Reasoned Ratepayer Plea to Auckland Councillors

Dear Auckland Councillors,

It's that time again. Council's Long Term Planning cycle, and you've got to come up with a Draft Long Term Plan, put it out there for consultation, with the media spotlight and microscope looking on closely.

I think the scrutiny will be more thorough and more analytical than past years. Ratepayers are more aware of Council's debt level and of proposed rate increases than before, and there's been a lot more media debate and information about the costs of infrastructure proposals.

But there hasn't been enough scrutiny - yet - of the policy assumptions that are driving much of what Council does and is planning to do. Previously I wrote about Mayor Brown's request of officers for papers and advice that would enable councillors to examine and question The Auckland Plan's growth assumptions, and their consequences for the city's Long Term Plan. Media commentary so far doesn't indicate that this examination has occurred in Council yet. (BTW: You can hear my NewsTalk ZB chat about all this here (go to 8mins 50 secs), and completed here.)  But it needs to.

Why? Because 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.

In a nutshell, the Auckland Plan calls for two things: it calls for an annual economic growth rate equivalent to a 5% increase each year in the city's GDP; and it presumes the "high rate" scenario of population growth. By themselves these assumptions and aspirations might seem reasonable. But it's not until you look at HOW they will be implemented that you see the problems for ratepayers and for Auckland.

In the financial year ended June 30th, Council income was about $1.4 billion in rates, about $1.1 billion in fees and charges (iincluding Watercare revenues), $0.4 billion in grants and subsidies (mostly from Central Govt for transport), and $0.23 billion from other sources. About $3.1 billion income for the financial year all up.

While it's difficult to get a big picture feel from council's Annual Plan of how the money is spent, my experience in Local Government suggests that about 40% goes on transport, 30% goes on the 3 waters (water, wastewater and stormwater), and the rest is spent on other services (planning, parks, community services, leisure services, environmental protection, waste management and suchlike).

Now the big ticket-items foreshadowed in The Auckland Plan (new network infrastructure projects) need related capital and operational budgets inserted into this new 10 year Long Term Plan. This is deemed "essential growth infrastructure". Deemed "essential for Auckland's economic success..."

It should be remembered that there are some unusual additional costs that must now be carried by Council - for example its share of leaky building damage costs is around $100 million each year - or about 3% of total revenue.

But this is much less than the Council currently pays in interest on the debt it has accumulated since amalgamation. Auckland council debt as at 30 June 2014 stands at around $7 billion - of which about $1.5 billion relates to Watercare projects. In the last financial year Auckland Council spent close to a third of a billion dollars ($300,000,000) in interest to its lenders. This is equivalent to 10% of its overall revenue, or about 20% of its entire rating revenue. This was at an average loan rate of 5.66%. This interest rate is subject to change depending on circumstances beyond New Zealand's control.

The media chatter this week is largely around "how will we pay for essential infrastucture?", and "where do you think cuts should be made - should it be swimming pools, parks or libraries?", and "don't you think the Government should put money into Auckland like it is into Christchurch?" and suchlike. It is likely Council's media advisors can put a tick in their boxes - they are keeping the debate on track.

But what if you - Councillors - asked ratepayers 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.

It's not that urban growth is a bad thing. By itself. But it becomes a bad thing, an unaffordable thing for existing ratepayers, if Auckland Council makes them subsidise the costs of growth infrastructure.

There are several big ticket growth items awaiting funding certainty. Like Watercare's Central Interceptor project, like several new roads and road capacity-increase projects which are the responsibility of Auckland Transport. And there's the Central Rail Link - which can't be built without Central Government's contribution.

Maybe Watercare knows something that the rest of us don't know, but I get the strong feeling that the reason it has been ratcheting up its connection fees, and giving strong warnings that water and wastewater rates are on their way up - is because Auckland Council is telling Watercare, "if you want the Central Interceptor, then fund it yourself. Don't expect Auckland Council to raise a ratepayer funded loan for it...."  But I don't know about that. Just a feeling. However. Councillors, 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.

Development Contributions do cover some of the costs of growth infrastructure. But they only make a contribution toward those costs. Auckland Council's current policy settings still presume that existing ratepayers will heavily subsidise those costs. There are arguments in support of that policy - such as that some Aucklanders get jobs building that infrastructure. But that does not justify overloading existing Auckland ratepayers with growth infrastructure costs.

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. You probably already get stuff like this, but I'd suggest you get officers to keep it simple and comprehensive so you can share it with the media and with the public.

If you feel educated and enlightened and empowered by information provided by your officers, then ratepayers will likely feel the same way.

These scenarios need to include an assessment of the true costs to ratepayers - new ones and existing ones - of providing infrastructure for growth, and an explanation of how those costs are covered, and who pays.

In the end this assessment comes down to an understanding of who is gaining and who is losing out from Auckland Council's current growth assumptions and policy settings, and allows an evaluation of what is best for most ratepayers.

It's not good enough to hide behind a 2.5% average rate increase either - given that inflation last year was less than 1%, and the first quarter of this year was 1.5% - despite the fact that some of your services are inflating ahead of this average.

My biggest policy concern with the growth pathway Auckland is headed down (as built into the Auckland Plan) is that because of 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 Auckland. This inbuilt subsidy is causing property-market failure. Auckland's property market craziness is being partly driven by Auckland Council growth policies.

These need to be examined, challenged and revised by Councillors as part of the strategic review that is now underway. I see two policy options for change: either a further shift of costs of growth onto new development and away from existing ratepayers, or a substantial deferral in the startup and delivery time of big ticket projects, or perhaps a mixture of both of these options.

Don't be rushed into decisions.


Yours Sincerely,


Joel Cayford (Ratepayer)