Analysis: As Greater Wellington regional councillors sat down around the table this morning, it was to make the sort of decision they never anticipated when running for election. Once, says chair Daran Ponter, double-digit rates rises were unthinkable.
This week, they voted to put a 19.8 percent rates increase out to consultation. And even then, they’re slashing spending. Chair Daran Ponter they’re giving up on projects they care about, like funding the electrification of all buses by 2030 – they’ll push that deadline back to 2038.
They’re not alone. Despite the Government allowing councils to postpone their longterm plans and minimise consultation and audit requirements, Newsroom has been able to determine that at least 11 councils have net debt-to-revenue ratios of more than 200 percent.
Hamilton is on 281 percent, just four points away from the limit on councils’ debt covenants. Queenstown Lakes is on 265 percent. Tauranga is on 248 percent now, but forecasting to blow the 285 percent lid from 2030 onwards.
“Some are reaching their debt ceilings, which will have the auditors in a twist,” says Ponter. “That’s a real issue. If you look to the UK, Birmingham has effectively gone into liquidation in the last few weeks. There’s a city of two to three million people that basically can’t pay its way anymore.”
Hamilton’s mayor Paula Southgate and Local Government NZ vice president Campbell Barry, who is the Hutt City mayor, today published research showing the wide gap between council revenues and capital spending obligations, over the 10 years of the new longterm plans.
The research, by Infometrics, shows councils had already committed to $23.3 billion capital investment from 2021 to 2024. Infometrics principal economist Brad Olsen says once construction inflation is added in, that’s nearly $3 billion more.
That means the infrastructure spending they’ve already committed to will top $80b over 10 years, and that’s before including more cost increases and billions of dollars in new regulatory requirements to upgrade drinking water supplies and wastewater plants.
A report from the Infrastructure Commission Te Waihanga suggests councils are liable for a $52b infrastructure deficit, Olsen adds. It’s simply not able to pay for that – the relationship between central and local government needs a huge overhaul to solve the problem. Tossing councils a small share of the GST from new-build homes is nice, but won’t turn the dial.
Southland mayor Rob Scott says some councils, if they were businesses, would be looking down the barrel of bankruptcy because, unlike central government, there’s nowhere for them to turn to get the money they need to fulfil their legal duties. “The revenue model is very broken.”
Because some councils are unable to borrow any more, their only alternative is to turns to rates rises – to require ratepayers today to pay for critical upgrades to infrastructure for tomorrow.
Southgate agrees, “the model is broken”; she says Hamilton City Council is proposing a 19.9 percent rates rise this year, due in large part to the repeal of the Three Waters reforms. “When Waters goes back in, that takes us perilously close to the debt-to-revenue limit, unless we keep those double-digit rates increases.”
Council debt and proposed rates rises
Storm-struck Buller residents face 20 percent rates rises – that council has brutally cut costs to rein in what previously looked like a 31.8 percent rise.
Wellington, Dunedin and Horowhenua all face rates rises of about 17.5 percent, once the capital’s residents factor in a 2 percent levy to pay for their new Moa Point sludge pond.
Far North mayor Moko Tepania says that council has constrained its rates rise to 16.5 percent, rather than the 33 percent he’d warned off – but only with swingeing op-ex cuts, a rethink on vacancies, and move to hack a lot of the capital works programme out do further years.
Three years ago in Covid, central and local government were investing untold billions in unprecedented quantities of infrastructure investment; now they are struggling just to get back in the black.
A New Zealand council can’t be liquidated or bankrupted – but can it be, effectively, trading insolvently?
“I don’t think I want to know what the answer to that question is!” Ponter exclaims. “But theoretically, yes. You would only need to have a council that’s close to its debt ceiling and then a Cyclone Gabrielle or a Cyclone Bola-type incident and bingo, you probably have the recipe for insolvency.”
For Queenstown Lakes mayor Glyn Lewers, the cost of investing in infrastructure is eyewatering.
But the cost of not investing in infrastructure is still fresh in his memory. Central Queenstown locals, restaurants and hotels had to boil their water for three months last year, after a cryptosporidium outbreak that probably spread through the council water supply.
The council had repeatedly delayed installing an expensive protozoa barrier at its Two Mile water treatment plant; ultimately, residents and businesses paid the price.
Hit by the first ever compliance order issued by new water regulator Taumata Arowai, Lewers promises the protozoa barrier will now be installed by June, the end of the financial year. But beyond that, there’s no money for instrastructure. “For the next couple of years, we’ll just be keeping the lights on. That’s all.”
There’s no room for anything to go wrong. The councils is exposed to tens of millions in contingent liabilities for signing off leaky homes; it’s sitting on the Alpine Fault. “If that happens, we can’t pay for it. That will be a national response – and we won’t be the only council asking for help.”
One thing Queenstown will do is impose another 14 percent rates rise this year.
“We’ve been artificially keeping rates low for a considerably long time,” Lewers says. “For this generation of elected members at local government level, we’re now facing up to those decisions from 20 to 30 years ago. Now we’ve got to start looking in the mirror and say, let’s not make the same mistakes as before.”
The one glimmer of insight and honesty is the ultimate paragraph. This is all self-inflicted. In the case of Three Waters local authorities were reminded several times over 20-30 years under different administrations, including the passing of legislation and reports from the Audit Office, that they needed to set aside depreciation and other funds for this infrastructure. But, as your final paragraph suggests, you just cannot get elected in local government on a platform of increasing rates to a viable level. And these local representatives are expecting to be bailed out by central government; yet central government is cutting taxes and public expenditure. There are times when I think New Zealand has given up on trying to be a member of the western, developed, democratic club of affluent or semi-affluent societies. The incoming government has great faith in localism and the private sector, but we could well end up with defence forces that cannot mount any worthwhile presence, threadbare essential infrastructure (except for roads), barely solvent local authorities, foreign investors picking the cherries out of our assets, the homeless being shuttled between motels and roadside tents, and a non-profit sector strung out as it attempts to take up the slack left by excessive tax cuts and the retreating state.
this is the end result of 30 years of poor government – it started with the labour governments reforms under the Lange Douglas Govt, the reforms of local government in 1990 and the RMA etc all undermined the central purpose of local government. Central Government never provided function al policy leadership or financial support for many of the responsibilities it off-loaded onto local and reginal government. The we have had thirty years of largely unproductive immigration driven population growth with no investment in the infrastructure required to service that population growth. We have had Auckland parasitising the rest of the national economy to support an affluent lifestyle that its (lack of) productivity does not justify. We still after 30 years of population growth rely almost entirely on the Primary sector to fund the Auckland lifestyle with the left and green side of politics doing their best to wreck that part of the economy. This year the typical sheep farmer would earn more money driving a bus in Auckalnd than they do working endless hours running a multimillion dollar operation.
All of the things you note Peter in your last paragraph are the end result of three decades of poor governance at the central government level. To abuse Local Government for these current issues – is just that abuse! And blame shifting.