Keeping Welly Affordable?
News of Wellington City Council’s proposed 12.8% rates rise, and majority self-asserted inability to find any savings at all, provoked understandable fury or even despair for many people, reinforced by news of many other Councils reining in spending. Undoubtedly many people wondered ‘if Councils elsewhere can do it, why can’t WCC?’ Greater Wellington’s proposed 17.8% rates hike can’t have helped that mood. Some people did correctly point out the need to catch up with long term infrastructure underinvestment, but others said critical infrastructure investment would be more affordable if Council prioritised all spending better – as most people and businesses are having to with our cost-of-living crisis.
So what is the real picture? WCC and other Councils which face similar infrastructure deficits have increased investment significantly and more will undoubtedly follow. In Wellington we’ve seen major new wastewater pipes completed in Bowen-Whitmore-Featherston Streets and well underway in Wakefield and Taranaki Streets. Together this will mean a more resilient network able to support more people living downtown. Then every day there are complaints about leaking water pipes. They are being fixed faster than ever but they seem to be breaking faster too – so much more is needed to get on top of the problem.
Water reform incidentally is not a magic “money tree”, nor will it magically fix pipes. It is reliant on borrowing (more than the current national debt in part because of service level aspirations) all effectively secured against ongoing revenue from water consumers (that’s still us as ratepayers and renters) which will inevitably come from water metering.
So what about rates? First it is important to remember growth in the number of ratepayers reduces the cost per ratepayer, but also increases the overall costs that get built into budgets.
Secondly it is important to distinguish between capital and operating costs, just as you and I would distinguish between buying a house (capital cost, funded by borrowing, giving benefit and paid for over time) and running the house (operating cost – electricity, rates, insurance – immediate consumption). Opex hits rates immediately. Capex hits rates immediately too but only to the extent of interest payable on the debt it causes, and depreciation of the assets created.
Rapidly rising rates projections
Rates were at $322 million in 2018/19. Council’s 2018 Long Term Plan (LTP) forecast rates that would be $492 million in 2027/28. Major causes of that increase included the Town Hall, St James, Omaroro Reservoir and Takina Convention/Exhibition Centre. Inflation was built in and assumed to remain around 2%. There was no issue with the central library, Let’s Get Wellington Moving was only in formative stages, cycleway investment was relatively modest, AND pipes weren’t breaking!
A lot changed by Council’s 2021 LTP with a major increase in the rates forecast to $570 million in 2027/8. There was a major increase in 3 waters investment, the cost of strengthening and modernising the central library, COVID (cost an estimated $70 million), repairing the Mount Albert sludge pipe during COVID ($20 million), tackling Council’s social housing deficit ($265m opex, $461m capex), far more significant Let’s Get Wellington Moving and cycleway funding, significant increases in insurance costs, and of course the Town Hall, Takina, St James and Omororo Reservoir didn’t go away.
WCC’s CEO’s 2022 Pre-election Report increased that forecast dramatically again, this time to $644 million in 2027/8. The big changes were increasing like-for-like costs of repairing and replacing pipes (each job costing much more) and inflation increasing from less than 2% to 7%.
Are ratepayers’ concerns reasonable?
So are people’s concern real? Simplistically those 2022 projections would see a householder who pays $5,000 today paying around $8,300 by the end of the current LTP period in 2031. The usual rule of thumb is that for affordability rates shouldn’t be more than 5% of total income, but that’s 24% of today’s after-tax rate for a couple on superannuation. Obviously superannuation/income rates will rise but rates will clearly be a real affordability issue for many in our community unless something changes.
So there is no doubt that rates projections have increased dramatically, and there is a real affordability issue for Wellingtonians.
The question is, can Council actually do anything about it?
Could Council earn more to offset rates?
Could Council earn more from non-rates sources, especially beyond the usual user charges? Congestion pricing is an option. It would also to help to change travel behaviour but the danger at this moment is that will just make working from home even more attractive, not much help to the struggling central city.
Local Government has asked Central Government for years to ‘return’ the GST on rates (tax on a tax) and/or Government itself actually paying rates for the services it consumes.
Development contributions are another potentially valuable non-rates income source. New developments rightly pay towards new Council capital expenditure required because of that development.
Council could also look to improve the return on its investment portfolio, notably the 34% share in Wellington Airport and ground leases and commercial land holdings.
Could Council reduce costs?
Fiscal responsibility is obviously important, containing and reducing /prioritising spending where appropriate. That doesn’t mean never doing things, but it might mean delaying something when there is significant financial stress on the community.
There are some savings that could be very large but would only occur over time.
Concentrating and phasing new housing development in a smaller number of places as Council originally intended rather than a scattergun approach would reduce infrastructure costs enormously.
Fixing City Council Social Housing is critical. City Housing will lose $13.3 million this year ($36,000 a day!) That’s up from $7.2 million just two years ago and the loss would reach around $49 million by 2013 if nothing was done. It also has a capital budget of $461 m over 10 years. This shows the importance of the last Council establishing a Community Housing Provider to take it over and start digging it out of a rapidly deepening hole.
There are some immediate savings opportunities to examine:
Some have suggested deferring the Central Library ($201 million capex over 6 years) as the one significant building project that is not irreversibly advanced. However there are contractual commitments and Wellingtonians strongly supported the work, and doing it properly when consulted on in 2020. Physical work is well underway and getting the library back is necessary to bring life back to Civic Square and the surrounding city. 1.3 million people a year used the old version of the library, and there is little doubt the new one will have even higher usage.
However, adding $12 million last December in a scope change for additional design elements seems far more discretionary.
Frank Kitts Park playground was already very expensive at $6m and was recently increased further to over $9 million. Could the costs, for example of landscaping be reduced? Moving big trees and rain gardens are expensive.
Wellington LIVE understands buying spaces in a carparking building for $13 million is not cost neutral though again this was dealt with in public excluded in December so we don’t know the details.
There’s always argument about what activities are essential. Good asset management planning is essential, and there would be little argument about transport, infrastructure, parks, pools, libraries and the like. But what about an average of 10% cost reduction (so leaving 90%) saving in some ‘less core’ activities? Obviously the lowest priority spending should be chosen. Doing that across the following list of activities would save some $7 million a year or about 1.5% off rates. (Council and committee processes, various Climate Change initiatives (not including transport and urban development), Maori/iwi relationships, Events, Wgtn NZ tourism, Venues, Destination Wgtn, Economic and City Growth, International Relations, Museums Trust, City Events, Citizens Day, Cultural and Social Grants, City and Public Arts, NZSO/Ballet/Wgtn Orchestra, Regional Amenities, City of Culture, Golf Course, Community Advice and Information) That might be a bit painful, but at 12.8% a lot of ratepayers will be feeling the pain.
There is $20 million budgeted over 7 years as rebates for ‘green and accessible’ buildings. Of course these are good things but aren’t there sufficient market and regulatory signals to deliver green and accessible buildings without a ratepayer subsidy?
A good look at how robust Wellington Water’s suggested 80% increase in piece rate for water projects would be worthwhile to see whether that work can be done for something nearer the originally projected cost. Are there efficiencies? Is Wayne Brown onto something about traffic cones and the cost of regulation generally?
Then of course there are Council overheads to consider.
Council spends a huge amount on communications. Many would question how effective that spend currently is. Surely there are major efficiencies there. For example Councillors themselves questioned $200,000 for the quarterly letterbox booklet. We suspect that was because it was a specific product they were aware of when most other costs are harder to see.
Building control will cost $4.1million (after income) and is a high risk operation for all Councils and another area Government needs to come to the party. Wellington ratepayers will over time pay some $150 million in leaky home costs and imagine if liability for other risks were added! Should building consents be so heavily subsidised?
Cycleways is everyone’s favourite target. The last Council decided to speed up delivery, increasing officers’ proposed budget from $120m to $226m over 10 years. That’s a capital cost, but there is also significant associated loss of carparking revenue which goes straight on the rates. For example changes to Whitmore – Bowen – Glenmore – are estimated to lose Council approximately $700,000 per annum (0.16% of rates).
Let’s Get Wellington Moving also has capital and operating costs. It’s a high-cost delivery model shared between ratepayers (WCC, GWRC), vehicle users (Waka Kotahi NZTA), and probably taxpayers (Government). There are some very expensive capital costs, starting with the Golden Mile ($100 million of which ratepayers will pay roughly half) but obviously there are some huge decisions to be made about which future investments to make, cost management, and how they are funded.
There are some arguably discretionary or partially discretionary capital projects, or projects that could be reduced in cost or held back. The LTP includes a new Khandallah Pool ($8m – triggered by seismic work on changing rooms which doesn’t actually need to be done until 2030), EV chargers ($3.5m), Begonia House (8.5m), Grenada Sportshub ($13.2m), Speed management ($12.4m), Bus priority ($147m), Golden Mile ($51m), and Skatepark ($5m).
The planned sludge treatment levy is essential infrastructure and is in addition to these rates costs. It is very concerning there has been a very large increase in its cost, and that it was dealt with in the same December public excluded meeting as the carparks and Frank Kitts playground, without apparent reconsideration of whether the technological approach is still valid. The levy costs will start to kick in immediately, rising to between $281 and $321 per year per household by the time it is operational in 2027. (another 1.8% per year for the next 4 years and then ongoing). Given the costs we will pay some transparency is in order, and project discipline essential.
Assuming the sludge plant costs are a given, Wellington LIVE’s calculation is that if you took all these suggestions these measures would save approximately $50 million or almost 12% in operating costs which would carry over into following years too, and that’s without savings in social housing through the new operation, water or new revenue opportunities.
Undoubtedly Wellington LIVE members will have ideas too!
So there does seem a lot that our elected representatives should really think about, ask the right questions about, and engage in open, two-way conversation and listening with Wellingtonians.
Written submissions close on the 30th of April and there is also the opportunity to say you want to tell councillors what you think. Wellington LIVE encourages you to take the opportunity.
Wellington Town Hall
New sewer pipe being laid – Featherston Street
New sewer pump station and pipe being laid – Taranaki Street
Work underway in Wellington Central Library
