Auckland Council will face a funding squeeze over the next four years due to the $1 billion City Rail Link (CRL) cost blow-out and has "limited capacity" to deal with "external shocks" that may occur.
That’s the message contained in Auckland Mayor Phil Goff’s proposal for the council’s Annual Budget 2019/2020.
The City Rail Link project is being jointly funded by the Government and Auckland Council and was originally expected to cost $3.4 billion. But last month City Rail Link Limited chief executive Sean Sweeney confirmed the new revised estimate for the project had ballooned out to $4.4 billion, and said it would have to ask the Government and the cash strapped Auckland Council to pay for the shortfall.
Auckland Council has since approved a plan to make $500 million in cost savings to pay for its share of the cost overrun. But according to Goff, while the project is vital to Auckland’s future and has to go ahead, the increased cost of the project has now seriously limited the council’s spending options over the next four years.
“This commitment is accommodated by treasury management initiatives, options around off-street parking assets and the timing of council’s contribution to CRL. The commitment would see the council’s debt to revenue ratio remains below the council’s internal ceiling of 265%,” Goff says.
“However, this also means that the council’s funding capacity is tightly constrained post-CRL decision for the next four years.
"There is limited capacity to respond to any emerging cost pressures, new funding requests or external shocks.
"Meeting future financing and funding challenges will require alternative thinking and approaches such as broader non-rates revenue sources, special purpose vehicles or local targeted rates.”
And Goff says, in addition to the council’s commitment to the CRL project, some other major items have also come to light in the last year that have required additional funding from council. This includes over $100 million in additional capital expenditure for the America’s Cup and the bailout package for the Eden Park Trust, which will cost $63.3 million dollars.
He says the council has received funding requests totalling $110.8 million over the next four years that it can’t afford.
“This cannot be accommodated within our 265% borrowing limit, where we have capacity for only $70 million,” Goff says.
“If the council were to agree to $70 million of additional spend this would reduce the available capacity entirely and leave the council unable to respond to any unexpected and urgent challenges that emerged in the near future.”
But he says it’s important that the Auckland Council stays on track and despite the tight fiscal position it is facing he says he remains committed to keeping the average rates rise to 2.5% next year.
“This mayoral proposal reflects the need for discipline and financial prudence, particularly over the next four years. It means some measures we would like to promote will have to be deferred until there is funding capacity.
"The modest scale of additional spending in Annual Budget 2019/2020 reflects this new reality. A range of funding requests necessarily need to be deferred and others will have to be met by offsetting savings or reprioritisation within the council group. All of these and other funding commitments will be delivered while keeping average general rate rises to 2.5%, the lowest level for any growth or metropolitan city in New Zealand.”
Auckland Council Group’s total projected operating expenditure for 2019/2020 is $4.2 billion, $43 million higher than was estimated in the council’s 10-year Budget 2018-2028. Total projected revenue for 2019/2020 is $5.1 billion.
The 2019/2020 financial year is the second year of the Auckland Council’s 10-year Budget 2018- 2028, which was adopted in June 2018. The 10-year budget included a $26 billion investment programme to address growth pressures on transport, water, environment and community infrastructure.
Goff says the investment was enabled through the introduction of funding tools such as the Regional Fuel Tax, which is expected to bring in $150 million in the 2019/2020 year, and new targeted rates.
Auckland Council’s debt currently stands at $9.7 billion.
33 Comments
The solution to a lot of Auckland's problems, from underfunded council, to expensive consenting and infrastructure growth contributions, to expensive land cost, and high debt for property purchases, to high rents is to simply increase rates levied against land values only. Auckland has the lowest rates in the country as a percentage of land values.
Bollocks , our rates are excessive , and the reason for inflated Auckland land prices is squarely on the shoulders of the current and previous incompetent councils who took decades to realise that the city actually needed to grow, and were thus responsible for the stranglehold on land supply, forcing prices through the roof.
You cannot expect ratepayers to pay for councilors malfeasance and incompetence .
Nope. The solution is not to give these incompetent and corrupt fools more of our money. The solution is to drastically slash the council's spending on salaries, some of the highest in Australasia. Not only do salaries for management need to come down, staffing numbers need to drop drastically as well. I have worked previously in Council - there are hordes of people who are paid to watch YouTube videos all day. They provide nothing of value to the people of Auckland.
In 2017 one in five council staff were on six figures, compared to Brisbane, where 2% of staff earn a six figure salary. It's an absolute shambles.
I think a vacant property tax is neither fair nor efficient.
What needs to happen is that in the first instance, Phil Goff needs to go. Following that, AC and it's subsidiaries need to undergo one mother of a restructuring process.
When that's done, the council and central govt. need to actually get together and, for once, design a cohesive, sequenced policy direction for growth in the city.
Someone should look into the LGFA rules regarding an event of default - although they could always just raise rates, I suppose. I think if they (or any council) go bankrupt all the other LGFA members proportionately become liable for the bad debt of the defaulter.
PS - sell assets;
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
And I reckon the $2b estimate is low.
Well blow me down ............. the city rail link has seen a 'blowout "
WTF were these idiots expecting ?
Those of us who warned of the dangers of this grandiose plan were shot down by all and sundry .
And a grandiose plan it was, initiated with out any reference to the fundamental economics behind it, inadequate research and dire warnings of it requiring subsidies for generations to come .
We have a tiny little CBD by any city standard, an ever expanding number ( and size ) of satelite business hubs such as Botany , Albany , Westgate , Silverdale , etc , and the likelihood the CBD will ever be large enough to warrant such an expensive rail link is to say the least ............ remote .
The project should be canned and consigned to the rubbish heap of bad ideas
Could not disagee more - the CRL is very important and in a few years time we will wonder why we didn't build it 100 years ago when first proposed. And it was well planned and the benefit to cost ratio is far better than most road projects in the country. The big issue is that the local council has to pay for half rather than the NZTA paying in full. If it was a motorway they would be all over it.
The CBD is not small and it is growing fast. I don't understand the logic you are saying; the city is small therefore put no money in so it stays small???
Logically if we wanted to rapidly grow the CBD we would not massively expand the new remote centres of Orewa, Kumeu, Pukekohe and so on. And logically if we do rapidly expand our remote centres we would not want to spend billions on an increasingly diffused old centre.
But since this is Auckland we will massively expand the new remote centres and spend billions on the old centre, because that is the least logical plan.
Don't live in Akl but cost blowouts can happen with any project. This 29% increase is high and is perhaps not uncommon depending on the accuracy level of the $3.4b estimate. On a project of this magnitude I would expect at least $10m to be spent on the capital estimate. Many people have difficulty in accepting one has to spend money to see if you need to spend money.
The benefit analysis is another issue but obviously if the cost shoots up and the benefit doesn't change, the cost/benefit increases.
My home town of New Plymouth there was a cost blowout of a sewerage pumping and pipeline scheme. Blowout of actual project of about 350%, something like $7m to $24m
Is Auckland growing? Meaning are those Auckland born and bred increasing in number? And how about born of NZ parents? I doubt it.
In the 1920's american sociologists discovered immigrants tend to clump together in the biggest cities. Without 2%pa population growth entirely the result of having the highest legal immigration rate in the world there would not be growth in Auckland. If they granted an immigrant visa each time a Kiwi leaves there would be a steady population. Then council could concentrate of serving ratepayers doing maintainance rather than building new infrastructure for those we expect to arrive.
So if Auckland's growth is caused by govt policy then it is the govt who ought to pay for it. Ratepayers to pay for maintenance but all new roads, tunnels, sewers, hospitals etc paid by the govt.
Thanks for the info. I only meet other immigrants and their kids - OK some of those immigrants arrived over 50 years ago but the true born in Auckland and living in North Shore is rare. Of course my own family is 7 born abroad and 2 grandkids born here. Maybe North Shore is not representative of Auckland. Do you have any figures for deaths in Auckland and Aucklanders leaving permanently? Among my friends retiring to Coromandel, Taupo etc is popular.
According to http://worldpopulationreview.com/world-cities/auckland-population/ growth in 2019 was 117,000. So does that mean 74,000 arrive from otther parts of NZ?
Got those figures from stats.govt.nz last year whilst debating nymad. Now they have updated to say Auckland population change from 2017/18 was 38,700 and presumably means half the increase of natural Aucklanders left for the rest of NZ. http://archive.stats.govt.nz/infoshare/
The council will have to make cuts where it can - but projects such as CRL is not one of them. The whole city will benefit from this project. The CRL will cut travel times dramatically and increase frequency. Maybe those that are against it read up on it: start here https://www.cityraillink.co.nz/crls-benefits
there will be benefits from it - when / if it is finished ; the question is whether they outweigh the cost ( which will no doubt grow again ) and the massive disruption the project is causing . I think not .. too late to stop it now - but we need to think hard before starting another one ( LR )
"I think not"
Solid analysis there. Do you have a $ figure on the congestion cost of not being to add any more buses or trains to the public transport network for the next few decades while the population of the region grows? Because that's what not building the CRL means.
Here's a comparison:
I am living in a 4br home in Brisbane which has similar value to an old work colleague's home in Meadowbank Auckland. Both houses have similar value if we sell them today. I am paying $1700/yr for rates here in Brisbane - We have a pretty good public transport, weekly rubbish collection, yearly kerbside collection, libraries, miles of bike tracks and parks. My friend in Auckland is paying $5700/yr - Brisbane's population has over 2 millions - Auckland has about 1.4 mil in population. Auckland Council is getting too fat!
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.