Government to appoint Crown observer to Wellington City Council

Tuesday, 22 October 2024

Simeon Brown says he will appoint a Crown observer to Wellington City Council.

The minister said he made the decision after taking advice from officials.

The move comes after the council had to rewrite its 2023-2024 Long Term Plan.

Local Government Minister Simeon Brown says he will appoint a Crown observer to Wellington City Council.

This follows news that the council will now be required to rewrite its 2024-34 Long Term Plan following the fallout from the Wellington Airport share no-sale.

Brown said he was concerned about Wellington City Council’s ability to manage their long term plan amendment and adoption process.

“Following advice from officials I have identified there is a significant problem at Wellington City Council that warrants the Government appointing a Crown observer,” he said.

“Advice provided to me by the Department of Internal Affairs highlights that the council is not utilising its balance sheet appropriately in order to maintain critical infrastructure like water, and that is failing to manage its insurance risk appropriately. These risks have been increased due to its recent decision to amend the long term plan.

“The department advises me that while it is not uncommon for councils to amend their long term plans, it is uncommon for a council to reverse such a critical financial decision that requires such an amendment only four months into the cycle.”

Wellington Mayor Tory Whanau said in response, “it is my view that we accept this and work constructively with whoever is appointed”.

In making his decision, Brown said the council had demonstrated an inability to understand the mechanisms it has available to manage financial pressures.

This includes the council choosing in its long term plan to use rates revenue to pay for its water infrastructure up-front, rather than appropriately using debt financing.

“The advice from the department highlights that the 2024-34 Long-Term Plan shows the council’s net borrowings for water services increase by just $66 million to fund this investment, with the remaining $1.10 billion of capital investment proposed to be funded by rates.

“This is an inefficient and expensive way to fund infrastructure investment. The council is front-loading costs on current ratepayers rather than utilising debt financing to spread the cost over current and future users of the assets,” Brown said.

The Department of Internal Affairs estimates that the council’s financing approach to water services as set out in the 2024-34 Long Term Plan would overcharge Wellington residents by more than $700m over 10 years, he said.

Brown said the current environment at Wellington City Council is not conducive to managing the Long-Term Plan amendment and adoption process.

“Recent council meetings have also seen councillors walk out, refusing to participate in votes, and confusion regarding decisions, amendments, and voting. Councillors have also made repeated public criticism of one another and council staff.

“This environment is not conducive to the council effectively managing the Long-Term Plan amendment and adoption process. Not resolving these challenges would likely have adverse consequences for Wellington residents and ratepayers.”

Brown added the Department of Internal Affairs was of the view that an appointment of a Crown observer was necessary to better enable Wellington City Council to address the problem and allow him as minister to monitor their progress in addressing it.

The observer will be appointed to assist the council to ensure that it secures a financially sustainable long term plan, he said.

Wellington City Council has been given a draft Terms of Reference and has 10 working days to respond.

Brown said the decision to appoint an observer does not mean the Government is taking responsibility for any decisions made by Wellington City Council.

“The council and mayor are democratically elected and are responsible for the decisions made by the council, and will remain accountable to their constituents.”

He said he hoped that by providing a observer, Wellington ratepayers would be able to have increased confidence in their council and that long term plan decisions were finalised.

Responding to the announcement, mayor Tory Whanau said she would consider the draft Terms of Reference and discuss the decision with councillors.

Whanau called the decision an opportunity to put disagreements within council in the past and build a coherent plan that delivered outcomes for Wellingtonians.

“The decision not to sell our minority shares in the airport to resolve our growing insurance risk has meant we have some tough decisions to make in the coming weeks and months.”

“I am focused on addressing our insurance risk without increasing rates. Additionally, I do not intend to cut projects that are critical for our city’s growth and sustainability. For me, that means protecting our social housing, and continuing funding for water and key climate initiatives.”

Whanau said she intended to work with councillors in the coming weeks and months to put forward an amended long term plan proposal that offered surety to Wellingtonians.

Labour Party leader Chris Hipkins called on Brown to release the official advice he received.

Hipkins warned there were “a lot” of other councils under financial pressure and in a similar situation.

“If this is the start of an ongoing process, I think we won’t find many councils that don’t end up with some kind of intervention,” he told reporters in Parliament.

He also called for Brown to release the advice from the Department of Internal Affairs detailing how the council’s long term plan would overcharge residents by more than $700m over the next decade.

Finance Minister Nicola Willis said appointing an observer was a good step and not one the Government took lightly.

'Clearly, there are challenges at Wellington City Council. It is a democratically elected council and remains accountable for its own decisions,” she said.

“The Crown observer ensures that we can monitor its progress in resolving its long term plan and addressing the significant financial challenges it faces to provide support and advice.”

ACT leader David Seymour said it was about time the Government intervened “in a light touch way initially”, showing it may take further steps if necessary.

NZ First leader Winston Peters said intervention was needed in Wellington because the city “is being destroyed”.