The Coalition Government plans to place a Crown Observer on the Wellington City Council as it rewrites its long term plan following a vote to retain its stake in the city's airport.
Left and right-wing councilors joined forces to halt the sale of its 34% share in Wellington Airport, shooting down Mayor Tory Whanau’s plan which would have reduced the city’s insurance risk and diversified its investments.
The sale could have raised half a billion dollars which would have been reinvested into a perpetual fund and reduced net debt levels. Now, the Council will have to revise its long term plan and potentially cut investment in some infrastructure projects.
Local Government Minister Simeon Brown said he was concerned about the councils’ ability to manage this process and use its financial resources effectively.
The Department of Internal Affairs has advised Brown the Council was not using its balance sheet “appropriately” when planning its water infrastructure and insurance risks.
Water service upgrades were being funded primarily through rate revenue when they should be debt-funded, the Minister said.
This appears to mean the Crown Observer will be tasked with advocating for the Council to take on higher debt levels, although Brown was not clear on whether that would be the case.
“Ultimately, they are taking on debt for other things but … 94% of their [water] capex is being funded directly from rates. They could be funding and financing that differently and reducing the burden on ratepayers,” he told reporters.
He said he notified Mayor Tory Whanau on Tuesday morning in a “pleasant conversion” and she did not indicate any intention to challenge the decision — the Council has 10 days to respond before the Observer gets formally appointed.
Council responds
Whanau said she was happy to work with a Crown Observer and that it could be a good thing for the council.
“It is my view that we accept this and work constructively with whoever is nominated,” she told reporters on Tuesday.
However, Councilor Tim Brown told BusinessDesk the decision was premature but Simeon Brown had “backed himself into a corner” with his previous criticisms.
Tim Brown had a long career as an infrastructure investor at Morrison, which manages Infratil, prior to standing for Wellington Council in 2022.
Whanau also expressed confusion over the Minister’s criticism of its water funding. She said Wellington was using both debt and rates to cover infrastructure updates.
“The way we fund water is inherently the same as the majority of the country, so again I was surprised by those comments but I will work closely with the Minister”
While she broadly welcomed a Crown Observer, she did note ratepayers would have to foot the bill for having a central government representative sitting at the table.
“I find that a little frustrating … it is a cost that we didn’t want but they are the Government and we’ll work collaboratively with them,” she said
Credit ratings
Finance Minister Nicola Willis said it was in Whanau’s best interest to cooperate and show ratepayers the Council was doing everything it could to deliver good outcomes.
She was not willing to say the Council was not taking on enough debt. Instead, she said many ratepayers didn’t think it had been taking “a prudent financial approach to funding long term assets such as water infrastructure”.
“Ultimately, it is for the Council to work through those things, but making sure it has effective financial management in place with balance sheet management and is receiving good advice, is one of the matters the Crown Observer can look at”.
S&P Global Ratings downgraded Wellington City Council’s credit rating to AA from AA+ in September, citing rising debt levels and costs. The Council would materially increase debt to meet the cost of its water infrastructure renewal and rising costs of delivering services, it said. (See credit ratings explained here).
Debt levels had historically sat around 100% of operating revenues but were already at 213% and would rise to 286% by 2027 — with rate hikes helping to support that increase.
“The steep rise in debt reflects the large step-up in Wellington City's capital program, significant increases in operating expenses, and the council's pre-funding strategy”.
Opposition leader Chris Hipkins said there was a high threshold for Government intervention in elected councils and he was not sure it had been met in this case.
“There's a lot of other councils around the country who are struggling to put together a long term plan as a result of the Government's changes around water infrastructure … that doesn’t mean the central government should step in,” he told reporters.
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