Chickens home to roost

By: John Watson

Firstly, I sincerely hope people have managed to come through the lockdown relatively unscathed. Unfortunately that’s not the case for everyone in our community. While our country has risen to the health threat outstandingly, the economic consequences, as predicted, can’t be quite so quickly surmounted.

This applies to Auckland Council as much as anyone. Covid-19 has had a devastating effect on the balance sheet and real challenges now confront the organisation. To be fair, other factors are also at play and have been building up since the Super City’s inception back in 2010.

As it stands the council is $9.6 billion in debt ($3.9 billion at amalgamation). That means there is no capacity to borrow our way out of this crisis. The ‘prudent’ debt limit has been reached with interest payments now totalling $460m a year ($1.26m a day)!

It’s also structural. In New Zealand local councils account for just 11 percent of public spending. Compare that to a 30 percent average in OECD countries like Switzerland. That’s part of the reason for the high debt levels.

But let’s be honest, it’s also self-inflicted and some of these chickens are now coming home to roost in amongst everything else – the business-class travel culture, the propensity for big projects to blow out spectacularly (CRL from $2.2b to $4.4b), in fact the entire corporate model imposed on Auckland with little or no meaningful oversight and with quasi-autonomous bodies allowed to run rampant by successive administrations.
There’s also specific decisions made in the recent past, such as the sale of the Diversified Assets Portfolio. This so-called $330m ‘Rainy Day’ investment fund was inherited from legacy councils and delivering returns of 18 percent plus to council – Wayne Walker and I were amongst only five councillors who vigorously opposed its sale. Now that rainy day has certainly arrived but that fund has gone – disappeared into the ever-increasing debt ether. It would have been useful now and offered alternative options to offset rate increases and/or enable borrowing.

Looking forward, we have to ensure they’re not allowed to complete a disastrous economic trifecta of crippling debt, reducing services and public asset fire sales.

The effects of Covid-19 can’t be underestimated, sure, but they shouldn’t  be a ‘get out of jail free card’ for a decade of, at times, less than inspiring financial management. ‘Working together’ now really has to mean just that.

The ironic upside is the financial situation is now so constrained there’s going to have to be changes and big ones at that, across all the areas referred to above. It will be a very different council that eventually emerges out the other side. In my view, that might not be such a bad thing.

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