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].  

Auckland Ratepayers “Wake Up” at last

Bernard Orsman's analysis last week of Auckland Council's financial trouble got right to the heart of the matter. The section headed "Hey Big Spender you’re in a deep financial hole" accurately nails the central issue facing Auckland’s overtaxed ratepayers. With a new 2015-2025 long term plan gearing up, Auckland Council's control of its expenditure long based on borrow and spend, at long last  will now be put under the microscope.

The best place to start with the analysis is the new purposes of local government post the 2012 changes to the Local Government  Act. Section 10 (requiring "cost- effective infrastructure expenditure")  and section 11 (which lists the "core" activities) suggests that the Council is now staying well outside the typical activities we associate with councils.

Of course, Auckland  Council has been quick to run to Wellington for funding of its plans, but I think Central Government should withhold any consideration of tolls, regional sales taxes (or other alternatives) until Auckland Council can produce solid evidence of its adoption of a principled "cost effective" "core" services-based budget. At present it is anything but.

In his regular blog this week, Joel Cayford, Reflections on Auckland Planning makes some telling and useful points with his advice directed straight at Auckland Councillors. These include the suggestion that in place of existing assumptions - that ratepayers should foot the bill for the city’s growth-infrastructure, affordability to ratepayers must become the central issue:

“Under the Council's present policy settings, ratepayers can't afford the Auckland Plan, and it's not equitable to require ratepayers to subsidise Auckland's economic growth. It's not that urban growth is a bad thing ... it becomes a bad thing, an unaffordable thing for existing ratepayers ... that does not justify overloading existing Auckland ratepayers with growth infrastructure costs”

Other worthwhile suggestions he makes for Auckland Councillors to consider ... “while they are at it’ are all matters that echo sentiments  true of many other New Zealand Councils. These include:

• Ratepayers, not just self selecting focus groups should (“novel thought”) be asked “whether they would prefer cuts in their local services (parks, libraries, waste management, plantings, gardens, community services), or whether they would prefer you to spend less of their rates on growth infrastructure projects - then I think you'd get a clear answer. Local council and community services are highly valued in a liveable city”.
• Watercare, (the Council controlled water company), itself, a huge burden of cost on ratepayers additional to Council rates, is accountable both to Councillors and ratepayers. Joel ruminates that “Watercare,  possibly knows something that the rest of us don't know, maybe the reason is that it has been ratcheting up its connection fees (thereby) giving strong warnings that water and wastewater rates are on their way up” ... and “ Councillors should not assume that Auckland Council would raise a ratepayer funded loan for Watercare’s plans.
•  He points out where the accountability buck stops:
   “Don't think you can escape responsibility for Watercare charge increases by keeping rate increases down a bit. Watercare is your responsibility too. You govern it. No-one else does”.
• In the context of consultative process relating to budgetary assumptions Joel insists that ratepayers are a living breathing part of the decision loop:
  “I think you would be assisted in your task if you asked officers for typical household scenarios with different policy settings. You should be provided with information at the individual ratepayer level of all the consequences of your plans, policies and assumptions. This would tally up rates AND Watercare charges AND any other Council charges - so you can see the total funding impact of your potential decisions on typical Auckland ratepayers across the region”. Hear Hear to that!

Joel concludes by taking a swing at the vexed Housing Affordability conundrum, not merely an Auckland issue. He presents it in this way:

My biggest policy concern with the growth pathway Auckland is headed down is the assumption that existing ratepayers will subsidise costs of growth infrastructure needed to accommodate new ratepayers ..., then the true costs of new accommodation will not be paid by those buying into that part of Auckland's property market. This inbuilt subsidy is already causing property market failure. The craziness of Auckland's property market is partly driven by Auckland Council growth policies.

Let’s hope that this time, Auckland Councillors do two things:

First: They must be persuaded of the importance of achieving what was hoped when the former Auckland councils were amalgamated in the first place. It was supposed to be driven by excellent performance management and reporting, high standards of accountability and value for money and

Secondly: They should take up the enlightened constructive suggestions of Joel and other commentators - in the interests of their long-suffering ratepayers.