Auckland Mayor Phil Goff says the council stands to lose hundreds of millions of dollars in lost revenue from Covid-19 and signalled a lower rates rise this year.
This follows a message to staff from chief executive Stephen Town the council is targeting operational savings of $120 million that will include job losses.
The Herald understands the council expects revenue to be down $500 million in the new financial year starting on July 1.
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Dividends from Ports of Auckland and Auckland Airport have stopped; fewer cars on the road means less money from the regional petrol tax, public transport fares have dried up; as having parking fees and fines, and money from events and community facilities.
The council has four options to plug the revenue loss - operational savings, deferring or cancelling capital projects, taking on more debt and asset sales.
"Council has experienced a huge loss in revenue," Goff said, saying council is also putting aside tens of millions of dollars to help Aucklanders who are struggling to pay their rates.
"We need to look at cutbacks to both our operational spend and capital spend. We also have to continue to find efficiencies and value for money through our organisation," he said.
On the thorny issue of rates, Goff has pulled back from his election promise of raising rates by 3.5 per cent overall this year. Rising waste costs and lowering rates for businesses would see rates tip the scales at 4.5 per cent for households and 2.5 per cent for business under this scenario.
Now the mayor is leaning towards a 2.5 per cent overall rates increase that will go out for public consultation alongside the 3.5 per cent option.
"The economic downturn will mean that Aucklanders generally will have lower incomes and we need to be mindful of that when setting the rate," he said.
Goff said reducing the rates increase to 2.5 per cent will put more pressure on council funds but will acknowledge the pressure Aucklanders face "which is why I support a 2.5 per cent increase if Aucklanders support that option".
"With either proposal, we are looking at huge revenue losses for council so cutbacks are inevitable and needed," Goff said.
Finance Minister Grant Robertson told TVNZ's Q + A programme on Monday that councils should be mindful of the pressure ratepayers were under when setting rates and balance that against the projects that are important for the recovery and rebuild out of Covid-19.
Councillors meet behind closed doors tomorrow to consider the latest version of an "emergency budget" that goes out for public consultation on May 29.
In a leaked email to more than 12,000 fulltime and part-time staff at council and its five council-controlled organisations(CCOs), Town said how incredibly proud he is of how staff have come together to respond to the challenges of the pandemic.
Yesterday, he announced in a media release staff who earn more than $100,000 will be asked to take a minimum pay cut as it tries to find savings after a dramatic cut in revenue over the past two months.
The voluntary pay cuts will only impact staff earning six figures and will be a tiered approach with the higher earners being asked to take a bigger cut.
There will be a 5 per cent reduction for anyone earning between $100,000 and $175,000, a 7.5 per cent reduction for anyone earning between $175,001 and $275,000 and a 10 per cent reduction for anyone earning above $275,001 for six months.
The 2019 annual report shows 2831 council and CCO staff earned more than $100,000 - a jump of 358 staff from 2473 the previous year.
Town also announced a comprehensive operating review with a view to begin implementing changes by August 1.
The memo said the economic impact of Covid-19 is much bigger than when it first emerged with a dramatic fall in revenue and unexpected and unbudgeted costs associated with the response.
"All of this means that the entire council group has to make some difficult decisions to find significant savings over the next year and close the financial gap that has been created. Our share of the savings is $120 million.
"Even if we return to 'normal' tomorrow, the damage to the economy is considerable, and this will continue to have a profound effect on our income (rates and non-rates revenue) for several years to come." said Town.
He said reducing costs wherever possible - council has protected and paid all staff their full salaries during lockdown - have made a contribution but nowhere near the level of savings required.
Town said three difficult actions are underway, including voluntary pay cuts for staff earning more than $100,000, discussions with the PSA about this year's remuneration review and a review of the council's operating model.
"It is expected that this review will result in a reduction in permanent employees," said Town, noting staff are the largest cost for the council.
He said the size of the challenge means there is not a single solution and a range of solutions are needed.
"But I need you to be aware that we have to implement some changes by August 1, 2020 so that savings from these changes have a material impact for our next financial year.
"I know this will create uncertainty for you at a time which is already difficult - we are all trying to make sense of this new world we're in and what it means for us and our households," he said.