Annual
Budget 2023/2024: Context setting and process
File No.: CP2022/15348
Te take mō te
pūrongo
Purpose of the report
1. To
update on current financial projections for the Auckland Council group and the
process relating to the Annual Budget 2023/2024.
Whakarāpopototanga matua
Executive summary
2. The
council is required to prepare and adopt an annual plan (referred to by Auckland
Council as the annual budget) for each financial year.
3. Before
adopting an annual plan, the council must consult on any significant or
material differences from the content of the Long-term Plan (LTP) for the
financial year to which the proposed annual plan relates.
4. The
Governing Body must adopt a consultation document setting out these matters.
This document must also include:
· content
relating to local board agreements
· a
summary of the draft Tūpuna Maunga o Tāmaki Makaurau Authority Operational
Plan 2023/2024 (draft operational plan).
5. In
its Annual Budget 2022/2023 the council noted it would need to address further
adverse impacts of higher inflation and higher interest rates in future years
as these factors were uncertain. It was estimated the ongoing operating gap to
be between $90 and $150 million per year and noted an incoming council would
have a range of options and budget levers available to mitigate this.
6. Inflation
and interest rates have risen higher and more rapidly than economic forecasts
had projected at the time the last budget was prepared. As of late October, the
total ongoing operating budget pressures for 2023/2024 are estimated to be
around $270 million. This operating gap needs to
be addressed for 2023/2024 in a sustainable way that also supports the
council’s long-term financial position.
7. This
means that for 2023/2024 around $180 million of additional operating budget
mitigations will be needed over and above the $90 million of previously
signalled mitigations. Council continues to have the financial flexibility to
respond to the budget situation, but tough choices and trade-offs about the mix
of budget levers will need to be made given the scale of the challenge. These additional choices and subsequent decisions need to
move the council towards long-term financial sustainability in addition to
solving the short-term financial challenge.
8. Making
these tough decisions will be a key part of the annual budget process which
begins today. Following this meeting, the Governing Body will hold a workshop
to discuss the details of the cost pressures and the potential mix of
options/levers to respond. Local boards and council-controlled organisations
(CCOs) will also provide input on options.
9. On
15 December 2022, the Governing Body will meet to decide which options (or mix
of options) to take forward to public consultation. Any options relating to
strategic assets or significant changes to significant activities will also
require an audited LTP amendment process and will need to be supported by a
detailed statement of proposal.
10. Final budget
decisions will be made following public consultation early next year and prior
to adoption of the final annual budget by 30 June 2023.
11. Performance
reporting on the progress against the plan for the current financial year will
be provided to the Governing Body or relevant committee later this year
(following decisions on the committee structure for the current term).
Ngā tūtohunga
Recommendation/s
That the Governing Body:
a) tuhi ā-taipitopito / note the update on the financial
projections of the Auckland Council group and the process relating to the
Annual Budget 2023/2024 in this report, which sets the context for further
discussion at a workshop today.
Horopaki
Context
12. The council
is required by legislation to prepare and adopt an annual plan (referred to by
Auckland Council as the annual budget), every year, except once every three
years when the long-term plan (LTP) acts as the annual budget as well as a plan
for the coming ten-year period.
13. The annual
budget outlines what we plan to do and how we plan to pay for it over the
coming financial year.
14. It is the
role of the Mayor to lead the development of the budget, while the decision to
adopt the consultation document and final annual budget is the responsibility
of the Governing Body.
Financial context
15. Budget
decisions since the COVID-19 pandemic began have focussed on reprioritising
expenditure and finding cost reductions and efficiencies, while considering
options to face the substantial long-term financial challenge of constrained
funding meeting higher costs of delivering services and capital investments.
16. The situation
has been exacerbated both by ongoing COVID-19 revenue impacts and rapid changes
to economic factors such as continued inflation and interest rate rises. These
factors are making it increasingly challenging for the council to balance its
operating budget.
17. A credible
and sustainable plan is required to tackle the many financial pressures facing
us, while continuing to prepare for further challenges such as climate change
and the dynamic economic environment. A lack of a credible plan would impact confidence
of key stakeholders such as auditors, central government, investors, and
council’s credit rating agencies and could lead to unacceptable rates
shocks for households and businesses in the future.
18. The council
will need a credible plan for the Annual Budget 2023/2024 that supports the
council’s long-term financial position.
Developing the Annual Budget 2023/2024
19. This meeting
marks the beginning of the process for developing the Annual Budget 2023/2024
and will be followed by a Governing Body workshop.
20. After
considering direction from the Mayor and input from members of the Governing
Body, staff will prepare further advice on budget options/levers to support
future workshops, the development of a Mayoral Proposal and then Governing Body
decision-making on items for consultation in December.
21. Staff will
then prepare a Consultation Document and Supporting Information for adoption by
the Governing Body in February 2023 to support public consultation with
Aucklanders. For any proposed options that require an LTP amendment, a detailed
statement of proposal will need to be prepared and then audited by Audit New
Zealand prior to the Governing Body adopting the consultation material and
consultation commencing.
Tātaritanga me ngā tohutohu
Analysis and advice
22. The starting budget for 2023/2024 is year three of the 10-year
Budget 2021-2031 (also known as the Long-term Plan or the Recovery Budget).
Staff update this to incorporate any council decisions made since the 10-year
Budget was adopted, and any changes to the council’s significant
forecasting assumptions.
23. The
communications and engagement approach for the Annual Budget 2023/2024
consultation will be outlined in a report for consideration alongside the Consultation
Document and Supporting Information for approval at a Governing Body meeting in
February 2023.
Financial context for the Annual Budget 2023/2024
24. In its Annual
Budget 2022/2023, the council projected ongoing operating budget pressures for
future years to be $90-150 million depending on inflation & interest
outcomes.
25. The budget
showed that $90 million of ongoing pressure could be mitigated over the medium
term through a range of levers including:
· achievement
of an existing $90 million efficiency target and $70m asset recycling targets
each year
· deferring
$230 million of lower priority capital projects over three years
· reducing
$30 million of lower priority services in 2023/24, and
· using
additional debt to fund the capital programme in 2023/24 and reducing a further
$50 million of lower priority services in 2024/25
26. The budget
also noted further mitigations (e.g., higher rates increases or further service
reductions) of around $60 million might be needed if inflation and interest rates
turned out to be at the higher end of projections.
27. Latest
projections are for substantially higher than the previously forecast rises in
both inflation and interest rates.
28. Inflation is
now forecast to have peaked at 7.3 per cent in the year to the end of June
2022, and to remain relatively high throughout 2024.[1]
29. Interest
rates are now forecast to be higher, reflecting the Reserve Bank of New
Zealand’s response to inflation[2].
Since 1 July this year, the market interest rate for a two-year term (the New
Zealand two-year swap rate) has increased by 31 per cent. While the council has
a high level of protection from interest rate movements due to its hedging
programme, the size and pace of the recent interest rate movements mean that the
additional interest costs for the smaller unhedged portion still equates to a
sizeable dollar amount.
30. As of late
October, these economic factors along with some other operating pressures have
been assessed as creating an unmitigated operating budget gap of around $270
million for 2023/2024. This is based on the currently planned 3.5 per cent
general rates increase for 2023/2024 and may change if there are further
inflation and interest rate movements.
31. This means
around $180 million of additional operating budget mitigations will be needed
for 2023/2024 over and above the $90 million of previously signalled
mitigations.
32. Council has previously announced it has
several levers, or options, to manage its operating budget gap and this
continues to be the case. However, the scale of this challenge will mean tough
choices and trade-offs about the mix of budget levers will need to be made via
this annual budget. These additional choices need to move the council towards
long-term financial sustainability as well as solving for the short-term
financial challenge.
33. The available
budget levers include:
· Debt
– there is some further short-term ability to fund more of the capital
programme with debt while remaining within key prudential policy settings. This
could temporarily free up more rates funding to fund operating expenditure
although this is not an enduring solution as it will need to be followed up
with replacement mitigations in future years. Unconstrained use of borrowings
to simply fund ongoing operating deficits would not be prudent or sustainable
and is not recommended.
· General
rates –the currently planned 3.5 per cent increase could be higher
provided this remains within affordability guidelines and does not create an
unacceptable shock for households and businesses.
· Assets
– further asset disposal could be considered including possible options
for council’s investments in strategic assets. Changes to council’s
ownership or control of strategic assets would require public consultation via
an audited LTP amendment process.
· Capital
expenditure – more capital investment could be delayed in addition to
the $230 million of deferrals agreed in the previous annual budget.
· Non-rates
revenue – could increase revenue by reviewing commercial revenue
streams and pricing, including increasing fees and user charges for some
council services.
· Central
government – could advocate to central government for funding
changes.
· Operational
expenditure – could seek further reductions in operating costs,
noting that this would need to be over and above existing efficiency targets.
As costs are a function of delivery, this would likely require some noticeable
and material changes to some services provided by Auckland Council, its
council-controlled organisations and/or other entities (which may require an
audited LTP amendment, depending on the scale of any changes).
34. There are
many ways the levers can be combined to address the estimated $270 million
operating challenge for 2023/2024. Different approaches will have different
consequences, and some will provide more sustainable and enduring benefits in
future years than others.
35. Staff
will provide advice on a mix of levers guided by the following criteria:
i) giving
confidence in the council’s financial management to investors, credit
rating agencies and other external stakeholders
ii) helping
create enduring solutions for ongoing budget pressures and moving the council
towards long-term financial sustainability
iii) not
imposing too high a burden on ratepayers or creating unacceptable shocks for
them in the short or long term
iv) being
able to be implemented within the required timeframe.
36. The Governing
Body will discuss the details of the cost pressures and the options/levers to
consider as part of the Annual Budget 2023/2024 at a workshop today.
Tauākī whakaaweawe
āhuarangi
Climate impact statement
37. Climate
action continues to be a consideration as part of the annual budget process and
political decision-making.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
38. All council
departments, CCOs and other entities funded by the council could be impacted by
decisions made for the Annual Budget 2023/2024. Auckland Council’s
executive leadership team and the chief executives of the CCOs were briefed on
the budget in early November and will continue to be regularly updated as the
development of the budget progresses.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
39. Local boards have a legislative role to provide input on regional plans.
40. Local board
feedback on regional decision-making will be captured in a separate report for
decision-making in December.
41. Local boards
will adopt their local content for inclusion in the consultation material in
December. This includes the proposed key priorities for each local board for
2023/2024, to be included in each local board agreement.
Tauākī whakaaweawe
Māori
Māori impact statement
42. Māori
engagement will be planned for as part of the communications
and engagement plan for consultation. More details will be provided in a report
to Governing Body in December.
43. Reporting on the Annual Budget 2023/2024 will include separate
analysis of feedback we receive from Māori entities.
Ngā ritenga
ā-pūtea
Financial implications
44. The
Annual Budget 2023/2024 project is funded as part of existing operational
budgets.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
45. Annual
budgets (including the LTP every third year) enable rates to be set for the
following financial year. Not completing the Annual Budget 2023/2024 in accordance with statutory requirements has the potential to
impact on the council’s revenue, and its ability to continue to deliver
the services and projects that Auckland needs.
46. Another
risk is compliance with the prescriptive requirements of the Local Government
Act 2002. Legal Services will review the consultation material for legislative
compliance before it is reported to the Governing Body for adoption.
47. If
a proposal triggers an amendment to the LTP, an external audit by Audit NZ on
behalf of the Office of the Auditor General will be required.
48. Any
proposal that requires an LTP amendment will need to be supported by a detailed
statement of proposal containing a range of analysis, options and financial
impacts prepared by staff and audited by Audit NZ prior to adoption by the
Governing Body.
49. The
timeline for the Annual Budget 2023/2024 has significant risk associated with
it. Large volumes of public feedback may need to be collated, analysed and
considered prior to decision-making and input from local boards, CCOs, the
Independent Māori Statutory Board, mana whenua and mataawaka will need to
feed into the appropriate parts of the process. Substantial project management
and political engagement is required to meet the key milestones and adopt the
annual budget by the statutory deadline of 30 June 2023.
50. Staff
plan to provide updates on key risks associated with the Annual Budget
2023/2024 and any audit requirements will be reported to the council’s
Audit and Risk Committee (or other committee with relevant delegation) as part
of the annual budget process in accordance with that committee’s terms of
reference.
Ngā koringa ā-muri
Next steps
51. A workshop
will take place directly after this meeting to discuss the updated financial
position and levers to consider as part of the Annual Budget 2023/2024.
52. After
considering direction from the Mayor and input from members of the Governing
Body, staff will prepare further advice on budget options/levers to support
future workshops, the development of a Mayoral Proposal and Governing Body
decision-making on items for consultation in December. Staff advice will inform
both the short and long-term impacts of the relevant options.
53. Staff will
then prepare a Consultation Document and Supporting Information for adoption by
the Governing Body in February 2023 to support public consultation with
Aucklanders.
54. The table
below sets out key dates in the process (at a high level) to support
decision-making for the Annual Budget 2023/2024.
|
Phase
|
Timing
|
|
Local boards hold workshops and
meetings to finalise local content for local consultation matters
|
Dec 2022
|
|
Governing Body decision-making on
mayoral proposal and items for consultation
|
15 Dec 2022
|
|
Governing Body recommend/adopt
consultation material
|
Early Feb 2023
|
|
Public consultation
|
Late Feb 2023 –
Late March 2023
|
|
Governing Body workshop/briefing on
consultation feedback
|
Late April 2023
|
|
Governing Body workshop/briefing on
financial position and final decision-making
|
Apr-May 2023
|
|
Governing Body workshop/briefing to
receive local board input on decision making for the annual budget
|
Late May 2023
|
|
Governing Body workshop/briefing on
final decisions for the annual budget
|
Early June 2023
|
|
Governing Body make recommendations/final
decisions on the content for the annual budget
|
Early June 2023
|
|
Local boards workshop local board
agreements
|
June 2023
|
|
Local boards meet to adopt the local
board agreements
|
June 2023
|
|
Governing Body meet to adopt the final
Annual Budget, including agreeing Local Board Agreements
|
29 June 2023
|
|
Final Annual Budget 2023/2024
documentation and information relating to the decisions made will be made
available to the public
|
July 2023
|
Ngā tāpirihanga
Attachments
There are no attachments for
this report.
Ngā kaihaina
Signatories
|
Authors
|
Tamsyn Matchett - Programme Manager
Ross Tucker - General Manager, Financial Strategy and
Planning
|
|
Authorisers
|
Peter Gudsell - Group Chief Financial Officer
Jim Stabback - Tumu Whakarae / Chief Executive
|
|
Governing Body
10 November
2022
|
|
Governing Body decision-making during
the 2022/2023, 2023/2024 and 2024/2025 Christmas recess periods
File No.: CP2022/15387
Te take mō te
pūrongo
Purpose of the report
1. To
whakaū / confirm the process for urgent political
decisions-making over the 2022/2023, 2023/2024 and 2024/2025 Christmas recess
periods.
Whakarāpopototanga matua
Executive summary
2. The
Christmas recess period starts from the last Governing Body meeting in December
and ends when the first scheduled meeting of the Governing Body or its
committees resume in the following new year. The council has a
responsibility to ensure there is a process available to make urgent or
significant decisions during the Christmas recess period.
3. Part 6 of the Local Government Act 2002 sets out
the obligations of local authorities in relation to decision-making. The
council needs to be able to make urgent decisions during the Christmas recess
period when required. This is simply a procedural decision to enable efficient
decision-making to occur. Existing delegations will remain in place for
all non-urgent decisions.
4. Any
matters to be decided under this delegation will be advised to decision-makers
via the chief executive or his delegate, who will supply the necessary
background and reasons for urgency. The decision will also be reported to
the next ordinary meeting of the Governing Body or relevant committee.
5. If
the matter is considered to be major, an extraordinary meeting of the Governing
Body will be called.
6. This decision is procedural in nature and has negligible impacts on
climate change, local boards or other parts of the council group.
7. If
a matter of significance arises and requires an extraordinary meeting, there
will be no additional cost as there is already budget provided to cover
political meetings.
8. There
are no risks identified provided there is a process in place to deal with any
urgent or significant decisions that may need to be made during this period.
9. The
Democracy and Engagement department will administer this process if
required. Any urgent decisions will be reported to the first governing
body meeting after the Christmas recess period.
Ngā tūtohunga
Recommendation/s
That the Governing Body:
a) tautapa
/ delegate to any two of either the Mayor or Deputy Mayor, and a chairperson of
a committee of the whole, the power to make urgent decisions on behalf of the
Governing Body or its committees, between:
i) the
last scheduled Governing Body meeting in December 2022 and the first meeting of
the Governing Body or other relevant committee in 2023
ii) the
last scheduled Governing Body meeting in December 2023 and the first meeting of
the Governing Body or other relevant committee in 2024
iii) the
last scheduled Governing Body meeting in December 2024 and the first meeting of
the Governing Body or other relevant committee in 2025
b) whakaae
/ agree that if a matter of major significance arises during any of the
Christmas recess periods listed in clause a), an extraordinary meeting of the
Governing Body will be called.
Ngā tāpirihanga
Attachments
There are no attachments for
this report.
Ngā kaihaina
Signatories
|
Author
|
Sarndra O'Toole - Kaiarataki Kapa Tohutohu Mana
Whakahaere / Team Leader Governance Advisors
|
|
Authoriser
|
Jim Stabback - Tumu Whakarae / Chief Executive
|
