Recently we started glibly taking pot shots at Auckland Council about the perilous state of it’s finances. It may be lost on some people, but the issues are significant and if allowed to continue, will result in massive headaches in decades to come.
The Mayor has strong desires to spend up large on principally public transport. He is also proposing substantial increases in borrowing to fund these works and other trinkets.
At the same time, Auckland Council is bogged down by the constraints of its current borrowing relative to the debt limits imposed on it by legislation. In order to increase spending (and assuming he won’t reduce the right costs) the Mayor has to increase rates, but he also has to opt to to defer maintenance on existing infrastructure to fund things now that he would prefer.
Infrastructure is often misunderstood and hard for the general public to value any expenditure on it because most of it is below ground.
As residents we notice the general condition of roads and footpaths and parks but not really the essential services pipes for potable water, sewer and storm water.
We’ve identified concerns primarily about debt but also the culture of excessive expenditure that has beset Auckland Council. In our view, the city is living beyond it’s means. Much of Auckland’s expenditure to date has come at the cost of maintenance of infrastructure (which in Auckland is widely know to be poked).
Council has many factors that it must budget for in it’s operating expenses. These must generally be offset by income derived principally from rates but also from other sources like airport shares and Ports of Auckland returns.
The Local Government Act clearly sets down the expectations but often Local Government falls short. Auckland Council is no different.
Auckland has significant capital expenditure to outlay, yet is focussed heavily on the persuasion that investment in rail and improved street scapes and other high profile projects should take priority.
Focus – for the purpose of this general discussion – should therefore start with understanding the responsibilities of a Local Government.
Local Government all around New Zealand has for years managed maintenance on a reactionary basis.
Councils fix things only when it breaks because of deficiencies in the planning of future maintenance.
A general lack of prudent planning of adequate future costs into Long Term Plans means Annual Operating budgets typically provision very little for the future with a general preference to spend on more immediate and public works ‘today’. By taking this approach Auckland Council – by example – is creating significant liabilities in the future for other generations to resolve.
Where surplus income avails of itself the normal response is to provision that to expenditure ‘now’ like a kid hungry to blow his pocket money on lollies.
A Local Authority like Auckland Council plans capital expenditure for urban projects – like the pretty CBD road and footpath improvements.
The problem with infrastructure maintenance is that it is very expensive, and it occurs in the future. Competing against the pretty high profile projects it suffers because it takes second place.
On the Audit NZ website is a document that records an audit of the performance of Local Government that is pertinent to this topic.
It is a helpful analysis of the general state of Local Government financial planning. Specific attention should be paid to the sections of the report regarding how Local Government is performing where it concerns maintenance of assets. Overall the report is one of serious under performance by Local Government including widespread failure to appropriately plan for future maintenance of infrastructure assets.
The Local Government Act states in section 10, subsection (1) (b) the purpose of Local Government relative to the provision of services and infrastructure and then in section 10, subsection (2) it goes on to say ‘In this Act , good-quality, in relation to local infrastructure, local public services, and performance of regulatory functions, mains infrastructure, services and performance that are (a) efficient; and (b) effective; and (c) appropriate to present and anticipated future circumstances. [Emphasis added].Â Read more »