Some Key Facts on 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
DRAFT LONG TERM PLAN 2012-2022
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.
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.
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.
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
Capital Expenditure $1.2 billion
Operating Expenditure $3.8 billion
Refer to Volume Four for individual board details
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
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.
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.