Guest Post: Larry Mitchell on Auckland Council’s “Elephant in the Room”Guest Post: Larry Mitchell on Auckland Council’s “Elephant in the Room”

In the last year there has been a lot of discussion regarding efforts by Auckland Council to fund its yawning funding gap, a gap that mostly relates to its transportation (roading) budgets. New tolls for existing motorways are a possibility, as well as distorying the Auckland Energy Consumer Trust so that Auckland Council (instead of the intendand benificiares) get the annual payout.

Feedback included one commentator who “shouted” (in bold caps) … “Hang On! lets not try to fill any funding gap before we first address Auckland Council’s wasteful and unaffordable expenditures which are so clearly out of control!” … the Elephant!

Fair point … so here, to start this particular ball rolling, are some simple financial facts concerned with Auckland’s expenditures.

The 2012- 2022 long term plan forecast Council group expenditures to increase by 24% over the next five years, although this year’s 2014 actual result is slightly less (by 3%) than that forecast.

Recent publicity surrounds the funding deficit issues referred to already, that is, the search for increased income and other sources to meet budgeted funding totals. But there is something important missing from this picture. Nowhere in the debate surrounding the financial management of Auckland Council is there to be found any call for or actions to address the funding shortfall by making budget savings derived from expenditure reductions.

How different this is from individual budget holders of our family’s expenditures or of firms in the private sector. Any private sector firm faced with a similar funding dilemma to that of the Council would not hesitate in wielding the axe to its expenditures. They would act promptly to lower their overheads, then most likely to reduce payroll, while all the while seeking more efficient and economical ways to produce their goods and services. So why is our Council somehow exempt from employing these sensible strategies?

It appears that the Council’s coercive powers give them an assured (taxation) basis for their revenues and that effectively removes any incentive or compulsion for their making cost savings.   

This is the reason Councils usually just run “cost plus” budgets year after year. A small number, usually those reacting to pressures of their ratepayers, from time to time trim their costs. Currently though New Zealand Councils by and large show little interest in making cost savings as tables of recent year’s inexorable rates increases attest.

An analysis of alternative solutions, designed to modify Auckland Council budget strategies fall into two broad areas.

The first is to look at the Auckland Council culture and practices that have allowed this situation to develop.

The second addresses a range of specific tactics that can make inroads (savings) to meet balanced budget objectives..

So how did this expensive, unaffordable approach to Auckland Council financial management arise? There is no need to itemise these reasons as recent publicity has already done so. One glaring example of a lack of cost control however is the Council payroll. With over 1,100 (roughly 15% by number) of all Council employees drawing over $100,000 salary per annum this of itself is sufficient evidence of poor cost management for most ratepayers when their average incomes are in the mid-sixties.

In the interests of brevity we now merely list some of the missteps that have lead to the creation of our under-performing, expensive monster of a Super Council: 

• The election of a Mayor and Council (majority) who have shown little interest in the creation of a high performing cost-effective unit of local government. Recent events may have forced them to address some funding alternatives but any cost savings ideas remain missing in action
• Failure to do (as the Royal Commission recommended) and put in place a governance and management structure where performance and cost control would have the highest priority. The appointment of the suggested performance audit function was quietly shelved – some might say to be replaced it seems by an army of Mayoral feel good PR spin merchants?
• Appointments in key financial positions of persons with no interest or track records in seeking to achieve affordable, high performance service delivery
• Layered staffing structures with high payroll and head counts consequently building up large departmental overhead structures.
• The absence of useful benchmarked expenditure-setting controls or performance improvement processes.
• A failure to determine (including the use of independent public opinion surveys) the level of service ratepayers are prepared to trade off against cost savings.
• A disinterested hands off external audit role. This is obvious from recent annual audit management clearance letters to the Council. These reflect an ineffectual extremal audit presence out of its depth, often beholden to Council management and totally disinterested in improved Council performance.

The result of these circumstances are well understood by Auckland ratepayers - just look at their rates bills and see the nearly daily headlines of the latest examples of Council waste and extravagance. Lack of control of Council expenditures has lead to unaffordable rates and their projected high percentage annual increases.

Only a total turnaround of leadership and of Council culture plus effective cost savings tactics can address these issues. Electors, as ratepayers seeking better value for their money have their opportunity next year to (albeit somewhat indirectly) set affordable cost-effective budgets by electing a Council with these as their principal agenda.   

Larry Mitchell is a local government financial analysist.  The views are his own and do not necessary reflect those of the Taxpayers’ Union. Larry can be contacted vai [email protected].