Economic Recovery

Auckland takes the high road

Auckland's leaders settle on a mix of unpalatable, immediate answers to the city's financial crisis - and must now build a new, 10-year recovery plan. Tim Murphy reports.

In the crisis hour, they cried more, more, more.

Auckland Council's complex emergency budget, approved on Thursday, will see more rates, more debt and more operational cuts to fill a $714 million funding hole caused by the Covid pandemic and economic crisis.

The council's finance committee opted for the highest rate rise on offer, an average of 3.5 percent, despite the financial strain on households reeling from job losses and reduced incomes, rejecting strident calls from some in the public for a nil rise, and a compromise increase of 2.5 percent.

While it holds its nerve and pulls in as much as possible from the rates, it has also decided to breach its accepted debt limit for a year, at least, to keep funding infrastructure the city needs and to stimulate jobs in the construction sector. The current debt limit of 270 percent of debt to revenue will move to 290 percent but must reduce to preserve the council's AA+ credit rating and avoid costly interest rate rises in future.

The operational cuts to services and to 600 contracted and 500 staff jobs will take the council's costs down by $200m a year - compared with the pre-Covid target of $17m and a long-term goal of just $7m for 2020-21.

The package was backed by all but three councillors (Christine Fletcher, John Watson and Greg Sayers, who wanted lower rates rises) at the committee and then immediately afterward at a full council meeting and will be finally approved on July 30. It had to address a hole in the council's finances greater than the half billion dollars first identified last month, as Auckland's drought means Watercare needs another $239m to bolster water supplies.

The city will also try to sell $224 million in properties - which, although listed under a programme of 'asset recycling' could not be viewed as 'assets' according to Mayor Phil Goff as they cost the council to maintain while also imposing an opportunity cost in what else their value could be used for.

The approved package managed, at the last minute, to avoid some sensitive cuts outlined in public consultation documents this month - meaning library opening hours will not be reduced and, through a Government 'shovel ready' fund of $98m, road safety measures costing $40m to improve dangerous intersections and cut serious injuries will now be retained. Final tweaks also preserved animal shelters and discretionary funds for the city's local boards.

Auckland Council won another $98m from that Government fund, which is for projects beyond this budget exercise, so aims to deploy that on other infrastructure projects as it doubles down on an investment rather than austerity approach to its economic position.

Goff called the emergency budget the most difficult faced by Auckland." We have to do what is right, rather than what's easy." But he rejected talk of the emergency budget involving a rates shock, saying he campaigned for the mayoralty on a 3.5 percent rise and that was what was already in the council's long-term plan. Other councils were increasing rates from 2.3-5.1 percent in Wellington, 4.1 in Dunedin and 4.7 in Tauranga.

Councillors said needing to push rates up as the community faced economic hurt, and to cut council jobs and services, had made the decision-making complex and highly charged.

Richard Hills: "This obviously sucks. This is the worst. This is not what we were thinking would happen."

Chris Darby: "It is the most brutal budget that I've had to preside over... nothing comes near this in my time in local government."

Tracy Mulholland: "Auckland does need to invest to recover. The future is not served by leaving critical services and facilities to wither."

Daniel Newman (on talk of a 'zero rates rise): "You can have no rate increases but you have to pay for it by having no services."

Goff said the extra debt was necessary to help Auckland catch up on infrastructure it had failed to fund in the past. The full budget package was needed to ensure Auckland could handle further economic shocks.

"We will be incredibly lucky and will have to be incredibly well-managed to avoid further outbreaks of Covid-19 ... What would happen to our city if we had another lockdown? This is a budget that leaves enough resilience for us to cope with the unexpected."

The extra capital needs from Watercare to deal with a one in 200-year drought had exacerbated the demands on Auckland's finances but were unavoidable to prevent severe water restrictions next summer.

The finance committee chair, Desley Simpson, who received broad praise at the meeting for her handling of the budget process, said she had started out favouring no rate increase, realised the council needed to go to 2.5 percent and then, when the Watercare extra funding became clear, accepted the 3.5 percent target.

"The analogy for me is when you are not very well and you go into hospital you end up in the emergency room, right? We kind of left the emergency room and went into intensive care."

The council will soon start work on its next 10-year plan, the Long Term Plan 2021-2031, which will have to anticipate the lasting effects of the recession and border closure.

Councillor Christine Fletcher said: "The budget is just one step on the journey. It is not the magic story I read to my grand child, where there's a happy ever after.

"Will it complement and inform the long-term plan and provide the basis for a fundamental reset?"

David Taipari, chair of the Independent Māori Statutory Board, said there was a long way to go. "Talk about today being the end of it ... it's only the beginning. What's most significant for us will the long-term plan. That sets the pathway."

Councillor Ross Sayers predicted Auckland's tight debt position would not be alleviated until it was freed from its share of the City Rail Link's borrowings. "As long as we are carrying the debt of the CRL I don't think we are ever going to get our head above water. Getting the CRL debt off Auckland's back is our Waterloo moment in history."

In answer to questioning from Fletcher, Goff said getting another debt - the $1.9b owed by Watercare - off the council's books was under discussion. "Clearly that would help us and these are discussions I'm having with the relevant ministers, including the Minister of Internal Affairs."

Watch this space.

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