Bernard Orsman

Bernard Orsman is Super City reporter for the NZ Herald.

How city budget hit crunch point

Figures show Auckland Council has been living beyond its means since 10-year budget was struck in 2012.

Auckland mayor Len Brown regards the City Rail link as the Auckland's number one priority. Photo / Sarah Ivey
Auckland mayor Len Brown regards the City Rail link as the Auckland's number one priority. Photo / Sarah Ivey

Auckland Mayor Len Brown hailed his first 10-year budget in 2012 as the foundation block to transform Auckland once and for all.

There was $8.2 billion for 11 new or refurbished libraries, new swimming pools, sports parks, much-needed water and stormwater projects and other core spending.

Transport was to get $9.3 billion to build a world-class transport system, including $500 million for new electric trains and a long awaited start on Ameti in the southeast.

Two years later, this foundation has barely progressed and the council faces stark choices as its finances reach crisis point. Promised libraries and swimming pools may never get built.

Inorganic rubbish collections could be scrapped; cultural festivals and events scrapped.

The new 10-year budget is a black budget, or a "brown" budget as some have quipped. It must slash $2.8 billion of new capital spending if Brown is to keep his election promise of holding overall rates increases to 2.5 per cent this term.

Operating spending will need to be trimmed by $90 million in year one of the 2015-2025 budget, rising to $630 million by 2025. It is currently about $3.2 billion.

Brown reiterated in January that 2.5 per cent is the "new ceiling", but went all wobbly last week, saying he would consider increases of between 2.5 per cent and 3.5 per cent.

Political opponents and commentators blame Brown for the current financial situation, accusing him of poor financial management and going on a "borrow and spend" binge. Brown refused to be interviewed for this story to answer questions about how the city got into a financial mess.

Figures compiled by the Herald show the council's spending was based on rates rising by 26 per cent over its first four budgets, but rates rose by only 13.3 per cent.

In other words, the council has been living beyond its means, even with projected savings of $1.7 billion over 10 years. Debt has soared from $3.9 billion to $7.3 billion and interest payments are now costing ratepayers $1 million a day.

To get a feel of how much debt is impacting on the council's finances, interest costs rose by $55 million, or 14.9 per cent, in the past year. Reforms kick in this year that limit council debt. Debt repayments must not exceed 15 per cent of operating revenue.

The council would almost certainly breach that limit if it stuck with 2.5 per cent rates rises when the current 10-year budget is based on average rate rises of 4.9 per cent.

The council has two choices; big rates rises to match spending (politically unacceptable) or cutting capital and operating spending to produce an "affordable" and "sustainable" budget.

The elephant in the room is the $2.86 billion City Rail Link, which Brown regards as the city's number one priority and has enormous flow-on effects. Not only does the rail link push other transport projects off the books, it threatens library hours and less mowing of parks.

Brown has still to come up with a funding package for the project.

Gallery: Auckland's electric rail starts rolling

The current 10-year budget assumes the Government will pay a half share of the $2.4 billion land and construction costs, but not $476 million for extra trains and other costs. The council's contribution is $1.68 billion, of which $100 million has been spent on buying properties. There is no firm funding for construction costs.

Auckland Chamber of Commerce chief executive Michael Barnett says Brown has done what politicians have done to Auckland for years - offered low rates increases but not stuck to a spending plan that aligns with this.

He says if Auckland really wants to build a city that people want to live in there must be investment to attract people, investment and tourists.

Where the Auckland Council has gone wrong, he says, is not aggressively reviewing what it does with an eye on doing things better with less.

He asks: Does the council need 900 staff in planning and 600 in policy? Should Auckland Transport and the New Zealand Transport Agency combine in Auckland? Does Auckland Tourism, Events and Economic Development (Ateed) need a $60 million budget?

"This is all stuff that should have been challenged over the last three years."

Right-wing councillor Dick Quax last week called Brown a "socialist mayor" who had promised ratepayers the world with their own money.

"The platitude of the 'world's most liveable city' has become a noose around the neck of Aucklanders and has come without any cost associated with it," said the Howick councillor.

Quax said the mayor had shown no ability to say no to anyone who came knocking at his door, whether it be Maori, the Rescue Helicopter Trust, Holy Trinity Cathedral or Skypath.

Another right-wing opponent, Cameron Brewer, says the mayor has over-promised and rolled over to the wish lists of the former councils when he should have prioritised and cut projects at the outset.

Local body financial commentator Larry Mitchell, who produces annual "league tables" of council financial performance, said the council had substituted disciplined financial management with four years of "borrow and spend".

Contributing factors were poor governance by councillors lacking financial nous strung along by staff, a culture of extravagance with little thought of the effect on ratepayers, weak auditing, and a lack of honest public consultation.

Click here for more coverage of Brown's black budget.

- NZ Herald

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