Auckland Council’s Governing Body has confirmed items for consultation for the proposed Annual Budget 2023/2024, which will go for public consultation early next year.
The proposal includes consulting on significant reductions in council group spending to help balance the budget, and a range of other measures such as increasing general rates, prudent use of debt and the sale of Auckland International Airport Limited (AIAL) shares to counter some extraordinary economic conditions.
Auckland Council Group Chief Financial Officer, Peter Gudsell says it will be important Aucklanders provide their feedback on the proposal.
“We have some tough decisions to make as a region and there are significant challenges facing the council in the next few years.
“These challenges will require the Auckland Council Group to respond in a different way than it has in the past.
“Across the council group, we need to make sure we are focusing on delivering the services Aucklanders need and value and delivering these efficiently, by looking at the shifts we need to make to become a simplified and service-oriented council.
“It is necessary that a range of options be used to balance the council’s 2023/2024 budget.
“Like many organisations, Auckland Council is facing the consequences of a rapid rise in inflation and interest rates, which are severely affecting operating costs and financial forecasts.
“These challenging economic conditions mean the proposed annual budget needs to close an estimated operating budget gap of $295 million for 2023/2024, as well as continue to counter the ongoing impact of a new economic reality.
“With each of the options used to close the budget gap, there are both short and long-term implications, but using the range of proposed measures available, provides a credible and sustainable plan that manages the risk of having to use any one option excessively.
“What we’re looking at is an approach that sets us up sustainably for the future, living within our means and delivering well on what we are tasked with doing, including our climate change responsibilities.”
Meanwhile, the council group’s first quarter results for the 2022/2023 financial year were received by Governing Body.
“Our first quarter results highlight the ongoing impacts of COVID-19 and seasonal illness, and economic pressures such as supply chain delays, labour shortages and increased construction and other costs,” says Mr Gudsell.
“This impacted our performance and ability to progress many capital projects, which saw the group deliver $543 million against a budget of $696 million in the first quarter – an underspend of $153 million.
“Direct revenue for the group was $9 million higher than the budget of $715 million at $724 million, while direct expenditure for the group was less than one per cent higher at $887 million of a budgeted $881 million.
“Group net debt increased by $371 million to $11.5 billion, with the funding used to progress capital investment work. Total debt remains below the year-end budget of $12 billion.
“The council continues to focus on cost-saving efforts, with $57 million in savings achieved against our $90 million savings target for 2022/2023.”
What’s been agreed for consultation?
Aucklanders will be able to have their say on a range of options to balance the Auckland Council’s Annual Budget 2023/2024, including operational cost savings, rates, Auckland International Airport Limited Share sale options and prudent use of debt.
Operational cost savings
The Mayor is proposing an additional $60m in operational savings for Auckland Council on top of $30 million required to meet the current Long-term Plan target of $90m per year. Achieving these combined savings targets will require reducing back-office support costs, simplifying management structures, stopping or providing some services differently and a five per cent reduction to overall local board funding in 2023/2024. There is also an opportunity to fund some services through leveraging central government investment in social services, consider some user charges and look at commercial provider options rather than ratepayer funding.
Also on the table is the implementation of further group shared services to eliminate duplication across Auckland Council and the CCOs, including ICT, insurance, vehicle fleet, corporate accommodation costs, HR, procurement and other back-office functions.
The Mayor is also proposing further cost savings for each CCO that receives ratepayer funding as follows:
Auckland Transport: $25m of operational cost and revenue changes without making further cuts to public transport services.
Tātaki Auckland Unlimited: $25m of operational cost savings and revenue changes with a further $2.5m by reducing some economic development and destination activity.
Eke Panuku: $5m of operational cost savings from delaying capital investment, reducing the direct costs of undertaking urban regeneration and a look to deliver urban regeneration activity in a way that provides for local project governance.
In addition to this, the Mayor has requested the council’s Expenditure Control and Procurement Committee identify, through their work programme for the 2023/2024 budget:
- a further $7.5m of operational costs savings from Auckland Transport; and
- a further $5m of operational cost savings from the council and the other CCOs.
Rates
The Mayor is proposing a package of rates changes that will result in a total rates increase for the average household of 4.66 per cent or $153 a year, around $3 a week. This includes a general rates increase of 7 per cent, which is above the 3.5 per cent increase signalled in the current Long-term Plan but below consumer price inflation. To minimise the effect of the general rates increase, it is proposed that the Natural Environment Targeted Rate and Water Quality Targeted Rate are reduced by two thirds in the 2023/2024 year, and that the long-term strategy to reduce the share of rates paid by businesses is paused for one year. The overall impact on the average household of 4.66 per cent is very close to the 4.6 per cent that would have occurred under the previously planned 3.5 per cent general rates increase without these mitigations, though the overall impact for businesses will be slightly higher than would be the case if the rates differential was not paused.
Auckland International Airport Limited (AIAL) Shares
The proposal includes a change to the AIAL shareholding policy to permit the sale of the financial investment, with a full sale of the council’s current 18.09 per cent shareholding in AIAL to contribute approximately $1.9b to the reduction of the council’s debt with a consequential reduction in interest costs. Other options will be also be provided as part of the consultation, including retention of the current shares and maintenance of a 10% block of shares.
Ports of Auckland Limited (POAL)
The Mayor expects POAL to increase their profitability in 2023/2024 by at least $10m more than previously forecast and improve their returns to council as their 100 per cent shareholder.
Debt
The proposal allows for an increase in the prudent usage of debt of up to $75m, with the intent to only use this additional debt if we need it. The council uses debt to fund capital investments.
Next steps
Our teams are now preparing the proposal for public consultation in early next year, where Aucklanders can have their say on the range of budget options. Keep an eye on akhaveyoursay.nz/budget for the latest consultation information.
Following consideration of public feedback and any new financial information, an updated Mayoral Proposal will be prepared and the Governing Body will adopt the final Annual Budget 2023/2024 by 30 June 2023.
Click on the links to view the report to Governing Body and the full proposal.
