Tuesday, April 23, 2024

Auckland budget black hole deepens

Aucklanders could be facing a rates increase of more than 20%, with a forecast Auckland Council budget shortfall of $295 million now blowing out to $325 million.

Council Group Chief Financial Officer, Peter Gudsell says Council’s response to recent severe weather events, along with rising inflation-related costs, has heightened the challenges in balancing the Council budget for the coming financial year.

“We’ve seen cost increases reflect inflation levels in a number of areas. These increases are particularly affecting the price of utilities such as electricity, and impacting the cost of asset renewals, meaning a rise in the amount of money we need to set aside for depreciation,” he said.

“As well as these pressures, the council’s budget has been impacted by the storm events earlier this year. This includes increased spending to deal with ongoing impacts, such as higher insurance premiums and additional costs to better prepare for future weather events.”

$20 million annual storm response fund was proposed to cover this. 

“There are also one-off storm related costs of $30 million, such as extra repairs and maintenance to Auckland Council and Auckland Transport assets due to storm damage, and the establishment of the Tāmaki Makaurau Recovery Office,” said Mr Gudsell.

“While these costs do not add to the ongoing operating shortfall, they will add to council’s debt levels and therefore reduce the debt capacity that can be utilised to manage other costs.

“When we consulted on the Annual Budget 2023/2024, we noted financial impacts could change and recognised it was important to have some financial flexibility to respond and that trade-offs would be needed.

“The financial challenge we’re facing for 2023/2024 is therefore the $325 million ongoing operating shortfall, as well as storm-related costs of $50 million, some of which are short-term.”

He said trade-offs would be needed, including operating expenditure reductions, ownership options for Auckland International Airport shares, and the consideration of higher general rates increases and prudent use of debt.

“Different trade-offs have different consequences, and this now needs to be considered as part of the process to set the budget.”

Auckland Council received record feedback in its consultation on the budget, which is now being considered by elected members, along with updated budget information, as part of the advice enabling decisions to be made.

Final budget decisions will be made following an updated Mayoral Proposal and prior to adoption of the final Annual Budget on 29 June, to take effect from 1 July 2023. 

The Council says it is strongly committed to maintaining a prudent and sustainable approach to long-term financial management, with credit ratings of AA and Aa2 from S&P Global and Moody’s respectively.

“We also remain committed to delivering the services that Aucklanders want and value, and working with Aucklanders to understand what these are,” Council said in a statement.

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