Responding to Auckland’s recent severe weather events, along with rising inflation-related costs, has heightened the challenges in balancing Auckland Council’s budget for the coming financial year.
While the council has taken actions to reduce costs and streamline the way it operates, the overall impact is that the forecast ongoing operating gap has widened to a $325 million shortfall, from $295 million previously.
Auckland Council Group Chief Financial Officer Peter Gudsell says that like other sectors of the economy, the council’s finances have continued to be impacted by economic factors over the past six months.
“We’ve seen cost increases reflect inflation levels in a number of areas. These increases are particularly affecting the price of utilities such as electricity, and impacting the cost of asset renewals, meaning a rise in the amount of money we need to set aside for depreciation.
“As well as these pressures, the council’s budget has been impacted by the storm events earlier this year. This includes increased spending to deal with ongoing impacts, such as higher insurance premiums and additional costs to better prepare for future weather events. A $20 million annual storm response fund was proposed to cover this.
“There are also one-off storm related costs of $30 million, such as extra repairs and maintenance to Auckland Council and Auckland Transport assets due to storm damage, and the establishment of the Tāmaki Makaurau Recovery Office.
“While these costs do not add to the ongoing operating shortfall, they will add to council’s debt levels and therefore reduce the debt capacity that can be utilised to manage other costs.
“When we consulted on the Annual Budget 2023/2024, we noted financial impacts could change and recognised it was important to have some financial flexibility to respond and that trade-offs would be needed.
“The financial challenge we’re facing for 2023/2024 is therefore the $325 million ongoing operating shortfall, as well as storm-related costs of $50 million, some of which are short-term.
“This will require trade-offs, including operating expenditure reductions, ownership options for Auckland International Airport shares, considering higher general rates increases and prudent use of debt.
“Different trade-offs have different consequences, and this now needs to be considered as part of the process to set the budget.”
Auckland Council received record feedback in its consultation on the budget, which is now being considered by elected members, along with updated budget information, as part of the advice enabling decisions to be made.
Final budget decisions will be made following an updated Mayoral Proposal and prior to adoption of the final Annual Budget on 29 June, to take effect from 1 July 2023.
The council is strongly committed to maintaining a prudent and sustainable approach to long-term financial management, with credit ratings of AA and Aa2 from S&P Global and Moody’s respectively.
We also remain committed to delivering the services that Aucklanders want and value, and working with Aucklanders to understand what these are.