Auckland Council looking at budget cuts as it's squeezed between falling revenue and higher costs

Public Policy / news

Auckland Council's operating budget under pressure, cuts to services looming

13th Apr 22, 12:18pm by Greg Ninness

Photo: ChewyPineapple, Wikimedia Commons

Auckland Council has released a grim assessment of its financial situation and raised the spectre of potential budget cuts.

In a statement released to the NZX, where the Council has listed debt securities, Auckland Council says its finances are being squeezed between increasing costs and lower revenue, which could lead to some projects being deferred and cuts to some services.

"Council is experiencing ongoing revenue impacts from the Covid-19 pandemic and a structural increase in its cost base from rising inflation and interest rates, supply chain constraints and a tight labour market," the statement says.

"This includes a slower than expected recovery in revenue from public transport, events and facilities and a slower recovery of dividends form Auckland International Airport.

"On the cost side, payments to staff and suppliers, finance costs and depreciation expense are all increasing faster than anticipated."

"While the Council had a strong financial and liquidity position going into the Covid-19 situation, the adverse revenue and expenditure trends now present challenges for balancing the Council's operating budget on an ongoing basis," the statement warns.

Options for increasing revenue are constrained by the fact that the Council has already committed to keeping the general rates increase to 3.5% for the 2022/23 financial year.

As a result, the Council is reviewing the financial projections across its operations and is "considering a range of potential budget mitigations."

These could include:

Deferring some non-critical capital expenditure projects.
Permanently reducing some operating expenditure by stopping or scaling back some services.
Considering how much rates should increase by from the 2023/24 year onwards.
Fully utilising $127 million of central government funding associated with the Three Waters reforms to fund operating expenditure in the short term.
Taking on what its describes as "temporary and modest" debt to fund operating expenditure in the short-term, while longer term changes are phased in.

The new measures are expected to be finalised by June 7 and voted on by council members by June 30.

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37 Comments

by Homer | 13th Apr 22, 12:29pm 1649809751

Heaven forbid one should cuts ones garment according to ones cloth !! Outrageous ! Why can we not just keep loading it onto the ratepayer?

by J.C. | 13th Apr 22, 12:37pm 1649810271

One of the biggest property bubbles in the world and they can't draw on that "wealth" to run the city?

by Brock Landers | 13th Apr 22, 12:43pm 1649810622

You couldn't make it up could you. Policy in this country seems to be formulated by imbeciles.

by fortunr | 13th Apr 22, 4:24pm 1649823856

In the last few years, Auckland Council has been managed by a bunch of incompetent total retards.

by RickStrauss | 13th Apr 22, 1:49pm 1649814546

"It's never been cheap to live in a global city!" - inner Auckland property owners to FHB at auction time.

"It should be cheap to live in a global city!" - inner Auckland property owners to council at rates time.

Just bite the bullet and up the land value component of rates. We need to start paying our way more, most especially NIMBYs who are causing the far higher OPEX requirements of maintaining ever expanding sprawl at the fringes.

by Kjeldorian | 13th Apr 22, 2:05pm 1649815501

Why don't we just get council to focus on their core responsibilities and not waste money of frivolous bullsh*t?

That way rates don't have to go up by over 7% (once you include water rates and special targeted rates)

by RickStrauss | 13th Apr 22, 2:25pm 1649816720

Specifically which frivolous stuff?

We will still have huge maintenance overheads to cover sprawling infrastructure.

by Kjeldorian | 13th Apr 22, 2:56pm 1649818573

google is your friend.

by RickStrauss | 13th Apr 22, 5:12pm 1649826745

And it wasn't yours, in this specific case.

Hand waving about frivolous spending is very vague and imprecise.

by russellj | 13th Apr 22, 8:53pm 1649839986

For example Gold plated cycleway for Westmere at $14million per kilometre - 2.5 km for $35 million

by RickStrauss | 14th Apr 22, 9:35am 1649885739

I agree with that one. South Auckland is underrepresented in comparison: https://www.nzherald.co.nz/nz/south-auckland-leaders-angry-over-35-mill…

By way of comparison in bitumen project costs, Mill Road would be $300 million per kilometre. That council sprawl NIMBYs are forcing is incredibly expensive for everyone.

by mills | 13th Apr 22, 6:52pm 1649832729

After transport, (& water services now separated but still paid for by ratepayers) parks and libraries are two of the larger cost centers.By usual international norms, Auckland has an extremely generous provision of public open space but there has never been any reasoned assessment of how much is enough nor how it could be more economically managed. In fact parks have long been treated as an emotional "warm fluffy kiwi" with no price too big to pay.

Libraries have been a scandal. On amalgamation the 7 previous libraries, each with their own administration, immediately cost more as the new council gained economies of scale...not!

I am confident that anyone who has occasion to use Council "services" would agree that it is a bloated, inefficient monster!

Their "commercial investments" such as Ports of Auckland, Auckland Airport and their Events organisation are all good examples of extremely poor dividend yields, especially when one considers the opportunity costs tied up with the considerable capital commitment.

If frugality entered any Council conversations, we would be in a much sounder position with no hint of debt being "maxed out"

by RickStrauss | 14th Apr 22, 9:32am 1649885536

Libraries are a terrible thing to attack. Anyone who has used them with any regularity can see what an amazingly useful and well-used service they are for society. Moreover, spending on them has already been cut, with a reduction of one third in investment in new library collections. Libraries are very useful because they make knowledge, research and resources available to a wide swathe of the community. I've also not seen bloat in libraries. Which ones would you suggest have it? We don't want to go back to the 19th century when only private individuals had libraries.

However, savings from reducing library services seem to be very small relative to the overall council budget. A couple of million at most, excluding building any new libraries in new sprawl.

I also see little value in attacking parks, as with intensification of housing regularly placed green spaces are incredibly important.

by alphabeatrium | 14th Apr 22, 3:14pm 1649906046

Look, I like libraries. I use my local one. But it's not the 19th cenury any more, libraries are basically supplanted by the internet.

by rastus1 | 13th Apr 22, 2:26pm 1649816791

Its not the frivolous Bshyyyt that is costing. Years and years of infrastructure neglect.......while the inhabitants celebrated their cap gains.

Harvest time...the property crop need picking before it over ripens and rots.

by RickStrauss | 13th Apr 22, 2:31pm 1649817101

In fairness, they may have been hoping to cash in and move out before this point.

by dumbthoughts | 13th Apr 22, 12:54pm 1649811272

When it comes to economising and cutting costs, councils should take inspiration from that classic 1990s rock album from the Cranberries:

"Everybody else is doing it, so why can't we?"

Belts are being tightened and wallets are being closed left, right and center ... why should the burden fall entirely on private individuals? Short of providing water, emptying bins and a few other essential services, would anybody really notice if Auckland council (or any council, for that matter) slashed its spending?

by kpnuts | 13th Apr 22, 1:30pm 1649813442

dont worry between the % rates rises, the targeted one off rates ( that are there for 10yrs) the huge increase in various water charges -- all for significantly poorer services -- we are carrying the pain for them !

by RickStrauss | 13th Apr 22, 1:50pm 1649814606

At least money now collected for waters goes to Watercare and gets spent on waters rather than being pilfered by politicians as was common pre Watercare.

by Uninterested | 13th Apr 22, 2:52pm 1649818326

Pre Watercare on the North Shore a brand new sewerage plant was built. The NS Council was prudent and stuck to its knitting.

by RickStrauss | 13th Apr 22, 5:13pm 1649826833

I would have to ask engineers from the time whether NS was known to take waters money and use it elsewhere. Many of the other Auckland councils certainly were.

Which does not mean that no infrastructure was built, ever. Just that politicians had a known habit of misusing money collected for waters.

by WestieAJ | 13th Apr 22, 12:41pm 1649810472

Fully utilising $127 million of central government funding associated with the Three Waters reforms to fund operating expenditure in the short term.

So Phil Goff is intending to sell out the rate payers of Auckland before he sails off into the sunset. Aucklanders will be paying via their water rates to upgrade the water infrastructure of every shit box New Zealand town for the rest of eternity.

by gnx | 13th Apr 22, 1:49pm 1649814582

The council is broke. They haven’t charged enough rates.Nothing in the kitty and now interest rates are going to clobber them, let alone wage and cost increases.

And now half the houses in the city are rentals that are cashflow negative so good luck hitting them up.

by Kjeldorian | 13th Apr 22, 2:54pm 1649818459

The council is broke not because of income but because of expenditure.

by fortunr | 13th Apr 22, 4:26pm 1649824019

Perfectly stated.

by Uninterested | 13th Apr 22, 1:43pm 1649814186

The rail tunnel and interceptor projects are just the tip of the iceberg in terms of "visionary projects" that Len Brown and Phil Goff have foisted upon us.

There was the council IT project, the automation of the port, the application of the Ak fuel surcharge, the anti car philosophy irrespective of electric cars. The irksome list goes on and on.

So, we now have a an absolutely huge amount of debt coupled with falling revenue and increasing debt servicing costs.

Great. Thanks Len and Phil.

Hopefully Wayne Brown puts it back on the right path. Unfortunately its too late to cut the worst of the grandiose schemes.

by RickStrauss | 13th Apr 22, 1:53pm 1649814828

Back in reality, suburban sprawl driven by inner suburb NIMBYism is causing massive maintenance costs that are unsustainable. Vast amounts of new roads and waters infrastructure to maintain. It is unsustainable to grow this way.

The Central Interceptor is not part of council work. It is under Watercare, now safely separated from council politicians, and critical infrastructure.

by GV 27 | 14th Apr 22, 12:21pm 1649895703

We need the rail tunnel or else your rail network has basically tapped out, at service levels far below what we need to service the current population, let alone what it will grow to. If we'd built it when it was first mooted, it would be costing us far less. Same with Light Rail. Dithering about infrastructure keeps plebs in Wellington employed but at the expense of future Aucklanders, in terms of both time and money.

by positivelywallstreet | 14th Apr 22, 2:25pm 1649903124

Sydney is three times the population of Auckland and is based on a good heavy rail system, light rail should be left as a pipe dream for Auckland in my opinion.

by StuckAtHome | 13th Apr 22, 1:45pm 1649814302

From my experience working with public sector bodies, I would hazard a guess that you could cut at least 25% out of the opex budget without needing to cut services.

by fortunr | 13th Apr 22, 4:30pm 1649824208

I agree 100%. In some areas of the Auckland Council opex budget, you could cut by 30% without significantly compromising level of services. But vested interested will of course oppose it. And in any case, for as long as we have a Labour-inspired mayor, no real cuts will ever happen.

by Dale Smith | 13th Apr 22, 3:07pm 1649819254

Oh the irony, we pay approx. 50% more for our housing(CAPEX) than we need to than if we had a competent Central Govt. housing policy, but not enough for our running costs(OPEX), because we don't have a competent Local Govt. policy.

by positivelywallstreet | 13th Apr 22, 3:26pm 1649820388

Time to put the brakes on the Light Rail jobs for the boys, it’s pleasing to see National say “not so fast”.

by nigelh | 13th Apr 22, 3:29pm 1649820553

I understand Building Consents are a nice revenue spinner for the Council for residential housing. Evidently they make up the cost on the fly. Here in New Plymouth the Council have a set fee dependent on the construction cost of the house. The only variable is the inspection fee for additional inspections. Some of inspection fees are built into the BC fee.

by Takere | 13th Apr 22, 4:02pm 1649822551

Most of the council executives earn well over $200k. About 10 of them earn between $600k-$200k.

Time for them to take a hit. Nobody in the council should be earning more than the mayor who is on about $250k.

Chop! Chop!

by RickStrauss | 13th Apr 22, 5:15pm 1649826907

$200k is the new $100k. Have you not seen house prices and inflation caused by supporting them?

by Palmtree08 | 13th Apr 22, 5:09pm 1649826576

This is the moment to celebrate all that growth.