A Capital Letter: The verdict on Wellington City Council’s ‘financial crisis’

Wellington mayor Tory Whanau. Photo / Mark Mitchell

OPINION

Whether Wellington City Council is facing a financial crisis depends on your definition of a crisis but the slashing of capital spending under a mayor who promised transformation makes for glum reading.

It’s not Tory Whanau’s fault. The problems putting immense pressure on the council’s 10-year budget are those that have long been bubbling away under the surface - inflation, underinvestment in infrastructure, and a challenging insurance market.

The council has finally lifted the lid on what could be cut after months of closed-door meetings and Whanau insisting there is no financial crisis, despite some of her colleagues claiming otherwise.

The result? A financial crisis of sorts.

Proposals include pulling the plug on the rebuild of the Khandallah pool, ditching skatepark refurbishments, deferring road resurfacing and selling the council’s shares in the airport.

Even the council’s controversial but award-winning city-wide cycleway network rollout did not go unscathed. The council is considering cutting what remains of the project by $81m bringing the total cost to $110m.

The full 111km cycleway network will still be delivered but the trade-offs include things like a lower level of grade separation between cyclists and cars.

So when councillor Diane Calvert first sought legal advice back in September to reveal the council needed to cut capital expenditure by “tens of millions of dollars if not hundreds of millions of dollars” in the coming years, she was right.

The point of contention is whether this amounts to a financial crisis as Calvert says it does.

The crisis is not that that the financial challenge is insurmountable. The council’s chief financial officer Andrea Reeves is a smart cookie who has 13 years of experience at the Office of the Auditor General and before that, nine years at Audit New Zealand.

Councillor Diane Calvert sought legal advice in September to reveal the council needed to cut capital expenditure by 'tens of millions of dollars if not hundreds of millions of dollars' in the coming years. Photo / Mark Mitchell

The solution will require tough political decisions to cut spending.

This will also include delaying some work to smooth spending over the next 10 years so the council does not breach its self-imposed debt ceiling of 225 per cent.

That debt-to-revenue ratio includes $272m of insurance headroom which has not been drawn down as debt but is “earmarked” in case the council needs to respond to a significant event like an earthquake.

This is all still well below the Local Government Funding Agency’s 280 per cent cap.

The crisis is that the council is proposing to scale back projects it has previously committed to under a mayor who campaigned on transformation in a city which already has an obituary being written for it by some disgruntled residents.

This issue of reputation is listed as an explicit risk in the council documents outlining potential service cuts.

“Prioritisation of council activities to work within funding levels will create impacts on a range of community, arts and sporting groups,” the documents said.

“There is also more general reputational risks with the community in relation to the slower than desired level of change in relation to community priorities.”

This reputational risk is balanced, to a degree, by the fact the cuts will help to keep rates down, the documents said.

It might be difficult for ratepayers to see it that way when the council is working towards an average annual rates increase over the next decade of 5-8 per cent but will likely be even higher than that for some years.

Furthermore, this does not include a new levy to pay for a sludge facility which will be an additional 4 per cent on top of rates over the same time period.

Whanau’s flagship policy was to deliver a new major urban revitalisation project between the waterfront and the hospital along the $7.4 billion Let’s Get Wellington Moving transport plan’s light rail route.

But the incoming government has promised to kill LGWM, including light rail, and build a second Mt Victoria tunnel as a fully funded state highway project instead.

Government money for the kind of ambitious transport plans Whanau wants has dried up over the years the city has spent dithering over things like consultation and legal action over a pedestrian crossing.

Any savings from LGWM being no more are quickly absorbed by revelations this week that $1 billion, every year for the next 10 years, is needed to fix the region’s old water infrastructure.

National has promised to repeal and replace Labour’s Three Waters reforms with its own plan, called “Local Water Done Well”.

The plan will effectively put water services back in the hands of local councils (likely an unwelcome prospect in Wellington City Council’s case).

This is not isolated to Wellington. Local Government itself is in crisis and must be given alternative revenue streams to rates.

Of course, politicians don’t like admitting anything is a crisis under their watch - think of former Prime Minister Jacinda Ardern and her refusal to call the cost of living a crisis until she accepted it was.

Sometimes it’s best to just acknowledge it and move on rather than risk appearing out of touch.

Georgina Campbell is a Wellington-based reporter who has a particular interest in local government, transport, and seismic issues. She joined the Herald in 2019 after working as a broadcast journalist.