Mayor Wayne Brown has released his draft proposal for the Auckland Council Group’s Annual Budget 2023/2024. The Auckland Council Group is made up of Auckland Council; the four council-controlled organisations (CCOs): Watercare, Tātaki Auckland Unlimited, Eke Panuku and Auckland Transport: and Ports of Auckland Limited (POAL).
The proposal includes significant reductions in council spending to help balance the budget, but also a range of measures such as increasing general rates, prudent use of debt and the sale of assets to combat some extraordinary economic conditions.
Auckland Council Group Chief Financial Officer Peter Gudsell says 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.
“In such an uncertain economic environment the budget enables the council to respond to conditions as they change. 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.
“This means some tough decisions need to be made, to both address the council’s immediate operating challenges and also provide for more structural ways to ensure a financially sustainable council in future years.
“Staff advice to the mayor provides cost savings options to address our near-term operating position, while making sure Auckland Council looks at the shifts we need to make to become a simplified, efficient, and service-oriented council.
“As an organisation and across the council group, we need to make sure we are focusing on delivering the services Aucklanders need and value and delivering these efficiently.”
Auckland Council Chief Executive Jim Stabback says the key to the budget is ensuring there is flexibility to manage the challenging economic conditions the council faces.
“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. For example, if only the rates option was used without reducing our operating costs, general rates would have to rise more than 13 per cent to fund the budget shortfall.
“In developing a balanced budget, it is important that this balance includes reducing impacts to ratepayers and users of our services as we recognise that households and businesses are also feeling the pinch.
“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.
“This will have an impact on some of our services, programmes and investment in the community, and therefore also on our workforce but it is a necessary response to the cost increases we are facing.
“Staff impacts will be carefully managed with a focus on redeployment and managing staff numbers through attrition where possible.”
What’s in the proposal
Operational cost savings
The Mayor is proposing an additional $60m in operational savings for Auckland Council on top of an existing savings 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 savings without making further cuts to public transport services. - Tātaki Auckland Unlimited
$25m of operational cost savings 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 will request the council’s Expenditure Control and Procurement Committee to 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. However, to minimise the effect of this 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.
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 a maximum increase of $75m of short-term debt, with the intent to only use this additional debt if we need it. The council uses debt to fund capital investments.
Next steps
The council’s Governing Body will discuss and debate the proposal and related staff advice at a workshop on 7 December. Based on this feedback, the Mayor will update his proposal and present this to Governing Body at its committee meeting on 15 December, when the Governing Body will decide on budget items for public consultation. Once agreed, consultation materials will be prepared for public consultation, which will occur in March next year. 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 adopted by 30 June 2023.
Click on the links to view the full draft proposal and staff advice to support the proposal.
