Wellington Scoop
Network

What can we afford? Covid-19 and the financial toll on Wellington

by Conor Hill
The news at the moment is all covid-19. Along with everything else, it will take a massive financial toll on councils around the country and Wellington in particular.

The scale of the hit to the council’s forward revenues is enormous. It’s highly possible that rates could be frozen this year, and any rates increase will need to be kept near zero for the following few years. On top of this, a number of businesses will go belly up, some of the obvious ones first like hotels and hospitality, but spreading into other parts of the economy. This will leave a huge hole in the commercial rates take which makes up a large portion of Wellington city revenue. WCC’s largest commercial asset, one third of the airport, has gone from income producing to a maintenance cost.

At the same time, core council costs are not going away, and some are increasing. Three waters infrastructure requires hundreds of millions more than forecast mere months ago. In a post-Covid 19 world, it’s possible to imagine community facilities such as pools and libraries having increased cleaning costs.

Even using debt to fund has its limits. While the debt levels are currently manageable, central government places a hard ceiling on council debt. That ceiling is set as a ratio of revenue, and in a world of falling revenue, the amount the council can borrow is lower. It will not take long to hit it.

With regards to major projects, it’s clear that in current circumstances, the council can no longer afford any but the most essential. Projects planned to start years from now will not happen unless they are fully funded by central government. Neither a second Mt Vic tunnel nor mass transit can be funded by the council. Neither can the library. If the Convention Centre can be stopped, it should be.

For any of these projects to go ahead, central government will have to fully fund. Whether or not they should continue given decreased air travel, work from home opportunities, and possible ongoing nervousness about shared facilities is another question altogether.

Meanwhile, some tough calls need to be made by the council, even if just to give the rest of us some symbolic solidarity. Given the enormous pain many in the community are facing, it’s no longer appropriate to have so many staff (including councillors) on six figures. It makes no sense to charge rates to pay for council-controlled organisations that focus on tourism and events.

The alternative is some fairly radical change, but this would have to come from central government. Councils could be given funding tools such as congestion charging, market pricing for parking citywide, sales taxes or capital gains taxes. Central government could take three water infrastructure ownership and responsibility from local government. Central government could relax its debt to income ratio for councils, and directly fund councils.

Whether or not we get the big ticket items we spent the past arguing about seems fairly minor in the current world. Cities are diverse groups of people living in close proximity sharing things. Wellingtonians are good at that. Even in these strained times we are proving to be so. If we have to wait for our library to be fixed, or our transport issues to be resolved, so be it.

7 comments:

  1. Tamatha Paul, 2. April 2020, 10:13

    At this point, can’t see why central govt wouldn’t want to invest in their capital city. Whether giving us those financing tools or taking 3 waters, for example. Hopefully Minister of Finance being Wellington Central MP will bring in the goods. [via twitter]

     
  2. can5far, 2. April 2020, 12:03

    Conor and Tamatha, I fail to see why any taxpayer living in Omihi, Haast, Kaitaia or Rotorua should be asked to pay for WCC’s lacking a long term repairs and maintenance programme planning for their assets. This lack of planning has been a problem in Wellington for 20 or more years.

    In the late 1960s, a group of Christchurch citizens wanted a town hall so 5000 donors came up with the money. It was not funded by ratepayers. If there are assets which Wellington citizens would like, then those who can afford to should help to fund them. This would enable the WCC to focus on its core but not as glamorous functions. Repairs and maintenance of WCC assets need to remain a Wellington problem and there should be no expectation that central government should be paying for ongoing neglect in this area. Every council in the country is struggling and Wellington should not be expecting favours from Central Government.

     
  3. Conor Hill, 2. April 2020, 15:41

    Hi Can5far, I have not said taxpayers should pay for things. No one quite understands why Shane Jones doles out money willy nilly in the places you mention either. But yes basically every council in the country has issues. Many are caused by central government severely limiting what tools councils can use for financing, and forcing costs upon local government. Similar outlines could be written for any council and I would think the right approach is through LGNZ.

     
  4. Simi and Anky, 2. April 2020, 17:34

    Wellington earns hundreds of millions of dollars for the NZ Govt’s treasure chest each year. Be it tourism or tax revenue from immigrants… The Govt should look at this as an investment and not a burden.

     
  5. Andrew, 2. April 2020, 18:56

    Earnings via tourism. Past tense. I do not think we should kid ourselves that tourism will just spark up again in a few months to the same levels it was a few months ago. Look at the airline industry. They have depreciating assets worth tens to hundreds of millions each, parked up doing nothing. Boeing was already in the can for the 737max stuff up; their order book will be looking very bare at the moment as airlines cancel. Airlines run on thin margins as it is…

     
  6. jamie, 6. April 2020, 9:38

    Welcome to running a business. The Council has always been a non business as every year it can increase its funding to balance its books. Now it’s in the position of having to say what do i need versus what do i want? look at the financial reports and the council is in the poop. $13 million dividend from the airport – gone, $133M in cash mostly from borrowings. A wage bill of $100 Million. A economy propped up by Govt spending and tourism – tourism is gone for the next 2 years and govt spending will be reallocated from govt employees to welfare, health and unemployment payments. Welcome to being a Business Wellington and hang on for a rough ride.

     
  7. CP, 7. April 2020, 10:20

    Tax the top Multi National Corporations that take so much $$ from our economy abroad!