Auckland, April 24, 2019
How can Auckland Council cope with the City’s relentless expansion and demand for services?
First, the good news.
Easing population growth
Auckland’s helter-skelter population growth has eased, from peak increases in 2015-17 of about 43,000 extra souls a year to a high, but more manageable 30,000 last year.
This year is projected to be about 30,000 as well.
And that means, Auckland Council, the organisation tasked with managing the City’s growth, can breathe slightly easier.
The Council’s Chief Executive Stephen Town, told Newsroom that the periods of peak growth had been hugely demanding.
“You could almost feel, physically feel, the pressure of growth if you were moving around the region, if you looked at the increase in congestion in arterials and motorways and the public transport uptake. You could almost feel the city heaving. And we notice when that comes off. We are not pumping in the way we were in 2015 to 2017,” he said.
With Central Government changes to immigration settings – and a rebalancing of movements of people between New Zealand and Australia – Auckland’s pressure cooker has cooled.
“So, yes,” Town says, “slightly less growth is easier to manage.”
But pressure remains
The less good news is that the pressure on services, facilities and land is not going away.
“If we end up with 30,000 new residents in Auckland in 2019, it is still 2% growth, so, still significant. Most Western cities are not growing at that rate around the world.”
The Auckland Super City – an amalgamation nine years ago of the multiple City bodies and Regional Councils to make Local Government more effective and efficient – was designed to allow the city to cope with growth.
Town, who started his role in 2013 and re-signed last year until the end of 2020, believes that even when the Council’s capabilities were most stressed in the peak years, it laid the groundwork for future growth to be less painful.
“We did well because in those same years, we completed the Unitary Plan and provided capacity for somewhere between 500,000 and one million residential dwellings overall. Our job is to provide a planning framework that allows the region to grow, not to promote growth but how best do we accommodate it?”
In those years, the City advanced its major transport investment plan, ATAP, advanced the Central Rail Link and nutted out some new revenue lines and infrastructure funding sources.
Auckland Council had been criticised for being ‘pro-growth’ in those peak years, but Town rejects that. “We are not in charge of it. We are not the owner of immigration policies, we do not control the birth rates.”
So, the Council and the City have been given a breather by outside influences.
Town says that the big growth in the City’s population increased demand for Council services at many levels – everything from libraries to transport – and there was an assumption that with more people, the council would automatically have more money to pay for those services. “People think that because we are growing and there are more buildings and rateable properties that we are swimming in money.”
Finding the money
How will the Council find more money?
Auckland Council’s big challenge remains how it funds the infrastructure needed to cope with growth.
In the past three years, major spending proposals have all come up against the Council’s debt ceiling – the maximum it can borrow without putting its international credit rating at risk.
So, Council officials and elected Councillors have pushed for, and been successful in, introducing (a) an accommodation charge, in which hotels and even Airbnb operators pay towards the tourism-related costs of the Auckland Tourism Events and Economic Development agency ATEED (b) A Regional Fuel Tax to fund transport projects (c) A Special Rate dedicated to improving water quality (d) A Special Rate dedicated to the natural environment
Town believes that the two Special Rates have been accepted because the Council can show it is spending all that money only in the area specified.
The Regional Fuel Tax was an example of the Council finding a part solution to its big transport bills. But he agrees it is a blunt instrument. “All sides of the political spectrum have identified that congestion pricing is ultimately a better system.”
While those measures have helped the Council to raise money without forcing up general rates above politically-promised targets, Town cites one big-ticket change as a possible forerunner of how the City will pay for its growth.
Auckland cut a deal with the Government’s Crown Infrastructure Partners for a substantial residential development in Milldale, near Silverdale in the City’s North.
The CIP, through a so-called Special Purpose Vehicle, will borrow about $90 million from the Accident Compensation Corporation (ACC) to fund the infrastructure costs for the 4000 new homes at Milldale and up to 5000 other new residences nearby.
The developer, Fulton Hogan and buyers of the properties, will then pay a direct infrastructure charge which will be used to pay off the loan to the ACC.
The key to this financial roundabout is that Auckland Council does not have to borrow the money itself to build sewerage, water systems or roads.
Town said: “The debt sits on someone else’s balance sheet, not on ours, and there is a revenue stream that is not rates that could be used to repay that debt…. The big breakthrough with CIP is the identification of a revenue stream. We have struggled with that challenge.
“We know the Government is looking at how do they create a framework that means we could do more like that. [Milldale] is fairly modest in terms of scale as a financial arrangement – how could we expand that model?”
There has been talk of one of the Council Controlled Organisations, Watercare, coming in for similar attention – where its debt could be shifted to a special purpose vehicle and not be part of Auckland Council’s debt burden. Town would only say: “There’s a lot of politics swinging around making changes to the Auckland model.”
But he did say the City Rail Link debt, which the Council splits half and half with the Government and which is likely to increase by up to $1 billion due to cost pressures, could be contender for being moved off balance sheets ”some time in the future.”
How will the Council keep its own spending low?
Ever since it was formed after amalgamation, the Auckland Council has faced criticism that it has not delivered the savings – mooted at the time or imagined by interest groups or ratepayers.
Town provides figures showing the council has made savings of nearly $1.3 billion since 2011 and last year alone the cumulative effects of the cuts was $270 million.
He has been charged with finding $23 million extra in cuts this year and then $23 million and $16 million beyond that in the two years to come. The total savings over the next decade are estimated at $565 million – with a further half billion dollars to be reached “in cost avoidance and savings” through the Capital Programme.
Has the Super City done enough to operate efficiently? Town mentions cuts in “back-office costs” and procurement as further areas for attention, even if those areas have been targeted before. “Just because we have done something four years ago, four years on, we have got to go back and see for the coming year can we do even better?”
Prudential Financial Management
Certainly the organisation is streamlining, squeezing and re-modelling itself pretty continuously. A March report to the Performance Review and Value for Money committee of Councillors shows everything from cheaper internet connections to negotiating lower reparations when leaving property leases as achieved savings. Under a ‘prudent financial management’ subheading, the report says savings had been made by “decommissioning budgeted inactive roles”.
In its internal management, the Council has also shrunk its own corporate strategy – from 200 policies down to ‘six steps up.’
Town believes that core operations are relatively efficient, moving from just over $2 billion in 2012 to around $2.2 billion last year, but as the Council makes new capital investments to cater for growth, it also cops higher costs of interest on borrowings and of depreciation on the new assets added.
That, he argues, is the main reason for total costs rising from $3 billion six years ago to more than $3.6 billion last year.
More to do
Does he think Aucklanders have been well-served by the Council since amalgamation?
“I do, but there’s a qualification you have to make there. It does depend on how engaged you are in the bigger picture of Auckland. I think people agree in a large majority that to have a big, single plan is good for Auckland. The bit that is challenging is the local bit, the local board connection. There’s very diverse views over whether that’s working or not,” Town said.
Whether the Council-owned companies are working sufficiently seamlessly with the Council itself is also an open question.
They talk about the group of organisations together as the ‘Auckland Council family.’
Town says that the CCOs’ statements of intent for the next year are now under scrutiny.
A number of board chairs have changed, including ATEED, Panuku, Regional Facilities Auckland, and shortly at Auckland Transport with the departure of Dr Lester Levy.
“It is not at perfection as a seamless family. We’re not there and we are going to keep working at it,” Town said.
Tim Murphy is the Co-Founder and Co-Editor of the Newsroom based in Auckland. The above article has been published under a Special Agreement. The first part of the above article appeared yesterday.