Inconvenience but no financial crisis at Wellington City Council

Tuesday, 17 October 2023

A month ago Diane Calvert was sounding the alarm about a financial crisis at the council, but today she’s not sure it’s the right word to use.

“It depends how you define crisis,” she said. “There are significant financial challenges we need to address.”

At the council’s most recent audit committee meeting, staff warned that next year’s long-term plan would be the most challenging in two decades.

In a series of workshops, councillors have been considering their priorities and how they can scale down the cost of the capital works programme over the next ten years.

Full information about the budget is not public yet — but councillors say they need to cut capital spending by $100 million a year, from $450m to $350m.

The warning comes at a time when the council has broken ground on several hefty infrastructure projects and their costs are steadily rising. There’s the Central Library, a citywide network of cycleways, a state-of-the-art sewage sludge plant, and of course, the Town Hall.

Capital spending was projected to hit $566m this year.

It was bonkers to say there was a crisis, said councillor Tim Brown. The financial news the council had received was an inconvenience, but not a crisis.

Cut-backs would be welcomed on the independent side of the council table, Brown said.

“The guys who will find it harder are the ones who have voted to do the spending. … Of course we will be able to reduce the scope of our capital programme.”

John Apanowicz said there would be something seriously wrong if the council was in crisis while holding its AA financial rating. The council did have financial issues and challenges, and he could understand why councillors were nervous, but the word crisis was a “stretch too far”.

Rebecca Matthews, who heads the committee in charge of financial planning for the council, said headwinds would not hold back the development of the city and would not mean significant cuts to services either.

Compared with councils like Auckland, Wellington was doing well, Matthews said. It had not hit its self-imposed debt cap, which was already set at a lower level than the official debt cap from the Local Government Funding Authority.

The workshops were about avoiding the need for drastic cuts further down the line and giving the council some breathing room under its debt cap.

“We are doing our homework, we’re so much further ahead of where we were with last term’s [long-term plan].”

In the medium-term Brown was confident the council would be fine, with relief coming in the form of water charges if metering was introduced and government subsidies gradually coming into effect for the new community housing provider.

Other independent councillors like Tony Randle were less confident about reducing the scope of the capital programme, which was much larger than the city council could afford.

“I’m concerned that these are hard decisions to make and this council’s track record has not shown we can make a hard decision.”

There was a lot of pressure on the council’s finances coming from several areas, Randle said.

Since the last long-term plan, the assets owned by the council had increased in value from about $7.7 billion to $10b, increasing the costs of both insurance and funding for depreciation.

Then there were cost escalations. The budget increase for the Town Hall alone could require the council to scupper ten smaller capital projects, something that Randle thought many councillors were going to be unhappy about.

Brown has been floating ideas like selling the council’s shares in the airport in order to create a self-insurance fund. Right now only $700m of the city’s $10b worth of assets are covered by insurance.

On top of that, all of the council’s financial assets are in the city and a large earthquake could pretty much wipe out its income, he said.