October 3, 2023

Heavens open, rains come down and rates go up

Heavens open, rains come down and rates go up

Auckland Council will on Wednesday discuss rising rates by a further 1 percent to pay for stormwater costs after the January 27 inundation – even as the current cyclone means millions more could be needed.

Auckland ratepayers will have to come up with $20 million more in rates for stormwater maintenance as a result of last month’s extreme flood, and that’s before Cyclone Gabrielle’s devastation is taken into account.

The fund to cover better drainage work represents another 1 percentage point rise in Auckland Council’s general rate for 2023/24 – on top of a planned 7 percent general rate rise and a net 4.6 percent rise across all council rates.

Councillors meet on Wednesday to consider officers’ call for another $20m out of ratepayers – and to okay changes to planned capital spending by the council on infrastructure and other works which would see new projects delayed so existing assets damaged or degraded by that January flood can be remedied first.

The revised package of rates and how capital projects will be undertaken was prepared urgently, for an Emergency Committee meeting of the council, after the January flooding but before Cyclone Gabrielle’s impact over the past three days.

Given the extent of damage, it would not be out of the realm of possibilities for another call on ratepayers’ money to be added, but deadlines to have the proposed 2023/24 budget go out for public consultation, consideration and approval would make that difficult. Mayor Wayne Brown issued a statement last night indicating the $20m figure would cover both the January and Gabrielle storms’ effects on stormwater costs.

How much Gabrielle has added to the council’s costs would be impossible to calculate so soon, so how far the $20m stormwater annual fund would go is yet to be seen.

Officers, working with Brown and supported by councillors at a confidential workshop last Friday, believe ratepayers should pay more for that initial stormwater $20m fund because it would be inappropriate for the council to go into debt to borrow money to pay for “cleaning the drains”.

“It would not be appropriate to continually borrow to pay for operating activities such as cleaning the drains on a regular basis,” a report to the emergency committee says.

“Funding this additional operating expenditure will likely require a higher rates increase. Specifically, an additional operating budget of $20 million is proposed to increase our capability to prepare for and respond to future storm events. This could include more frequent clearing of drains as well as increased provision for things such as emergency management, waste disposal, building inspections and support for affected people.”

On wider flood-related financial impacts, the council officers say these could rise for emergency management activities, building inspection costs, damage assessment of council property and infrastructure, clean-up, and repair costs.

Capital expenditure is likely to be required to renew damaged assets the council owns.

But the council could offset these mid-term or longer-term costs because it has “under-delivered’ on its capital programme in the current financial year, and can expect insurance payouts for some damage to assets.

Also, it is proposed to use an existing climate change response fund – a $10 million capital contingency fund spread over multiple years that was set up in 2018 to address emergency works required because of extreme storm events.

And for transport-related emergency works, Auckland Transport will be looking to claim back up to 51 percent of costs from the central government agency Waka Kotahi.

Curiously, a proposal in Brown’s original December budget to alter the way some stormwater maintenance is budgeted for, meaning $2m in savings but apparently without an effect on services, is to be removed from materials going out for public consultation.

The memo to councillors by chief financial officer Peter Gudsell and general manager financial strategy and planning Ross Tucker says of that stormwater budgeting proposal:

“One specific cost proposal was the way we budget for reactive stormwater maintenance. A move to base it on long-term averages was expected to reduce our operating budget requirement by $2 million a year. This might no longer be appropriate and will need to be reviewed as part of decision-making on the final budget. This would require $2 million of alternative funding to be found.”

But in the memo’s recommendations for the council’s approval, action on that item would be to “remove reference to changing” rather than explicitly not change the method of budgeting for stormwater maintenance.

On Brown’s broader budget, which aimed to make up a $295m shortfall blamed on inflation and interest rate rises, the two council officers recommend the level of cuts to council operations, to the Tataki Auckland Unlimited economic development and events agency and to local boards’ funding can still proceed. 

A proposed $25m cut to Auckland Unlimited’s funding from the council will be explicitly consulted on with the public after officials realised the agency’s existing target for spending cuts of $17m for the budget year would mean it could no longer perform any economic development activities and would reduce its efforts to win and bring big events to the city.

The agency also runs the city’s regional facilities – stadiums, the Art Gallery and other facilities – and the scale of Brown’s expected funding cut could see fees imposed, prices rise and subsidies reduced for public access.

The proposal to consult on selling the council’s 18 percent stake in Auckland International Airport is also okayed to continue, with the men noting the airport company’s share price had gone up between the councillors’ last consideration in December and when their report was written. The shareholding could be worth up to $2.25 billion on Tuesday’s NZX share price.

The council plans to use that money to cut debt and thus reduce annual interest payments by around $80m.

Gudsell and Tucker’s memo also notes the high inflation and interest rate environment expected in December could be ebbing.

“The latest economic data suggests that the outlook for inflation and interest rates might not be quite as bad as it was looking late last year. Nevertheless, the forecasts are still high and remain very uncertain with some commentators suggesting that the storm events will also contribute to inflation pressures.”

Brown said late on Tuesday: Severe weather events have not made it any easier to bridge the budget gap of $295 million. In fact, it highlights the need to think very seriously about selling underperforming assets, so we can make investments that matter.

“It’s too early to say what the full financial impacts of these severe weather events might be. In the meantime, we need to proceed with the annual budget timetable and go to public consultation on February 28 as planned.

“In the long-term,” he said, “we need to significantly increase our capital investment in stormwater to address years of under investment, which will be dealt with in the long-term plan.”

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