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The Auckland Council should avoid making drastic cuts to plug a projected billion-dollar hole in its finances, says one economist.
Photo: LDR
The council announced on Wednesday of last week that the $ 450 million affecting Covid-19 revenue that was projected this year could rise to nearly $ 1 billion by 2024.
The new forecasts showed a decline in annual revenue of $ 260 million in 2021/22, $ 170 million the following year, and $ 110 million in 2023/24.
Mayor Phil Goff on Wednesday outlined the new projected impact on council revenue. It followed a closed-door workshop last week for councilors to examine the council’s proposed 10-year budget that will be put up for public consultation in December.
“Many companies in Aucklanders and Auckland are making it difficult with reduced revenues. The City Council is in the same situation of having to do what we have to do with less money than we had planned,” said Goff.
“In this 10-Year Budget, there will still be things that we want to do that will not be possible in today’s financial environment. We will need to prioritize those things that are the most important to do.”
Wellington economist Cameron Bagrie said the council should avoid using drastic cuts to offset the projected drop in revenue and that it was important not to overreact.
Cameron bagrie
Photo: RNZ / Alexander Robertson
“Now is not the time for a slash and burn response. You want to provide stability and if you need to borrow more, you can,” he said.
Bagrie said organizations like the council, which had the ability to increase their debt in today’s environment, should.
It has a credit rating of AA and Aa2 from S&P Global and Moody’s respectively and can borrow at historically low interest rates.
Bagrie said the council still had structural issues that existed before Covid-19 that needed to be addressed.
“We need to think very seriously about what are the best models for local government in terms of financing, what we expect them to provide and what assets they should own.
“The current income base of all municipalities is too narrow compared to what they are expected to provide.”
The fees represent about 40 percent of the Auckland Council’s revenue. The remaining 60 percent of its income comes from sources such as concerts and visitor attractions, swimming pools and leisure centers, dividends, parking, development contributions, and public transportation fees.
These traditional sources of revenue for the city council have been depleted as a result of Covid-19. Industries like tourism, which have traditionally helped boost city revenues, are not expected to recover anytime soon.
In July, the council agreed to a 3.5 percent rate hike, along with more debt and asset sales to pay it off.
Manukau District Councilman Ephesus Collins said last week that more cuts were likely.
“The challenge facing our city is how we handle financial stress versus the need to ensure that we continue to serve the needs of the community,” he said.
“Our financial situation is such that some of the ongoing projects will be affected and in times of financial turmoil inequity stands out.”
Collins said Covid-19 had already had a notable impact in South Auckland, where many people had lost their jobs and there had been a corresponding increase in the need for food packages.
The Auckland Council has been contacted for comment.
Local Democracy Reporting is a public interest news service supported by RNZ, the Association of News Publishers and NZ On Air.
