Auckland Council’s budget hole gets bigger, but it could have been far worse

Auckland Mayor Wayne Brown: His new draft budget is due on December 15. Photo / Alex Burton

The hole in Auckland Council’s annual budget is $25 million bigger than it was on Wednesday.

And in just three weeks, the city will learn what new mayor Wayne Brown wants to do about it.

The hole has grown thanks to the Reserve Bank’s 75 points hike in the official cash rate (OCR). Council received the news from its chief financial officer, Peter Gudsell, at a meeting of its governing body today. The governing body is all councillors and the mayor.

Gudsell’s estimate means the $270 million hole in the 2023/24 budget revealed last month is now about $295 million.

But the news could have been worse. Council has “hedged” 85 per cent of its debt, which effectively means it has insured itself against rising interest rates.

In response to a question from deputy mayor Desley Simpson, Gudsell told the meeting that hedging had saved council $1.1 billion over the last year.

He believes that since they began hedging, early in the life of the Supercity, they are about $154 million better off.

However, council group treasurer John Bishop this evening contacted the Herald to “clarify” the situation.

He said $1.1 billion was a “non-cash accounting gain”.

Bishop explained that council debt was almost $12 billion, of which $10 billion was hedged. Interest rates have risen from 0.25 per cent to 4.25 per cent, which effectively meant the hedging policy is currently saving council about $400 million a year.

During the meeting, Mayor Wayne Brown issued a statement to media saying if nothing else was done, the $295 million hole “would require rates rises of over 13 per cent, following by further substantial increases in future years”.

But, he added, “double-digit rates rises are totally unacceptable and will not happen under my leadership”.

Auckland's deputy mayor Desley Simpson with mayor Wayne Brown, Photo / RNZ
Auckland’s deputy mayor Desley Simpson with mayor Wayne Brown, Photo / RNZ

Questioned about this later, he said he could not give that assurance as he was one vote among 21 around the council table. But he would “do everything in my power” to keep rates rises to single figures.

It’s likely all councillors agree with that goal.

Officials have already advised councillors they should be ready to consider all options for closing the deficit, including rates rises, cutting operational costs and selling shares in Auckland International Airport.

Gudsell told council the $295 million hole is “the biggest forecast deficit in its 12-year history”. Brown said, “It is by far the biggest fiscal hole in Auckland Council’s history, except for the once-in-a-hundred [year] emergency budget when our city was put into lockdown.”

That emergency budget dealt with a much bigger hole. In 2020, in response to loss of income during the pandemic, council cut $900 million from its annual expenditure.

Brown has still given no real indication of how he wants to manage the budget blowout. But the clock is ticking: The governing body will receive his draft budget for the 2023/24 year at its last scheduled meeting for this year, on December 15.

Debate on that, and public consultation, will continue into the new year. The financial year starts on July 1.

After the meeting, Brown also revealed he has now had a briefing on the City Rail Link (CRL) and visited the underground stations.

“It’s quite a good project,” he said.

In Brown-speak, a source close to the mayor told the Herald, that means “he thinks it’s fantastic”.

Brown added that he still believes the CRL governance was “badly put together”.

His position on Ports of Auckland Ltd (POAL) has also changed. In a Q&A session with Herald subscribers on Tuesday morning, Brown wrote, ” I am currently working on replacing the board, in which I have lost confidence.”

POAL board chair Jan Dawson responded by calling Brown’s position “disappointing”.

“The mayor’s comments create uncertainty for the 3000 Aucklanders whose livelihoods depend on the port,” she said, “and also for the thousands of businesses in Auckland and surrounding areas that rely on imports and an efficient supply chain.”

Dawson and Brown met on Wednesday in an attempt to clear the air. Brown said after the council meeting that Dawson had accepted his earlier instruction to work with Ngāti Whātua Ōrākei on a plan to return part of the port land to “public use” as soon as possible.

“Things are better now,” he told the Herald.

The council meeting also featured a vote on the appointment of three councillors to the board of the Tūpuna Maunga Authority (TMA), which administers the volcanic cones of Auckland.

Brown proposed the positions be taken by long-serving councillor Christine Fletcher and two of the new councillors, Kerrin Leoni and Ken Turner.

Fletcher and Turner are on record opposing the authority’s programme to replace exotic trees on the maunga with natives; Leoni supports it.

Councillor Alf Filipaina objected. He’s served two terms on the board, supports its current policies, and wants a third term. He proposed a vote on whether he or Turner should be appointed.

Auckland councillor Alf Filipaina, who was disappointed to lose his position as a member of the Tūpuna Maunga Authority board. Photo / Ricky Wilson
Auckland councillor Alf Filipaina, who was disappointed to lose his position as a member of the Tūpuna Maunga Authority board. Photo / Ricky Wilson

Filipaina’s challenge was met largely with silence.

Richard Hills was one of the few councillors who spoke. Altnhough he supports the TMA, he said he would vote for Brown’s list because he wanted to support the mayor’s appointment decisions. But he was disappointed the mayor had let the matter come to a dispute at the meeting, rather than resolving it earlier.

The vote was the first time Brown’s support around the council table has been formally tested. He won 12-9, with three abstentions.

Several councillors spoken to afterwards suggested the issue was personal and did not necessarily indicate the strength or weakness of Brown’s support on council. “It’s about picking your fights,” said one councillor.

The Herald understands Brown and Filipaina have a difficult relationship. While the other nominees had all told the mayor they were keen to be on the board, Filipaina passed up his chance to do that.

Brown told the Herald he had not been aware Filipaina wanted to keep his position when he drew up the appointment lists.

In the vote, Filipaina was supported by councillors Andy Baker, Angela Dalton, Lotu Fuli, Chris Darby and Josephine Bartley. The abstainees were Julie Fairey, Shane Henderson and Leoni. All other councillors voted with Brown.

Aucklanders will learn a lot more about the fights councillors really want to pick when the draft budget lands in December.

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