Reporting on the first quarter of Auckland Council’s current financial year shows significant impact from various pressures including lockdowns, rising inflation and interest rates, but the council is in a good position to manage the impacts. The report reveals some strong influences that were mitigated through the council’s decisions in its Recovery Budget.
The first quarter had a strong start but was impacted when Auckland went into lockdown. Delivering on capital projects was a challenge, with $415 million delivered against a budgeted $614 million of work. COVID-19 Alert Levels 3 and 4 adversely affected almost all capital works including the City Rail Link, Central Interceptor, property renewals as well as roading maintenance and upgrades. Also affected were the Water Quality and Natural Environment Targeted Rate programmes.
Group Chief Financial Officer Peter Gudsell says the quarterly report shows lockdowns also affected revenue from key areas such as public transport, parking and enforcement, which were significantly below budget.
“As council facilities were closed from mid-August, there was minimal revenue from the provision of community services,” he noted.
On the other hand, continued high levels of activity in the construction sector increased Watercare’s infrastructure growth charges, council consenting volumes and other regulatory services against budget. “These high consent volumes placed pressure on statutory processing timeframes, although customer satisfaction remained steady,” says Gudsell.
Mr Gudsell said the quarterly result showed emerging evidence of more substantive economic impacts. Increasing costs for construction materials, labour and professional services as a result of inflation and supply chain issues were all evident in the report. In addition a substantial increase in floating interest rates pushed up the interest expenses of the group’s unhedged debt during the quarter.
Delays in work programmes and rescheduling of repairs and maintenance works until later in the year resulted in lower operating spend in consultancy, professional services, outsourced works and maintenance. This, combined with increases in regulatory and infrastructure growth charges revenue meant that group net direct expenditure was $217 million for the quarter, $46 million lower than budget.
The lower than anticipated capital spend combined with strong operating cash flows resulted in only a moderate $124 million increase in group net debt.
Net direct expenditure was $34 million favourable to budget, largely due to strong regulatory revenue and some delays to expenditure on repairs and maintenance. As at 30 September, $64 million, or 71 per cent, of the $90 million operating cost savings target had been achieved.
Full-time equivalent employees for the group increased minimally by 36 to 10,965, mainly because of the filling of vacancies at Watercare along with hiring additional staff to handle increased shipping volumes at Ports of Auckland.
Finance and Performance Committee Chair Cr Desley Simpson says that given the uncertainty created by both COVID-19 lockdowns and shifts in major economic indicators during the first quarter, the ongoing impacts are hard to predict and will require continued prudent management.
“While the first quarter shows there are challenges, the Recovery Budget for the full year has put the council in a good position with the financial flexibility to manage further impacts, should there be ongoing pressures.”
Mayor Phil Goff says, “Challenging economic times mean that we will need to balance the actions we are able to take to meet our and Aucklanders’ vision for a better Auckland with the need to pursue financially prudent policies.
“COVID-19 continues to impact strongly on our revenue but we also need to prepare for other challenges like climate change, which must be addressed now to head off the impact this will otherwise have on the future of our city and generations to come.”
The council’s Annual Budget 2022/2023 is due out for consultation in February 2022.
Read the full Quarterly Performance report here.