David Shand: Auckland's far from going broke

The city needs access to revenue sources such as tolls and a regional petrol tax. Photo / Richard Robinson

It’s wrong to whip up ratepayer fervour over the state of Super City finances, writes David Shand.

Aucklanders should have an informed debate about the state of the city finances, given the $1.4 billion of rates collected annually and the total assets of some $40 billion managed by the council. However, the debate has not been well served by Herald articles which blithely use terms such as "spending spree", "spending beyond its means" and "crisis point".

This has led to the usual spate of letters from aggrieved ratepayers who are only too willing to believe that the council's finances are in a "mess" and that we may be facing "bankruptcy". There is no "crisis" in the city's finances at the moment but there are major issues to be addressed.

May I suggest the following facts and issues for the debate:

1. The Auckland Council's latest audited financial statements (for the 2012/13 year) show an operating surplus of $246 million and total assets of $37 billion against debt of $8 billion. Either the Herald analysis is faulty or at least incomplete, the accounting standards are inappropriate (unlikely) or there is something wrong with the Auditor-General (most unlikely). Further, the Auditor-General is required to report each year on councils which may not be financially viable. She has not referred to Auckland Council in this context.

2. What does the Herald mean when it says Auckland is "living beyond its means"? It is important to note the council is not borrowing for salaries and other recurrent expenditures, but for expenditure on capital assets and infrastructure. Does it mean Auckland should not borrow at all and that all the long-term asset replacement and expansion should be financed directly by rates? This would impose a huge burden on ratepayers as opposed to spreading the cost over future ratepayers by some long-term borrowing, which is a sensible and fair way of financing long-term assets - but within prudent limits. The council's debt policy, which it is required to specify, is that new and improved assets are debt-funded whereas asset renewals are funded from recurrent revenues such as rates.

3. It would have been helpful had the Herald given a list of some of the major capital projects being financed by debt so ratepayers can make an informed judgment on the value of this expenditure. (It would also be helpful to the debate if the council more clearly published this information.) Ratepayers can note that nearly half the capital expenditure is for transport infrastructure including new electric trains and roading projects, much of this making up for the past chronic under-investment in infrastructure by previous councils.

4. There is no evidence that council debt is not within prudent limits. Indeed the council's AA credit rating suggests it is clearly not.

5. One of the facts in Herald articles is the relatively modest level of average rates increase over the past four years - 3.9 per cent, 3.4 per cent, 2.9 per cent with 2.5 per cent proposed for 2014/15. Although many ratepayers may say this is too much, this hardly reflects a spending spree, unless that also refers to infrastructure expenditure as noted before. While some ratepayers are paying more than this average increase, because of the move to a uniform rating system, others are paying less.

6. The major immediate problem the council is facing is how to deliver on the promise that the average rates increase for 2014/15 will be no more than 2.5 per cent. Mayor Len Brown and the council have inflicted this and the resulting debate about this "Black Budget" on themselves. It seems a totally unrealistic target which can be met only by unacceptable cuts in services. Surely a 4 per cent increase would be reasonable - and affordable for anyone not covered by the rates rebate scheme.

While there has been no spending spree, the city's finances are not in a mess and we are not presently at risk of bankruptcy, there are some big financial issues to be addressed.

The Herald has referred in the past to the "infrastructure deficit" Auckland faces over the next 30 years based both on coping with future expansion and addressing the past neglect of infrastructure expenditure.

This will require a true partnership between Auckland Council and central government, which is not presently the case. The city needs access to revenue sources such as tolls and a regional petrol tax.

Unfortunately this Government is unwilling to provide access to such revenue sources and removed Auckland's ability to levy a regional petrol tax which was given by the previous government.

Addressing this infrastructure deficit is needed for Auckland to become the growth engine of the New Zealand economy (which it currently is not) and for it to fully achieve the objective of being a highly liveable city.

David Shand was a member of the Royal Commission on Auckland Governance and chaired the 2007 Independent Commission of Inquiry into Local Government Rates.