Economic Recovery

Auckland’s budget cuts: a half billion too far

Can anything stave off 'highly undesirable' cuts to services and projects in Auckland caused by the economic crisis? Will Wellington step in?  Tim Murphy reports.

For the second time in a year, Auckland Council needs to find half a billion dollars in a hurry to meet its financial commitments.

After pulling out all stops last year when the City Rail Link project found itself facing a substantial cost blowout, this time Covid-19 and the economic crisis has forced the Mayor Phil Goff and councillors to double-down. Unlike 2019's smart financial engineering, the latest budget cuts are being made with a blunt instrument called desperation.

Cutting road safety projects like fixing high risk intersections and pedestrian crossings. Stalling a much-heralded conversion to electric buses - a totem of the council's climate change commitments. Selling $200m in public land and assets. Putting off the city-wide revaluation of all properties. 

These are among the politically acute measures which leap out of a 30-page emergency budget document approved unanimously by councillors last week to be sent to ratepayers for consultation on how Auckland can find $525m to fill a hole caused by the crisis.

Goff told Newsroom putting off road safety measures, for example, was "highly undesirable from my point of view" but after last year's $500m package to find Auckland's half share of the CRL blowout, this Covid-19 budget round had little room to move. "Finding another $500m was incredibly hard."

The council's income has been hit mainly by a collapse in its non-rates revenue - things like $60m disappearing from its dividend from Auckland Airport because of the erasing of international travel, $65m falling out of the Ports of Auckland revenue, $50m less coming in from building and resource consents as construction and development dries up and $40m lower public transport fares as social distancing lowers passenger numbers.

Unlike the Government, the council cannot simply go out and keep borrowing the money to make up the difference. It has set itself a limit of debt being 270 percent of its income and even when making these emergency cuts, expects to exceed that, hitting 290 percent for the next financial year before settling back to its maximum of 270. Without the cuts the debt would balloon to 300 percent next year and stay above the 270 mark for four years.

While the global rating agencies Standard & Poors and Moodys have indicated tolerance for a short-term breach, Goff believes the four to five year breach would imperil future borrowing and raise costs prohibitively.

Its consultation document offers ratepayers two worlds - difficult cuts that it could make if their rates rise, as originally planned, by 3.5 percent on average, or more unpalatable cuts if they would prefer reducing the rate rise to a 2.5 percent average. 

While the council acknowledges many households' own incomes will be falling and under pressure, it tells them it cannot contemplate no increase in rates as the short and long-term effects on the city would be too devastating. A 'zero rates rise' is off the table.

Might Wellington help?

But are the proposed cuts a fait accompli? Could financial help from the central government in Wellington arrive in time to ease the pain and allow Auckland Council to change the mix of service and infrastructure cuts?

One possibility raised in the consultation document is a Government decision on 'shovel ready' infrastructure proposals around the country.

It called for councils nationwide to propose projects for a special $3 billion fund - receiving bids for around 20 times that amount. Auckland, which has a long list of vital infrastructure needs, should be well represented in the final approved list. If that happens, and, say, many hundreds of millions of dollars or even a billion heads to Auckland, that new money could offset delays and cuts planned in the emergency budget.

"If the Government decides to invest in some of the projects we have identified or support us some other way, then this might enable us to provide more services and investments next year than set out in this document," the consultation paper says. "This means we could play a bigger role in helping central government to support jobs and business activity in Auckland as part of the recovery and rebuilding effort.

"However there is not yet enough certainty or clarity about this, so we can't plan for it yet. Hopefully this will become clearer before we adopt out final emergency budget in July."

Goff is hopeful, too, but not confident of a magic resolution to his wider budget hole.

"There's maybe $3b for the country and it is not just about transport. It's about rebuilding infrastructure for hospitals and so on as well."

Auckland can't wait on the central government decisions but has to plan as if that money won't appear in time.  It can't build in to the budget  "hopes that you might have," the mayor says.

Having said that, Auckland has had indications that its proposed projects were well designed and met the criteria for the new infrastructure money. If there is a significant investment coming from Wellington, "one of the first priorities would be to put back into our infrastructure build programme items we have had to defer - not only because they are worthwhile in the long-term but also that's a way we can stimulate economic activity."

A local government bailout?

Beyond infrastructure funding, is there an argument for central government to help meet not just Auckland's $525m hole but the total nationwide for councils of around $1b? 

Keeping public spending up across the country could spread the economic stimulus and also help the Government maintain policy priorities such as climate change transformation and road safety improvements.

Goff does not sound hopeful. As a former cabinet minister he knows the constraints on the Government's potential for borrowing, suggesting it will start to have its own problems with global rating agencies as it takes Crown borrowing above 53 percent or so of GDP. "They cannot keep borrowing to infinity."

He's aware of several Government Covid-19 recovery funds set up to help, say, the arts sector or libraries. "These are targeted at narrow areas. Some might be tens of millions of dollars. The amount that might come to us for these purposes is not huge but we welcome any support we can get from the Government in that regard."

Hoping for salvation from Wellington is not really an option. "We are not being irresponsible," the mayor says of the emergency budget's accepting of reality. "We are being responsible."

On the road safety cuts proposed, which as well as deferred 'high risk' intersection and pedestrian improvements also see work to delineate rural roads and expand cameras against red light running put off, he says some work will go on. "It's not that the work will not happen. It is that the work will be deferred for a year."

Critics of the council have for years accused it of being bloated with cost and demanded further 'efficiencies' but over its decade as a super city body it has found more than a billion dollars in savings, and Goff says the persistent cut-backs have made these emergency measures harder to find.

Because of signed contracts for some forward spending the total value of expenditure for which the council has discretion to stop or defer work is relatively small.

"Everything we put in, we have deemed to be important and necessary. We do not put anything in the budget that is simply nice to have."

One line in the emergency budget underlines the pinch the mayor is feeling. His mayoral office budget, which under an existing formula would be around $5m a year, will fall by $2m or 40 percent.

Consultation on the emergency budget runs until June 19. Visit akhaveyoursay.nz/emergency-budget for details.

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