Source: Auckland Council
Auckland Council’s Annual Budget 2022/23 is open for consultation from 28 February until 28 March. You can have your say here.
To support meaningful participation in the consultation, we are focusing in on key budget topics here on OurAuckland, to go a bit deeper into the council’s proposals for the next financial year.
In this piece, we focus on how the council is looking to create a flexible budget, resilient enough to deal with uncertain times.
How are the council’s finances looking?
The pandemic has created significant challenges for our region. Given the council touches all corners of the economy, we are feeling similar financial pressures that Aucklanders experience at a household level. We’ve seen reductions in some key revenue areas and our ability to deliver some capital investment, projects and programmes as been hindered.
Left unchecked, these pressures would lead to a $85 million gap for 2022/2023 compared with what was budgeted for in the 10-year Budget. There is a high level of uncertainty around the drivers of this gap and a risk it could be significantly higher, but it needs to be resolved in the final budget to comply with our prudent financial policy requirements.
We forecasted many of these pressures in our Emergency Budget, so we’ve got some options in place to manage the strain. We know ongoing pressures like rising interest rates, inflation and supply chain challenges will continue to impact us, so this needs to be built into our plan.
What pressures are we managing this year?
Council is responding to pressures at an international, national, and regional level. Lower public transport usage, restrictions on movement, cancellation of events and reduced earnings from our investments in the port and airport have all impacted cash revenue for the group. In addition, wider impacts like increasing interest rates, price rises, labour scarcity and supply chain challenges all impact the council’s finances. This is all happening at a time of huge growth for Auckland when we are looking to expand the services and infrastructure required to support our region.
What options does the council have?
The council has limited options to fund its services and all have different limitations and impacts on community outcomes, affordability, and long-term financial sustainability.
We can seek cost reductions in the form of efficiency savings and reductions to low-priority services, we can carefully manage our borrowing, defer some capital projects, and recycle non-strategic assets. For the Annual Budget 2022/23 a key potential source of additional government funding is the first tranche of ‘Better Off’ funding which could see $127 million of funding being made to Auckland Council from as early as 1 July 2022.
What is the council’s proposal for managing its finances?
This budget proposes a two-phase approach to our budget challenges, using a mix of the above levers to build up our resilience to change. The ‘Better Off’ funding package alleviates the pressure to take drastic actions now.
To address the ongoing operating budget impacts the council is proposing to implement $15 million of permanent cost reductions in the form of efficiency saving and low priority service reductions across the Auckland Council group in 2023/2024, growing to $30 million per annum from 2024/2025 onwards. To support this, we are consulting on a set of draft expenditure prioritisation criteria. The council used a similar prioritisation framework in the Recovery Budget to make trade-off decisions when determining its level of capital investment – trading off risks vs benefits of pulling additional funding levers.
Further action including operating cost reductions, capital deferrals and sale of non-strategic assets over the next three years may be required if further budget risks materialise. We think this mix strikes a balance between planning for continued uncertainty whilst continuing to deliver the services Aucklanders expect of us.
Why don’t we just borrow more?
Maintaining long-term financial prudence is important and carefully managing our borrowing is one way we stay on top of this. It is a commitment we make to Aucklanders and it is also important for upholding our credit rating. A weakening of that rating would mean an increase in interest costs and make it more difficult for us to access capital funding when needed to help deliver on key strategic objectives.
Does this mean my rates will go up?
Even though council finances are under pressure, there are no plans to increase general rates beyond the 3.5 per cent proposed overall average increase for 2022/2023 signalled in the 10-year Budget.
The rates change per property is dependent on a number of factors, so the rates increase (or decrease) for your property will not necessarily be consistent with the average. Revaluations are out on in March which are one of the factors that help the council set rates. New valuations don’t affect the amount of money the council collects from rates – it just helps us work out everyone’s share.
An increase in your property value does not necessarily mean you pay more in rates. It will vary depending on how much your property value changes compared with other properties. A property whose value rises by more than the average will have a rates increase above the general increase. The opposite is true for a property with a value change below average.
What do my rates pay for?
Property rates provide less than 40 per cent of our funding and contribute to operating costs rather than capital spend. Your rates help us provide the things that make Auckland a great place to live and work. These include:
- collecting rubbish
- improving public transport
- organising and facilitating events
- maintaining parks
- running our libraries and other community facilities.
Do rising costs mean the council needs to reduce spending on big projects?
To reduce operating cost pressure the council could choose to delay capital expenditure. The reduced level of borrowing would have consequential impacts on financing costs while the slower delivery of assets would reduce depreciation expense and, in some cases, consequential operating costs (maintenance, utilities, staffing etc).
The key implications of delaying capital investment are increased asset risk (from deferred renewals), higher costs (inflationary impacts of the delay), and the slower delivery of climate change, environmental and community outcomes than that planned for in the Recovery Budget.
As part of the detailed budget review process for the annual budget, we will look carefully at a capital expenditure reprioritisation process that weights up these factors.
Why doesn’t the council cut its own costs?
Providing value for money for Aucklanders is always front of mind for the council.
We are proposing to implement $15 million of additional permanent cost reductions in the form of efficiency saving and low-priority service reductions across the group in 2023/2024, growing to $30 million per annum from 2024/2025 onwards. These targets may need to be reviewed if more budget pressures eventuate.
Our prioritisation would be guided by the Auckland Plan 2050 and the legislated role for the council to promote the social, economic, environmental and cultural well-being of our communities now and for the future.
Once we have worked through this, we would seek further public feedback on any significant changes through future annual budgets processes.
How can I have my say?
Feedback on the Annual Plan can be given online at akhaveyoursay.nz, by emailing akhaveyoursay@aucklandcouncil.govt.nz or at one of the many events being run across the region.
Details of all events can be found at akhaveyoursay.nz or you can call us on 09 301 0101.
Feedback forms and supporting information will also be available at local board offices and service centres or can be requested by emailing akhaveyoursay@aucklandcouncil.govt.nz
Following consultation, all feedback will be considered and Annual Budget 2022/23 will be adopted in June 2022. Decisions will be widely communicated, and a summary report will be available online.
