Hard News by Russell Brown


Auckland's future: Keep calm, but think hard

I presume I wasn't the only one a bit perplexed by Bernard Orsman's story in Monday's Herald about Auckland Council "finances reach[ing] crisis point" and the council "living beyond its means" amid "a financial mess" that would necessitate a "black budget". Wouldn't official alarms have been triggered by this degree of financial chaos?

The answer is yes. And they haven't been. Yesterday, the Herald published a column by David Shand, a member of the Royal Commission on Auckland Governance and chair of  the 2007 Independent Commission of Inquiry into Local Government Rates, in which Shand notes:

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.

Shand further observes that Auckland Council "is not borrowing for salaries and other recurrent expenditures, but for expenditure on capital assets and infrastructure." (As Ben Ross notes today, in showing strong operating surpluses the council is doing something central government hasn't done in a while.)

The issue lies chiefly with plans for future capital expenditure, some inherited from the old Auckland's constituent councils. These will be contained within Auckland Council's Draft Long-Term plan 2015-2025, which councillors will be discussing and receiving submissions on for the next 11 months. In the meantime, the city is not running out of money and it's irresponsible to claim it is.

Indeed, we might have been alerted by the source of the rhetoric fuelling Orsman's story: Cameron Brewer, Dick Quax and "local body financial commentator" Larry Mitchell of Warkworth, who you may not be familiar with if you don't read Kiwiblog or Whaleoil. (Note also the numpties at the Taxpayers Union last week "reacting to calls for a Crown Manager to be appointed to shepherd Auckland Council through its budget crisis". The "calls" came from former North Shore comedy mayor and current New Zealand First MP Andrew Williams talking to Leighton Smith.)

Shand continues:

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.

You don't need to be a local government nerd to know that the standout capital item on the books at the moment is the $2.4 billion City Rail Link, which promises to transform the city's rail network -- in the way the $1.7 billion Waterview Connection will improve the city's motorway network, only more so. But although the council is paying for various works around the Waterview project, no part of the project itself is having to be funded out of rates.

As Brian Rudman notes, we should have some questions about that:

As Mayor Len Brown and his councillors agonise over how they are going to fund their half of the $2.4 billion City Rail Link - to say nothing of a further $460 million for new rolling stock to run through it - one obvious question is never asked.

Why is the Government demanding that Auckland ratepayers part-fund a new rail tunnel that will immediately become part of the national rail network asset bank? Not only will the Government's rail company control the new tunnel but it will charge Aucklanders an annual access fee before we can drive the trains we had to pay for through the tunnel we helped to build.

This might not be so bad if, as Shand notes, the council didn't have such a narrow revenue base. He characterises the mayor and his council's determination on a maxium 2.5% anually rates increase as a self-inflicted wound, "a totally unrealistic target which can be met only by unacceptable cuts in services."

Shand reminds the Herald of its past use of the term "infrastructure deficit" with respect to Auckland, and in this he's on the same page as Auckland Chamber of Commerce chief executive Michael Barnett in Orsman's original story, who notes that Auckland Councils have long failed to levy rates at a level to play for their plans.

It may be that Barnett is right and there are savings, on the council payroll and elsewhere, that will free up more money for investment. It does seem the council is still with structural issues, including the way its workforce is designed, that it inherited in its creation and which it will have to confront at some point. But I suspect Shand is more right when he says this:

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.

No new taxes are particularly palatable and some (poll tax, anyone?) should be off-limits. But it seems to me that the capital infrastructure for Auckland's million-and-growing can't all be funded out of rising property taxes. Anyone got any ideas?

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