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Finance and Performance Committee
22 May 2019
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Annual
Budget 2019/2020 - Mayor's final proposal
File No.: CP2019/06954
Te take mō te
pūrongo
Purpose of the report
1. To
set out the mayor’s recommendations for the final Annual Budget 2019/2020
for consideration and decisions by the Finance and Performance Committee.
Whakarāpopototanga matua
Executive summary
2. Auckland
Council adopted the 10-year Budget 2018-2028 last year, which sets out a record
$26 billion investment in areas that matter most to our community –
transport, housing and the environment. 2019/2020 is the second year of the
10-year budget and the focus needs to be on delivering that ambitious
programme.
3. Significant
progress is being made in the areas of transport, housing and the environment.
The capital investment will increase from $2.51 billion in 2018/2019 to $2.75
billion in 2019/2020. The record investment by the council and the government
in the Auckland Transport Alignment Project (ATAP) is starting to roll out, for
example the commencement of the $1.4 billion Eastern Busway. New housing
consents in the latest year have reached an all-time record of 13,874. All
council employees will be paid a living wage from 1 September 2019. Water
quality improvements in our beaches have been brought forward by 20 years and
the $1.1 billion central interceptor begins construction this year, which will
have a dramatic impact on wastewater overflows and our waterways when complete.
Much more remains to be done and we are continuing our discussions with central
government for a joined-up approach and additional funding.
4. In
early May 2019, the council approved an additional funding commitment of $500
million to continue the build of Auckland’s largest infrastructure
project – the City Rail Link. The extra funding ensures the CRL is future
proofed to carry the increased number of passengers, projected at over 54,000
per hour at peak times to use our trains, to ensure adequate contingency
funding and to cover construction cost inflation. The council’s
commitment was able to be made while maintaining its debt to revenue ratio
below the council’s internal ceiling of 265 per cent over 10-year budget
period and not adding any additional burden on the ratepayers.
5. The
funding of the CRL has however removed capacity for funding major new
initiatives for the next four years, as the debt to revenue ratio is projected
to peak in financial year 2022/2023.
6. Despite
these pressures, this mayoral proposal ensures we are continuing to move
forward as a city which looks after our communities and our people.
7. New
funding initiatives to ensure under-15s can travel free on public transport
(PT) on the weekends and public holidays will benefit the young people of our
city. The $5 million contribution to Auckland City Mission’s HomeGround
project will mean the council can help in ensuring our most vulnerable are
cared for. Funding will allow us to continue to tackle illegal dumping by those
harming our environment.
8. All
of these and other funding commitments will be delivered while keeping average
general rate rises to 2.5 per cent next year, the lowest level for any growth
or metropolitan city in New Zealand.
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Ngā tūtohunga
Recommendation/s
That
the Finance and Performance Committee:
a) note
in respect of the 2019/20 Annual Budget the following items, which are
consistent with the 10-year Budget 2018-2028:
i) an
average general rate increase of 2.5 per cent.
ii) the
increase to the Uniform Annual General Charge of 2.5 per cent.
iii) the
reduction in the business differential continues.
b) agree
to recommend to the Governing Body that the 2019/20 Annual Budget be based on
the draft budget, adjusted for the updates set out in the staff reports, and
incorporate the following changes and specific decisions:
Transport
i) agree
an additional $12.2 million operational funding for Auckland Transport in
2019/2020 to address the cost pressures resulting from higher than forecast
growth in public transport patronage and additional costs driven by changes
to the Employment Relations Act.
ii) request
Auckland Transport and Auckland Council to jointly investigate options to
alleviate Auckland Transport’s future operational funding pressures and
recommend a course of action as part of the Annual Budget 2020/2021.
iii) agree
to the implementation of ferry fare integration from 1 February 2020 with
additional annualised operational funding of $502,000.
iv) agree
to the implementation of free weekend and public holiday travel via public
transport for children between 5 to 15 years old from 1 September 2019 with
additional annualised operational funding of $643,000.
Communities
v) agree
a one-off $5 million contribution in 2019/2020 to the Auckland City
Mission’s HomeGround project.
vi) agree
an additional $1.5 million of capital funding be added to the un-allocated
capital funding for One Local Initiatives in 2027/2028.
vii) agree
an additional $8.9 million of capital funding to undertake landowner’s
works at Colin Dale Park ($4.1m in 2019/2020 and $4.8m 2020/2021).
viii) agree
an additional $200,000 per annum operational funding to support Auckland
Citizens Advice Bureaux for 2019/2020 and
2020/2021, funded from existing budget.
ix) agree
to $420,000 of operational funding in 2019/20 to undertake investigation and
options analysis for the future of the central library, with this expenditure
funded from existing budgets.
x) agree
to $150,000 capital funding in 2019/2020 for signage within the Auckland
Domain.
xi) agree
a one-off operational grant to the Hibiscus Youth Centre of $100,000 in
2019/20, with this grant to be funded from existing budgets.
xii) request
that the review of the council’s provision of financial support for
youth centres, commissioned as part of 10-year Budget 2018-2028 decisions,
report back to Environment & Community Committee by 31 March 2020.
Environment
xiii) agree
to continue providing $200,000 per annum of operational funding to deal with
illegal dumping, with this expenditure funded from existing budgets.
xiv) agree
to $250,000 per annum of operational funding be transferred from Auckland
Council parent to Auckland Transport to enhance graffiti eradication and
prevention services along the rail corridor, with this expenditure funded
from existing budgets.
Regional
Facilities Auckland
xv) agree
an additional $3.5 million of operational funding in 2019/2020 to meet the
revenue shortfall resulting from business interruptions.
xvi) agree an additional $3
million capital funding and $800,000 operational funding in 2019/2020 for
protective security at facilities managed by Regional Facilities Auckland.
xvii) agree
to recommend to the Governing Body that a detailed assessment be undertaken
to determine the protective security requirements across the Auckland Council
group’s estate (including Regional Facilities Auckland) as part of the
Annual Budget 2020/2021.
xviii) agree
an additional $14 million of capital funding for the Aotea Centre
refurbishment ($10 million in 2019/20 and $4 million in 2020/21).
xix) request
the Chief Executive of Auckland Council to review the circumstances
surrounding the revised cost of the Aotea Centre refurbishment.
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Horopaki
Context
9. Last
year, Auckland councillors overwhelmingly supported our 10-year Budget
2018-2028. That budget set out the largest ever investment in Auckland’s
infrastructure. It committed over $26 billion into transport, housing services,
cleaning up and protecting our environment and expanding our parks and open
spaces. It addressed years of underinvestment, which had contributed to
transport congestion, housing shortages and unaffordability and some poor
environmental outcomes.
10. While
delivering record infrastructure investment, rates were limited to average
general rates increases of 2.5 per cent over this term of council. That was
made possible by efficiency gains, two targeted rates for water quality and
environment enhancement which Aucklanders strongly favoured, and the regional
fuel tax which secured additional matching government funding.
11. This
year’s annual budget is the second year of the 10-year budget and moves
further towards building the infrastructure our growing city needs. The council
will focus on delivering the ambitious programme, by enhancing public transport
services, delivering major transport infrastructure projects enabled by the
regional fuel tax and central government subsidies, delivering the central
interceptor and other water quality improvement funded by the Water Quality
Targeted Rate, protecting Kauri from dieback disease and implementing the
Regional Pest Management Plan funded by Natural Environment Targeted Rate.
12. In
addition to these commitments, the council had to make a number of budget
decisions since the adoption of the 10-year budget as new fiscal challenges
arose, such as the 36th America’s Cup infrastructure,
financial support to the Eden Park Trust and the City Rail Link (CRL) project
cost reforecast. These decisions, particularly CRL, have significantly removed
our funding capacity in the next four years, as the debt to revenue ratio is
forecast to peak in 2022/2023.
13. CRL is the
biggest transport infrastructure project for Auckland and New Zealand. The
project cost was reforecast to be $4.4 billion through the procurement process,
an increase of $1 billion from the 2016 estimate of $3.4 billion. With $700
million already invested in CRL, the project is critical to alleviating traffic
congestion by doubling the capacity of commuting by rail in Auckland and with
benefits estimated at $6.6 billion, it continues to have a strong benefit to
cost ratio.
14. In May
2019, the council resolved to commit to funding its share of the increase at
$500 million. This commitment is accommodated by treasury management
initiatives, options around off-street parking assets and the timing of
council’s contribution to CRL. The commitment would see the
council’s debt to revenue ratio remains below the council’s
internal ceiling of 265 per cent.
15. However,
this also means that the council’s funding capacity is tightly
constrained post CRL decision for the next four years. There is limited
capacity to respond to any emerging cost pressures, new funding requests or
external shocks. Meeting future financing and funding challenges will require
alternative thinking and approaches such as broader non-rates revenue sources,
special purpose vehicles or local targeted rates.
16. This
mayoral proposal reflects the need for discipline and financial prudence,
particularly over the next four years. It means some measures we would like to
promote will have to be deferred until there is funding capacity. The modest
scale of additional spending in Annual Budget 2019/2020 reflects this new reality.
A range of funding requests necessarily need to be deferred and others will
have to be met by offsetting savings or reprioritisation within the council
group.
Tātaritanga me ngā
tohutohu
Analysis and advice
17. I propose
the following initiatives and budget items be included in the Annual Budget
2019/2020.
Better public transport
Auckland Transport
operational cost pressure
18. Transport
is one of the most important issues for Auckland, with the need to match new
infrastructure to rapid population growth and improve transport options and
choices for Aucklanders. In the past six years, there has been unprecedent
growth in public transport (PT) patronage of 30 per cent, with a record level
in the last year. The annual PT boarding is projected to reach 100 million by
June 2019. The satisfaction with public transport remains high at 91 per cent.
19. Compared
to the patronage assumption that underpins the 10-year budget for Auckland
Transport, the current forecast shows a considerable uplift in FY19 and then a
similar growth path thereafter.
20. Our
success in PT patronage also creates a challenge. As patronage grows, the
council’s cost to provide PT services increases as well, after accounting
for additional fare revenue and subsidies from NZ Transport Agency (NZTA). As
of 2019/2020, AT has advised a shortfall in PT operational funding of $10
million per annum as well as potential additional operational cost resulting
from changes to Employment Relations Act as it relates bus drivers’
breaks. However, it is important to maintain the momentum of Aucklanders
switching to public transport and to help decongest our roads.
21. I propose
we should accommodate the cost pressures for 2019/2020 only as a prudent
measure. I ask AT and council staff to work together next year and report back
on options to address the long-term PT cost pressures as part of the Annual
Budget 2020/2021 process. I also ask AT to continue to identify and implement
measures to improve operational efficiency and cost effectiveness.
Fare reductions
22. Further
to addressing the PT cost pressure, I also propose specific changes to two PT
fares that would benefit families with children and ferry passengers, at
moderate costs.
23. Children’s
(5-15 years old) PT travel currently costs $0.99 during weekends and public
holidays, which has been popular since its introduction. I propose free PT
travel for all children aged between 5 and 15 during weekends and public
holidays. There is a little extra capacity required for providing free travels,
with an annualised cost of $643,000. The estimated increase in patronage
resulting from this change is 989,000 (including accompanying adults). I
propose AT implement this fare reduction from 1 September 2019.
24. The
integrated PT fare scheme includes bus and train services and excludes ferry
services. Fully integrating ferry fares ensure ferry passengers pay the same
fare for the same journey taken via buses and/or trains. For example, ferry
passengers travelling to or from ferry terminals by bus in the same zone will
be free, whereas such bus journeys are currently treated as separate trips and
chargeable. This is also the step move towards bringing bus, train and ferry
services all under the Public Transport Operating Model. The annualised cost for
integrating ferry fare only is estimated to be $502,000 and around 28 per cent
of ferry HOP passengers will potentially benefit.
Investing in communities
Homelessness
25. In my
initial proposal for the Annual Budget 2019/2020, I indicated my support to Auckland
City Mission’s HomeGround project, which will create a purpose-built
housing and social services facilities with housing for those with complex
needs, a crisis care facility and detox services among others. The HomeGround
project is estimated to cost approximately $90 million to complete. Auckland
City Mission has raised over $72 million from other sources and building the
facility has commenced.
26. My
proposal is for Auckland Council to contribute a $5 million grant towards this
project. Auckland City Mission is doing critical work with the homeless on
behalf of our city.
27. I welcome
the central government’s announcement of spending $197 million over the
next four years on housing 2700 long-term homeless people in New Zealand.
Homelessness is unacceptable in any society. There is a huge social cost and
extra funding provided by the central government means that we can do more to
tackle and eliminate homelessness in Auckland. Since launching Housing First,
Auckland Council and a collective of five agencies have housed more than 900
homeless people, nearly half of them children. This extra funding will mean we
can provide more homes for those in greatest need. We expect much of the
central government’s new funding will come to Auckland where there is
most need.
Referrals from other
committees
28. There are
a number of funding requests which have been discussed by councillors and
referred to the annual budget process for consideration.
i) Expanding
One Local Initiative (OLI) programme fund
In April 2019, the Finance and Performance Committee
approved allocating $1.5 million in 2020/2021 from One Local Initiative (OLI)
fund to the Ngāti Ōtara Multi-sport and Cultural Centre. I propose
that $1.5 million be added to the OLI programme funding in the second half of
the 10-year budget after the scheduled completion of CRL.
ii) Landlord
works for Colin Dale Park
In November 2018, the Finance and Performance Committee
noted that Colin Dale Park has always required wider park facilities (enabling
landlord works) to satisfy current lease obligations and make provision for
future tenants. The Finance and Performance Committee agreed an additional
capital expenditure budget of up to $8.9 million for enabling landlord works
subject to this annual budget process.
I propose that up to $8.9 million of capital expenditure be
provided to the Parks, Sports and Recreation department to undertake wider park
facilities to satisfy lease obligations to a number of stakeholders. Two
current users of the park, the Manukau Taniwha BMX Club and the Counties
Manukau Off Road Racing Club, have recently been granted funding from the Sport
and recreation Facilities Investment Fund to construct tracks and other
facilities. This funding will contribute to the wider services needed by groups
like these, such as parking.
I also note that the master plan for Waikaraka Park is
being developed, and the outcomes of this work will be considered in Annual
Budget 2020/2021.
iii) Future
funding for Auckland Citizens Advice Bureaux (ACABx)
An additional $200,000 grant to Citizens Advice Bureaux was
budgeted for 2018/2019 during the 10-year budget process to address the
immediate financial stresses some of the bureaux were facing due to high
population growth and demand on their services. The Environment and Community
Committee approved the future funding model for Citizens Advice Bureaux and
referred a baseline funding increase of $200,000 per annum (plus inflation) for
2019/2020 and 2020/2021 respectively.
I support the increases in baseline funding for the next
couple of years, accommodated within existing budget. This would ensure the
continuity of services provided through ACABx, as transition to the new funding
model takes place. This also allows the council’s level of investment in
CAB services to be considered as part of the 10-year Budget 2021-2031.
iv) Investigating
options for the future of central library
In April 2019, the Environment and Community Committee
endorsed the central library priority action for the investigation and
development of a business case. The Environment and Community Committee
referred the request for operational funding of $420,000 for the 2019/2020
financial year to be considered as part of the Annual Budget 2019/2020 process.
The central library building has challenges due to its age.
Renewals have been undertaken on a component basis without an overall
understanding of the effectiveness or value of that investment. I support
investigating a wide range of future options for the central library with an
open mind. However, the funding of $420,000 for developing the business case
would need to be met from existing council budget.
v) Auckland
Domain Accessibility Improvement Programme (stage 1)
Auckland Domain Committee endorsed the stage 1 improvements
as part of the Auckland Domain Accessibility Improvement Programme and the
development of the associated communications plan for the public. It
recommended $5 million capital funding be provided as part of the annual budget
process.
I commend Waitematā Local Board for providing funding
to install a number of new paths, expand Kiosk Road carpark and install trial
gates for Titoki Street carpark and Carlton Gore entrance. I propose $150,000
capital expenditure budget in 2019/2020 to support signage for the new paths.
I note consideration has yet to be given to other matters
including one-way configuration for certain part of the roads within the
domain, introduction of parking charges and the accounting for parking revenue.
Consideration on the remainder of $5 million capital funding request should be
deferred until further advice on those matters is available from the Auckland
Domain Committee.
Hibiscus Youth Centre
29. As part
of last year’s 10-year budget decisions, the Governing Body agreed to
provide a one-off operational grant to the Hibiscus Youth Centre of $100,000 in
2018/19. This was interim funding, pending the outcome of a review of the
council’s provision of financial support for youth centres. This review
has yet to be completed so it is appropriate that another year’s interim
funding is provided. This will be funded from the council’s existing
budgets. I would note that provision of $100,000 in annualised support to the
Hibiscus Youth Centre is a significant uplift in ratepayer funding from a
historic perspective. The work the Centre does is important. Nevertheless, the
policy review may not recommend a framework that delivers this level of support
in future years. The Centre should be mindful of this as it budgets its
expenditure for future years.
A cleaner environment
Illegal dumping
30. In
February 2018, the council agreed to my proposal to invest additional $200,000
in resources to address illegal dumping, such as CCTV cameras, enforcement
officers and a dedicated phone line for reporting illegal dumping. Staff
advised that this had more than doubled the number of infringement notices the
council has issued over the previous year. Region-wide volume of illegally
dumped material have been dropping nearly month on month for the past year.
31. Notwithstanding
the success, I share the concerns of a number of local boards particularly in
the south that they still observe unacceptable levels of illegal dumping. I
propose to continue the current provision of $200,000 per annum. I am advised
that it can be accommodated within the 10-year budget. As the Waste Management
and Minimisation Plan is being implemented, we will see sub-regional Resource
Recovery Centres being established, which will hopefully reduce the problem.
32. In the
coming year, we need to refocus our efforts on waste minimisation in the areas
of construction and demolition. Industrial and commercial waste constitutes
around 80 per cent of what goes to landfill. The council needs to work with the
private sector and with central government to minimise waste and maximise
recycling. This will be a key focus in the 2019/2020 year.
Graffiti vandalism on rail
corridor
33. I am
concerned that graffiti vandalism on the rail corridor has worsened. Auckland
Transport is undertaking a review of the current service arrangement.
34. Historically,
the graffiti repainting service spanned from Kingsland to Sylvia Park. AT has
worked with KiwiRail to spend $400,000 per annum to expand the scope to cover
Swanson and Pukekohe. I am also proposing an additional $250,000 of annual
operational expenditure funded by the existing budgets in the Auckland Council
parent. This increased investment will fund the following initiatives:
· 15
rail bridge inspections and repainting.
· sponsored
artworks and murals at five level crossing sites.
· two
pilot sites for strategic planting.
35. These
initiatives will have the potential to cut clean-up costs in the long-run and
improve the quality of our rail network for Aucklanders and visitors alike.
Regional Facilities Auckland
36. Regional
Facilities Auckland (RFA) has submitted three funding requests that are
accommodated in the proposed Annual Budget 2019/2020:
· $3.5
million in 2019/20 only to address lower revenue.
· accelerated
protective security at RFA facilities.
· Aotea
Centre refurbishment.
Revenue shortfall
37. RFA
advised of a revenue shortfall of up to $3.5 million for 2019/2020 due to
business interruptions including major capital works at Auckland Zoo and Aotea
Centre, and Queens Wharf Terminal Project restricting access to Shed 10 and The
Cloud. Whilst the council as the shareholder has little choice but to fund the
shortfall, I ask RFA to apply rigour in its future budgeting and forecasting
given a pattern of revenue forecasts falling short of expectations.
Visitor security initiatives
38. RFA
proposes to accelerate a programme of visitor security initiatives to achieve
the “managed” capability maturity level under the NZ Protective
Security Requirement (NZPSR). RFA is requesting an additional $800,000
annual operational funding for new specialised security staff and training, and
$7 million capital funding over two years This is in addition to the capital
funding of $5.9 million and operating funding of $3.6 million approved for RFA
facility security and visitor safety in last year’s 10-year budget.
39. I support
appropriate security measures that are now being demanded by concert promoters
and other RFA customers. The RFA’s request highlights the need to bring a
council group-wide to our protective security requirements for all our assets,
especially considering what will be needed for the major events in 2021. In
light of this I propose:
· capital
funding of $3 million and operating funding of $800,000 in 2019/20.
· the
other aspects of RFA’s request beyond 2019/20, be considered as part of a
council-wide review of protective security for all our regional assets for
consideration in the 2020/21 Annual Budget. Given some measures may require
lead in time, urgency will need to be accorded to this work, and include
collaboration with the Crown.
Aotea Centre capital pressure
40. RFA
advised an increase in capital cost of $14 million to refurbish the Aotea
Centre, which was budgeted at $52.8 million. The circumstances surrounding the
cost of the refurbishment warrants a review. In the meantime, the additional
project costs need to be funded.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
41. My
proposal for the Annual Budget 2019/2020 covers Auckland Council group.
Proposed budget changes relating to Council-controlled Organisations (CCO) such
as AT and RFA are informed by their budget submissions and presentations at the
Finance and Performance Committee workshops.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
42. This
proposal takes into consideration local boards’ input into the annual
budget process. Local boards provided their feedback on regional issues and
advocacy at the Finance and Performance Committee workshop of 8 May 2019.
Regarding regional issues, local boards generally supported proposed changes to
rating and fees, as well as the proposed amendment to the 10-year Budget
2018-2028 relating to the asset transfer from Panuku.
43. In
respect of local issues, local boards advocated for:
· delivery
of key advocacy projects (OLIs) as soon as possible.
· improving
water quality across the region, through a range of solutions, such as funding
for riparian planting, and increased compliance monitoring
· waste
management. In particular, the development of sub-regional resource recovery
centres.
· addressing
environmental concerns, such as kauri dieback, coastal erosion, and pest and
weed management.
· equitable
funding for and adequate provision of community facilities to facilitate
growth, particularly for pools and other recreational and sports facilities.
44. The focus
for the council in 2019/2012 is to deliver the “build-it” 10-year
budget. I expect to see tangible progress in delivering the OLIs programme,
water quality and natural environment targeted rates funded initiatives. Given
the limited funding capacity, additional requests for local asset-based
services will be challenging to provide for. Any considerations will need to be
based on evidence and driven by more broader funding approach (e.g. local
targeted rates).
Tauākī whakaaweawe
Māori
Māori impact statement
45. The
10-year budget includes $150 million funding to achieve Māori outcomes.
Projects across the group are underway to focus on strategic priorities
including Te Reo Māori, marae development, kaitiakitanga (Water) and
Māori business, tourism and employment (economic development). In
2019/2020, I expect the group to continue to deliver the projects contributing
to these priorities. Additional spend proposed in this annual budget would
affect the community in general including Māori.
Ngā ritenga
ā-pūtea
Financial implications
46. The
updated financial position incorporating my proposal for the Annual Budget
2019/2020 is as follows.
· projected
$2.75 billion of capital investment (including investment by CRLL and Crown
Infrastructure Partners) and $4.22 billion of operating expenditure.
· average
general rates increase for 2019/2020 remaining at 2.5 per cent.
· projected
Auckland Council group total assets for 2019/2020 $55.34 billion, compared with
$54.19 billion for 2019/2020 in the 10-year budget.
· projected
Auckland Council group debt for 2019/2020 reducing from $9.95 billion in the
10-year Budget 2018-2028 to $9.77 billion, primarily due to a lower opening
debt position and change in timing of CRL contributions, partially offset by
the increase in the weathertightness provision.
· projected
debt-to-revenue ratio still remaining within the council’s internal
ceiling of 265 per cent, with the 2019/2020 at 255.7 per cent, and outer-years
peaking at 264.1 per cent in 2022/2023.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
47. A number
of budget risks are outlined in the Attachment A Key budget issues, including
NZ Transport Agency capital subsidy revenue, construction inflation, public
transport growth, ongoing discussions with the central government about CRL
related costs such as future ownership and operating arrangements.
Ngā koringa ā-muri
Next steps
48. The
Finance and Performance Committee will consider this proposal and make
recommendations to the Governing Body which will make decisions about the
Annual Budget 2019/2020. Staff will then prepare the Annual Budget 2019/2020
document for adoption by the Governing Body in June 2019.
Ngā tāpirihanga
Attachments
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No.
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Title
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Page
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a⇩ 
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Key Budget Issues -
Annual Budget 2019/2020
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17
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Ngā kaihaina
Signatories
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Author
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Phil Goff, Mayor of
Auckland
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