Tag Archives: Local Government Act 2002

Debt Continued

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Some Key Facts on Council Debt

 

I was tagged in a ‘Note’ on Facebook last night by Puketapapa Local Board Deputy Chairman Nigel James Turnbull on Auckland Council Debt.

Nigel had compiled some “Key Facts” on Auckland Council revenue, expenditure and debt over the life span of the 2012-2022 Long Term Plan – to which submissions were recently called for (and I (amongst others) wrote).

I will let you read his note below and draw your own conclusions. All attributes and “rights” on the ‘Note’ belong to Nigel – I have just “shared” the information here at VOAKL

AUCKLAND COUNCIL 

DRAFT LONG TERM PLAN 2012-2022

 

KEY FACTS 

FINANCIAL STRATEGY 

Auckland Council’s proposed Long Term Plan forecasts spending of $58.4 billion in the next 10 years on:

 

Capital expenditure                 $20.2 billion 

Operating expenditure                        $38.2 billio

 

Auckland Council has to increase the amount that can be borrowed to fund its spending from 175% of net debt to total revenue to 275% because unless this increase occurs Auckland Council will be in breach of its liability management policy by 2014/15. 

The liability management policy and the council investment policy make up Auckland Council’s treasury management policy that is required to be disclosed in the Long Term Plan under the Local Government Act 2002. (Refer to Volume Three Chapter 12 from page 244).

 

Also, Auckland Council has set liquidity limits of: 

Net interest as a percentage of total revenue                 

Net interest as a percentage of annual rates income

 

These ratios are needed because of debt. 

By 2016 the percentage of net interest to rates income will have increased to 20.4% from its current level of 11.9%, and it will continue to increase until 2022 when almost one quarter of rates income (22.6%) will be used to pay interest on debt. This excludes the financial impact of Watercare which is part of Auckland Council Group and assumes receipt of government funding. 

Refer to Financial Strategy in Volume One from page 29 and to Volume Three page 38 for the impact of these ratios. 

 

BORROWING 

In 2011/2012 Auckland Council group debt is $4.5 billion and it will increase annually reaching $12.4 billion by 2022. 

Refer to Volume One page 37 for debt policy and to Volume Three: Note 5 – Prospective Prudential Financial Ratios page 35 for details by year. 

 

REVENUE

 

Auckland Council receives most revenue from General Rates, Targeted Rates, User Charges and Fees. 

Auckland Council charges General and Targeted rates differently based on the level of service received or used, and “ability to pay”. 

INDIVIDUAL RATEPAYERS increase or decrease in rates payable is determined by capital property values and other factors.  

TOTAL RATES REVENUE will increase from $1.4 billion in 2012 to $2.3 billion by 2022. 

GENERAL RATES across all ratepayers from 2012 will increase on average by 3.6% plus GST with additional annual average increases of at least 4.7% until 2022, i.e. from $1.27 billion to $2.21 billion. Auckland Council derived the percentage increases by applying a projected weighted average annual inflation rate of 3.5% in 2012/2013 and an additional 1.4% thereafter.

 

The Consumer Price Index (CPI) annual increase over the same period is about 2.6% 

Refer to Volume One pages 35 and 36 for the impact of rates increases, to Volume Three from page 155 for different levels of rates and types of rates.

 

TARGETED RATES are additional to general rates and may be specific e.g. on properties close to public transport, for solid waste collection (rubbish), retrofitting home insulation, or be applicable to groups of ratepayers e.g. business improvement district (BID) charges. 

FEES AND USER CHARGES of $15.56 billion will be collected from ratepayers over the next decade. Many changes will occur from 2012 particularly Water and Sewerage, and Waste and Recycling. The latter will also incur an additional targeted rate.  Other costs including Development charges and Regulatory Fees e.g. Resource and Building consents, dog fees, environmental health and licensing services have also changed.

 

Auckland Council states that fees and charges will increase by 3.3% to cover the costs of inflation. This percentage is not reflected in the Long Term Plan detail specified in Volume One from page 36 and in Volume Three from page 124. 

Volume Three Chapter 2.5 Notes to the financial statements  Note 3: Sources of Income page 35 has additional detail. 

 

 

SPENDING

 

TRANSPORT – over 10 years:

 

Capital Expenditure                $9.5 billion       =          47% of Total Capital Cost       

Operating Expenditure                        $12.6 billion     =          33% of Total Operating Cost 

City Rail Link                           $2.4 billion (net capital cost) assumes 50% contributed by Govt 

Rail electrification                   $534 million for trains (over five years) 

AMETI.                                        $746 million (2012-2022 only) 

Whangaparoa/Motorway        $110 million 

Cycling infrastructure             $85 million 

Albany highway                      $73 million 

Public Transport Subsidy        $73.5 million 

Dominion Road                       $69 million 

Refer to Volume Two from page 84

 

WATER AND SEWERAGE – over 10 years

 

Capital Expenditure                $4.9 billion       =          23.5% of Total Capital Cost    

Operating Expenditure                        $6.4 billion       =          16.8% Total Operating Cost 

Borrowing: 2011/2012 is $2.9 billion increasing to $4.0 billion by 2021/2022 

Refer to Volume Two from page 74

 

LOCAL BOARDS

 

Capital Expenditure                                        $1.2 billion 

Operating Expenditure                                    $3.8 billion 

Refer to Volume Four for individual board details

 

OTHER SPENDING

 

Stormwater                                         $960 million 

Events and visitor attractions              $129 million 

Wynyard Quarter                                $171 million 

Tamaki Innovation precinct                $28 million 

Cruise ship terminal                            $21 million 

Wynyard Innovation precinct              $10 million 

Super Yacht refit facility                     $17 million 

Regional parks acquisition                  $41 million 

Heritage protection                             $25 million 

Sportsfields – winter upgrades                        $89 million 

Library improvements                         $39 million 

International Relations                                    $12.2 million

 

COMET 

The Auckland Council Long Term Plan also includes social spending. An example is COMET, (City of Manukau Education Trust), a Council Controlled Organisation. This entity has existed for 15 years. Its objective is to teach literacy skills, primarily to Maori and Pacific Island adults. Over the next decade $1.4 million is committed to COMET. Auckland Council also intends to create a new CCO and expand the scope to include the entire Auckland Region.

 

MAORI INITIATIVES 

Between $120 million to $295 million will be spent on eight priority areas for specific Maori communities. Refer to Volume One from page 24 and Volume Two page 121 for more details.

 

WEATHER TIGHTNESS CLAIMS 

$487 million is budgeted in the Long Term Plan to settle outstanding claims that will be funded from borrowing spread over 30 years.

 

Disclaimer: All information has been extracted from the Auckland Council Draft Long Term Plan 2012-2022, Volumes One to Four.

 

Now looking at all the above, it seems five of my six “core-debt” principles I had drawn up on my submission to the Draft Long Term Plan are going to be breached (the only principle not breached was total debt not exceeding 67% of total assets). There goes Fiscal-Neutral budgets and fiscal prudence from Auckland Council.

Time to get the ruler and red pen out and go through the budget line by line.

 

The Core Debt Principles per my Draft Submission to the LTP:

Assuming all revenue collected = 1 or 100%, then total outgoings should not exceed 1 or 100% from both the OPEX and CAPEX Lines.

With debt repayments the following guidelines are suggested:

All revenue collected = 1

1)      Total debt repayment including interest from the OPEX Line should be no more than 0.05 to 1 (meaning a 5% maximum of total revenue gained should be spent repaying OPEX debt).

2)      Total debt repayment including interest from the CAPEX Line should be no more than 0.15 to 1 (meaning a 15% maximum of total revenue should be spent repaying CAPEX debt)

3)      Total debt repayment from both CAPEX and OPEX thus should not exceed 0.2 to 1 (meaning no more that 20% of total revenue gained should be expended on debt repayment including interest)

4)      If you need more that the maximum percentages given to repay OPEX/CAPEX debt then it means you have borrowed or spent too much – get costs under control!

5)      If all annual revenue collected = 1 then annual expenditure including servicing debt) should not exceed 1, if annual expenditure does exceed 1 (meaning a fiscal deficit budget) then that deficit should not exceed 1.1x total annual revenue collected in that given financial cycle -  the debt thus accumulated repaid within three years of occurring.

6)      In regards to total existing debt verse assets – to keep the 1:0.2 (revenue : % paid of total revenue to debt) feasible; total existing (plus the addition of new) debt should not exceed total Council assets by the 67% mark to avoid negative gearing) – AND/OR In regards to total new debt acquired verse total annual income, total new debt acquired over a standard financial cycle should not exceed 200% of total annual income over that same standard financial cycle (1:2). This section includes both CAPEX and OPEX borrowings/debt

In regards to revenue gathering, the council has these methods either available or should be advocating for supplementing standard rates income:

  • Targeted Rates (more likely to be in the CBD for the CRL and Wynyard Quarter), areas next to the Northern Bus-way, and most likely Manukau, Panmure and Botany for large infrastructure projects either being built or planned to be built)
  • Bed Tax in the CBD (cover the City Centre Renewal)
  • Advocate for GST Revenue sharing with Central Government (50% of all GST raised should be shared with Local Authorities based on population)
  • Congestion Charge on the motorway network between Mt Wellington, Great North Road and Takapuna. However this would only work if the Eastern Highway and Second Harbour Crossing was built plus the completion of the Western Ring Route to allow viable bypassing of the CBD inner motorway network
  • Lowering the Development Contribution Fees and liberalise planning rules per the SLPD DURT Busting campaign to allow development to be responsive to demand and allow the private sector to assist in providing infrastructure via the Municipal Utilities District program like in Huston, Texas.

These measures above in regards to repayments, debt : assets, debt : income, and revenue : expenditure is designed to keep the Council Books in a healthy position and not creating extra burden on struggling ratepayers. These measures are “tough,” but coupled with what is proposed in the ‘Better Local Government 2011’ paper, quality services while keeping the cost to ratepayers reasonable is achievable.

 

That would be my policy for consideration and debate if I were to ever run for Auckland Council.

Dr Smith – It will Simply NOT WORK

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Minister eyes 10 per cent cap on Super City rates rises – National – NZ Herald News.

Any feeble attempt at capping rates will be nothing short of an utter failure – ok? You need to address the cause of runaway Council debt and expenditure

 

Local and Central Government need to effectively get rid of the Local Government Act 2002 and restart it with very black and white prescriptions on what Council can and can not do. None of this ‘General Powers of Competence (or rather Incompetence as the late Owen McShane said) which gives councils a free rein (without the money to back it up) seeming the Central Government shirk its responsibilities and plays pass the buck.

If one wants a starting point in some council budget reviews; ask yourself what should be CORE Council responsibilities? Do we include social aspects as outlined in Volume Two of the Draft Long Term Plan? If we were to wipe the Lifestyle and Culture budget line – could the $5.5b saved be of net benefit to the city fiscal and social wise?

 

These are all questions we need think of and answer before taking off on follies such as capping rates.

The Office – Should I or Not?

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VOAKL Takes a Look Forward to the 2013 Local Government Elections and Why I give a Damn about Auckland.

 

In October 2013, we get to go to the polls to elect our: Mayor, Councillors, Local Board members, and a few others such as District Health Boards and maybe the odd Trust floating around. For Auckland that means voting in our second Super City Mayor and Council after the establishment of Auckland Council in 2009. The “terms” in which the 2013 election will be fought will be probably nothing short of an utter bloodbath with five potential major issues that will shape the campaign:

  1. Rates – will the 10% proposed rate rises in some area’s fly while others (myself included) get a Rates reduction. Is there smarter ways to raise revenue for Auckland, and can we avoid $8.4 BILLION of debt that would mean ratepayers would be forking out $504-odd-million in debt interest payments (some 25% of one’s rates) in the year 2021. 
  2. Port of Auckland. With the Left members of Council about to lob a nuke on the 16th and really make the mayor look silly (although done right and the mayor will really come out with integrity intact and look like a statesman) and the Maritime Union continuing its immolation of itself, Aucklander‘s will side with either one that is Pro-MUNZ; or one that is not so Pro-MUNZ, has the respect of the word of law, is pragmatic, and some sense of intelligence on what they can or can not do as an elected official of Auckland. With Port of Auckland, there will be debate and some blood letting around the port in its current location and whether it expands in its current spot of gets the literal heave-ho to another spot in Auckland.
  3. The City Rail Link. Some say $2.4 billion and completed by 2021, I say $3.6b and completed by 2025-2032. The CRL will act as a lightning rod on large scale projects and whether huge amounts of capital (that would ultimately borrowed) should be on rail, roads or buses.
  4. Rates, Roads and Rubbish. I have been trotting the battle cry of the centre-right Citizens and Ratepayers group (CnR) as some are alarmed at the incoming rates rises. With the Minister of Local Government, Dr Nick Smith about to launch some “reforms” on Local Government, I have been rather noisy on getting savings on ratings if the Local Government Act 2002 was thrown out and a new piece of legislation was put in place that reflected more on core council operations. The catch is one has to define “core operations” first – for example if we removed the “Social” aspect from Council, then $5.5b from the Lifestyle and Cultural “division” would be saved from the Council budget. So there could be very well at battle here – but it needs to be done properly otherwise just focusing on capping rates without dumping the legislation that causes the original issue is rather dumb.
  5. The Auckland Draft Plan and The Draft Long Term Plan. Both set out Auckland for the next while with the LTP setting out council revenue (rates) and expenditure over the next ten years. Now both plans have been (or currently are) through the submission process with the public, businesses and interest groups having a say (I did that was for sure). The Council is about to finalise and set these two plans into motion to which will influence or dictate what happens to the city over a period of time. However 2013 could be seen as a ratification exercise to both sets of plans and whether Auckland accepts or rejects them. How so? I was advised that The Auckland Plan can be altered on the election of a new council and that the LTP can modified through the introduction of the Long Term Plan 2015-2025 by the new council as well. So if there is major opposition to the Auckland and Long Term Plan (2012-2022) a new council could under take a rewriting exercise.

 

So those five outlooks could be what the Auckland Council election fought on and who gets elected depending on the mood (and intelligence) of Auckland voters. Who would be mayor and the make up of councillors from 2013 – I would say despite the Left’s immolation, Len would be in for a second term with a centre-right/centre dominated council – in other words the Left gets decimated hard. Numbers wise I would say out of 20 councillors 7 would be CnR, 5 from Labour/Greens and 8 independents plus Len as mayor. And if those numbers became actual in 2013 – that would make it a very interesting Council for the next three years.

 

So Why Do I Give a Damn About Auckland

 

Because Auckland is my home, always has been and she always will be – through the good, bad and down right ugly. I have been in Australia previous for two years working but always found Auckland was home. Also through my upbringing I have been taught to look out for others before you and that The Best of Both Worlds will often be the best solution to a tricky problem with “the sides” entrenched in their bunkers and not willing to move. I am an idealist but that is tempered by my realism side as well (The CRL is proof of that) and have a knack of running head long into a crisis when others run the other way. And with that running headlong into a crisis comes leadership, diplomacy, courage and determination to stick it out often with the troops and see through the crisis to its end.

I have been keeping a tabs on politics since I was small and remember the 1993 MMP referendum, The Employment Contracts Act 1991, National’s dark days from 1998-2004 and through later years the Clark regime that led to the Key regime from 2008 (oh by the way I am 27 in May). City, urban and transport planning wise, been doing that since I could play Simcity 2000 way back in the 90s (and continued to do so through to SC4 and soon SC5 (2013). So through politics and Sim City my interest in those realms has always been high – and now translated into literal form as I actively lobby and participate in politics. Starting with being a Nat since 2003 to my very first submission on Auckland, I care about this city my home and therefore participate in the processes that have the potential to make this city a better place. My About page has a little bit more about me.

So I started View of Auckland – my own blog after some inspiration from a few other blogs (you can find those on the right hand side in the Blogroll). VOAKL is my portal in voicing my opinion on Auckland issues and often putting forward alternatives to what is out there. VOAKL builds on work I do when I write submissions to Council (or central government) or runs commentary on topical issues of the day. While I voice opinions and alternatives at other blogs, VOAKL is my home and voice on issues that affect Aucklanders. VOAKL gives an insight to why I give a damn about Auckland.

 

So then do I put my money where my mouth is?

I care about this city and want to see if grow and do well, I also lobby and put in submissions to Auckland Council in doing my part in participating in democracy to make Auckland a better place. But do I put money where my mouth is and go that one step further? Should I have a crack at local politics itself and try to work things from the inside OR continue to work things from the outside via lobbying and submissions?

All questions that need to thought over very carefully before ANY decision is made next year.

 

But always – I give a damn about this city and is the reason why I do what do – in my part in making Auckland a better place for all

Refining the Focus

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The Focus of View of Auckland

After some discussion, the holiday, more discussion and a nice think I am altering what will be presented at View of Auckland.

At the beginning I started VOAKL to look at planning issues in Auckland as The Draft Auckland Plan began calling for submissions. Post the Rugby World Cup VOAKL began running commentary on transport issues including periodically an overstep to the operational side (up until last month),  with this year running commentary on politics in Auckland as I began questioning Auckland Council decisions on some issues like Port of Auckland. Well I have had that think after some down time and talks and decided to refocus VOAKL back to her roots.

VOAKL will continue to comment, debate and offer alternatives to planning issues in Auckland. Planning issues such as land use both urban and rural in Auckland, transport planning (that is building new infrastructure like the Eastern Highway) or repositioning current infrastructure (such as a railway station) but not transport operations, and the politics around our planning that stems from The Resource Manage Act 1991, The Local Government Act 2002, and Local Government Act (Auckland Governance) 2009. From time to time, central government politics will come into play if it is deemed of high influence to an Auckland issue such as the City Rail Link.

Remember all I post here is of my opinion and nothing else. Although research is carried out and scouring the public domain for pieces of information to help assist what I am saying when required. I do not make informed statements – that is for the proper people and institutions to do. Also to take it from Whale Oil:

A blog (a portmanteau of the term web log)[1] is a personal journal published on the World Wide Web consisting of discrete entries (“posts”) typically displayed in reverse chronological order so the most recent post appears first. Blogs are usually the work of a single individual, occasionally of a small group, and often are themed on a single subject.

So stick around folks, got heaps to write on and not enough time to do it – but one thing is for sure: I love my home – Auckland despite her shortcomings, and I took up this drive to do my bit to make Auckland a better place.

Local Government Duties up for Reforms?

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Auckland transport plans hit new funding bump – National – NZ Herald News.

Auckland‘s inner-city rail loop is at risk of being completely shunted off track by a lack of funding as the Government moves to curb council rates increases and borrowing, Local Government New Zealand says.

And

The prospect has been raised in a war of words between Local Government NZ and Local Government Minister Nick Smith, who says councils’ rates and borrowing have increased too quickly over the past decade and are reaching unsustainable levels.

In recent weeks Dr Smith has publicly voiced concerns about sharply rising council rates and debt ahead of a major reform package for the sector he expects to launch in the next month.

Oh dear I see the Left Right Cock fight is still in full flight especially over the City Rail Link. For heavens sake even your average “Rightie” supports the CRL and/or uses Public Transport. Unfortunately the article for is brevity misses the point of the situation.

The core of the problem that has led to this war of words and threats of derailing the City Rail Link is actually the Local Government Act 2002 which defines the powers of Councils in New Zealand.

Quoting from a comment I made in Facebook about the same linked article:

One word – well three and a number actually. Local Government Act 2002. Since 2002 rates and debt have soared since the previous Labour administration broadened the powers of Local Government to include a heck of a lot of “social” “stuff” that was previously in the domain of central government and NGOs. Looking at the Southern Initiative in the Draft Auckland Plan is a prime example of social that Central Govt should be doing OVER core activities (Rates Roads Rubbish as some of you call it). Labour through that Act fobbed off a lot of responsibility to Councils and they (Councils) still struggle due to lack of funding. As with Planning Powers – a rant in its own right. Solution: Scale back the Local Government Act 2002 and you might find rates going down.

The best way to look at it is look at the finances outlined in the current Auckland Draft Long Term Plan. How much money is raised from where, and where does it go. How much is on that CORE stuff, how much on the social stuff, and how much is luxury spending? Simply put is our money being used wisely and efficiently? I will run commentary on it as I draw up my submission to The Draft Long Term Plan.

As with planning powers Councils have, my comment to another matter in that was posted in Facebook.

Local Government Act (Auckland Governance) 2009 last I looked. The Auckland Plan was “mandated” by central government last I looked with the Long Term Plan coming from the Local Government Act 2002 I believe. That might of just stated something some might know but it is what Auckland go lumbered with. In a few hours we should hear which way land use went – that is any where but where it should have gone. Lay the zone for maximum density of class (say medium residential), place some urban design principles to try to avoid the horrors since 1996 and away we go – market can decide if a house or medium rise apartment goes there depending on actual demand. Then again I did cover this in length in my submission

That was in a response to the results of the deliberations of Chapter 8 – Urban Auckland in The Draft Long Term Plan.

Yes I said we had a strategic victory with Chapter 8 and a Tactical Victory with Chapter 7 (and Section B I think), however as I mentioned yesterday we still have a long way to go to realise this:

To accommodate employment and economic activity in supporting a healthy social and physical environment for over two million residents by 2040. In doing so The Plan has to follow the objective of being: Simple, Efficient, Thrifty, and restoring Affordability to residents and businesses while still making Auckland ‘The Most Liveable City.’

The Battle continues – with me assisting in the good fight.