census results revealed almost 40,000 unoccupied private dwellings in Auckland. That's five times more than cities like Vancouver had. Officially they had 8,500 unoccupied private dwellings and yet they brought in an Empty Homes Tax which so far is collecting huge amounts of revenue for them, up to $38 million in their first year! So stop moaning an get on with it you have all the data you need!
Link to Empty Homes Tax: https://vancouver.ca/home-property-development/empty-homes-tax.aspx

It has to happen sooner rather than later. Auckland Council must be thinking about revenue opportunities and ones that aren't politically toxic are golden.

Yes and the sheer beauty of a Empty Homes Tax is that you're mostly targeting wealthy Overseas Speculative Investors who can not vote, because they don't live here! So it will immediately benefits NZ residents. :) If Auckland Council adopts the successful Vancouver Empty Homes Tax model they'll be raking the money in. Just think even if calculate the average AKL empty home value (Remember these are in the wealthy neighborhoods) of $1 million home value x by the 40,000 empty homes - 1% annual empty homes tax = Tax revenue of: $40,000,000,000.

More cities in countries are also looking to adopt the Vancouver Empty Homes Tax as well here's more info: New York looking to emulate Vancouver’s Empty Homes Tax. Sale of $238 million Manhattan penthouse drives fresh momentum for “pied-a-terre tax”
New York may soon be following in Vancouver’s footsteps after the record-breaking sale of a Manhattan penthouse has prompted renewed calls for a “pied-a-terre tax” on empty homes. The city is looking to Vancouver, as well as Paris and Singapore, to see how other global cities have implemented a vacancy tax on second homes and how successful they have been. https://www.vancourier.com/real-estate/new-york-looking-to-emulate-vanco...

I presume that you're standing for auckland council this election. No? It's easier to rant and rave here on interest

Do we take from that you are running yourself?

How does the census collect data on empty homes?

Well remember the latest census was conducted in early 2018 (Hence why it's called the 2018 census), it's taken considerable time for them to clarify and collect data from non respondents. Considering how many Overseas Investors and empty homes there are in NZ that's not surprising that it's taken over a year to release that data. There are also other ways to cross reference if a home is empty; lack of electricity and water usage for example.

Ok thanks - I hear that figure bandied about a lot so it's good to see it may now be backed up by data.

It's only money, and what the hell it's cheap.

I would like to see all Councils review the costs of Council owned sports facilities.

And I still cannot walk over the Harbour Bridge..Auckland city of debt.

Debt.
Future generations can pay.
I say, why not live within your means. I do. My neighbour does.
Grandiose plans.
How do we stop this nonsense?

"How do we stop this nonsense?" Easy; Tax Speculative Investors especially the ones that don't live here and just want to maintain their expensive bolt hole!

So 7 percent of Auckland houses were vacant on census day. In the coromandel it is 50 percent and they are mostly owned by friggin aucklanders. Have your vacant auckland house tax CJ and start a trend around the country. You wont have to wait very long to hear the piggy squeals from auckland bach owners.

Here's an idea to drive more efficiency.

Separate the business function of the Council, delivering and managing infrastructure, to the largest resident stakeholders in the city; determined by the quantum of rates paid. This would not be unlike ACC stake in the Auckland Airport. Some of these largest stakeholders hide behind the Mayor and Councillors anyway.

This could be funded by a separation in everyones rates bill, with the balance of the rates bill to fund the nice to have and demanding public. Cant be worst than the clowns (with no or very little business expertise) that currently have their name up for election to run was is probably the second biggest business in the country behind central government. Ask yourself how clowns are going to attract quality management?

Allocate the share of rates

Empty house tax on people who live and pay tax overseas is a no brainer. What are ACC waiting for?

While we’re on this Marxist warpath against liberty and self determination, I have another idea. I know a lot of people who have been living off welfare for decades and in their own homes and are more than able to work, but choose not to. I say we should apply a 2% annual wealth tax on these properties to help claw back the money we taxpayers have been funnelling to these deadbeats. Might only amount to $15-20k annually, but it’s a start towards bringing about a bit more “equality”.

Bit mean to pensioners, you are :-p

While we’re on this Marxist warpath against liberty and self determination, I have another idea. I know a lot of people who have been living off welfare for decades and in their own homes and are more than able to work, but choose not to. I say we should apply a 2% annual wealth tax on these properties to help claw back the money we taxpayers have been funnelling to these deadbeats. Might only amount to $15-20k annually, but it’s a start towards bringing about a bit more “equality”.

Nothing to see here, move on... Nationals line for 9 years they were in power. Thankfully Labour banned the non citizens from buying properties...

Completely agree tax empty homes. Some will sell, some will rent out, some will pay the tax.... win win win !