Claimed $1b funding gap rekindles debate over council’s financial crisis
Wednesday, 25 October 2023
Economic analysts claim the Wellington City Council is set to blow its its long-term budget by $1 billion, sending the council back into turmoil about whether there is a looming financial crisis.
Today the council will vote on whether to spend $147 million on the latest cost-blow out for the Town Hall, and the economic report raises the spectre of strengthening the council’s other earthquake-prone buildings like the Michael Fowler Centre.
John Swan, a retired lawyer who commissioned the analysis from advisory firm Castalia, said the council was spending without making clear the debt burden on residents.
“I don’t see how they can avoid spending the $1b without going back and looking at other options,” he said.
Swan’s concerns were raised in a submission to council co-signed by Luke Pierson and Robert Fisher. The three requested an open and transparent conversation about the council’s spending position.
“We are concerned that the absence of prudent and transparent financial management is further damaging Wellington’s credibility with central Government, potentially prompting further intervention,” they wrote.
The Castalia analysis predicted the council will exceed its debt cap (225% of revenue) this year. It said several spending decisions had been locked in over the past two years which were not foreseen in the 2021 Long-Term Plan, amounting to $500m.
However, a further $500m of spending identified in the report has not been approved by the council ‒ including earthquake strengthening for the Michael Fowler Centre and Opera House, future Let’s Get Wellington Moving projects, an additional $272m on three waters investment, and $61m of community housing construction costs.
Mayor Tory Whanau said the report made assumptions about the council’s spending decisions. “To pre-empt decisions from old figures is to create uncertainty for Wellingtonians,” she said in a statement.
The council was in the process of deciding which projects should go ahead over the next ten years and there would be “hard decisions to make”, Whanau said.
The council did want an informed debate about funding future costs during public consultation on the Long-Term Plan, but it was important that feedback was based on “up-to-date information, including the projects we are progressing”.
Behind closed doors the council has been considering how to scale back capital expenditure, leading to arguments about whether there was a financial crisis at the council or just inconvenience.
The public information is murky ‒ public information about what the new plan will include and what cuts it will make has not yet been released.
Councillors have previously mentioned that capital spending needs to be cut by $100m a year, which will involve cutting and re-scoping existing capital projects.
Chief financial officer Andrea Reeves said the basis behind the costs put forward by Castalia was not clear.
“At no time has Castalia spoken to the council about the assumptions they’ve made. Nor is the council aware of why Castalia has made the assumptions it has.”
Castalia was used by the National Party before the election to review its tax and revenue numbers and was forced to defend its analysis of the foreign buyers’ tax, after a number of economists said the numbers were not credible.
Swan’s submission requested that the council stop its rating policy review “which ultimately sets rates” until the financial position was public. But Reeves said that review looked at how the budget was shared around the ratepayer base and was separate to the spending in the LTP that Swan was concerned about.
Councillor Diane Calvert, who last week said she was no longer sure whether crisis was the right word to use, said the report showed that there was indeed “a looming financial crisis”.
She wanted the council to release public debt forecasts before making spending decisions which would be funded by debt, including today’s vote on the Town Hall.
“I’m concerned that there is no regular published financial forecasting information especially at times of when decisions are being made on new significant capital spending,” she said.
Nicola Young, Tony Randle and Ray Chung agreed with Calvert, with Young describing the report as “clear, independent evidence” which showed the spending had to stop.
“It supports my well-voiced warnings about the Council’s ‘orgy of spending’, in addition to the costs of borrowing that will affect future generations.”
Chung said the four councillors had raised the financial problems but instead of discussion, they had been hit with Code of Conduct complaints “using an expensive lawyer”.
Randle said he agreed with the submitters that the council needed to release better information about its finances in order to move forward “in a way that does not bankrupt the city”.
Even though some of the projects included were unfunded, it had been difficult to see the overall financial picture in terms of the gap between income and proposed commitments, Randle said.
The Castalia analysis was pertinent, but didn’t show anything that wasn’t already on the council’s radar, said Ben McNulty.
Key to the behind closed doors briefings about the financial situation were sky-rocketing interest costs, making debt increasingly unaffordable, he said.
Castalia’s assumption that $330m of future Let’s Get Wellington Moving debt would fall on the council’s balance sheet was incorrect, McNulty said, although details of funding arrangements were never finalised for the transport programme.
Deputy mayor Laurie Foon said she encouraged residents to submit on the LTP when they had current information, which would be early next year.