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Cutting costs, increasing rates, and holding to values

by Dr Jenny Condie
As the Wellington City Council has worked through the effect of the pandemic on your rates bill, many people have been asking us to cut wasteful, “nice-to-have” spending in our budget. I wish it were as easy as some people believe that it should be.

In reality, successive mayors have combed through our budgets line-by-line over the years looking for spending they could divert to fund their priorities. Combined with strong public disapproval of rates increases, the WCC is actually run quite tightly.

Our executive leadership team had already identified $3.2 million worth of organisational savings that were included in our annual plan prior to Covid-19. Chief executive Barbara McKerrow has pledged to conduct a further “thorough review” of our costs in response to the pandemic. This will be completed prior to the annual plan adoption in June. Significant amounts of spending have been reprioritised in our pandemic response plan, which means we are making savings – which we plan to spend as part of our city’s pandemic response plan. Essentially, all of the savings that are possible without cutting services are already in the works.

Cutting capital projects that are already underway is close to impossible. While I have sympathy with those who would like to see the convention centre halted, the reality is that the foundations of the building are almost complete and there would be significant financial penalties and reputational damage from breaking the contract for its construction. The only possibility is that we repurpose the space when it is complete, an idea I raised prior to the lockdown and which I will continue to pursue.

The list of shovel-ready infrastructure projects we submitted to central government has also caused some confusion. Many of these projects are not included in the budget for this year, so asking us to “cut” them will not deliver any immediate savings. When government asked for a list of shovel-ready infrastructure projects they could invest in to stimulate the recovery, our staff looked through all our projects and dusted off any that met the criteria. If central government does not fund them, they will not happen this year.

Demand for some of our services will likely fall once the city comes out of lockdown. Former mayor Kerry Prendergast has suggested that the city will not require as many parking wardens or food inspectors in the immediate future. She may be correct, but we won’t know for sure until our city starts to open again. It creates administrative costs to cut staff now that we may need to rehire soon, not to mention the stress and anxiety it would cause for all our staff. We will look at staffing levels as and when it becomes clear that changes are needed, not before.

Any further savings would require us to reduce the level of service that the WCC currently provides to the community. Some people would be fine with us disestablishing the Wellington Regional Economic Development Agency (aka WellingtonNZ) while others would argue that it is essential to our city’s recovery. Some suggest we should fire everyone with the word “communications” in their title, while others would counter that ineffective communication and engagement processes limit their ability to participate in our local democracy.

Fundamentally, what services you view as essential rather than nice-to-have is a matter of values. Kerry Prendergast’s prescription for Wellington is based on a different set of values than those shared by a majority of elected councillors. It is therefore no surprise that she is unhappy with our response thus far.

She identifies her priorities as job creation and business support, lower rates, water, sewage and rubbish. She views improving the social and environmental services in our city as “fine” in good times, but not a priority during an economic crisis. She views borrowing to get us through the crisis as “selfish,” undermining intergenerational equity by passing costs on to future generations.

I agree with some of her points. Clearly, we need to focus on creating jobs and supporting businesses to survive this shock. That’s why I voted for rates deferrals, refunding or cutting fees associated with retail and hospitality businesses, and why I support WellingtonNZ’s reprioritising some tourism promotion funding into business support functions.

Where we differ is that I believe that spending on social wellbeing is even more important during a crisis than during the good times. This is when our community needs extra support, not less. The physical distancing needed to flatten the curve creates risks of loneliness and isolation, in addition to the financial stress of an economic downturn. These support services help keep people connected and engaged, which benefits all of us. This is why I voted for an additional $1.5 million for community grants that will support organisations doing vital work in our neighbourhoods.

The environment is the most important issue we face if we care about intergenerational equity, along with public finances. All human flourishing depends on an environment that can support us. There are decisions that might save costs now, but would just defer the cost of environmental clean up to future generations.

As I have said previously, I would normally never support borrowing to pay for operational costs, but these are not normal times. To avoid borrowing we would need to deliver savings large enough to cover our forecast shortfall of $68 million. That is coming up on a third of the WCC’s total expenses – and we spend roughly one third on roading and transport, one third on water, stormwater and sewage, and one third on everything else. Future residents of Wellington will have to pay the cost of this borrowing over the next ten years, but they will also benefit from not having to rebuild Council operations from scratch when this crisis passes, as it will.

Our former mayor also believes that Council decisions should be guided by the principle of retaining Wellington’s advantages. However, she fails to explain what she believes those advantages are.

WellingtonNZ’s 2019 Statement of Intent states:

“This is a region filled with wildly creative people doing wildly creative and innovative things across all sectors. We are surrounded by wild landscapes. We host wild events. We have a wild energy that ignites all that we do.”

I agree. The phrase “wildly creative” captures Wellington’s competitive advantages and the potential we have to enhance those in the future. Let me unpack some of the meanings that are layered in those two words.

Wild landscapes – our harbour and green hills provide amazing landscapes surrounding our city; Zealandia’s success has seen our suburbs trees increasingly fill with birdlife like tūī, kererū, kākā, pīwakawaka, and kārearea. We are possibly the only urban centre in the world that is increasing our biodiversity. What could the future hold if we invest further in this success? Could our city streams be restored, and brought back to the surface from the pipes they now run through? Could we have corridors of native trees through our city centre providing bird superhighways to encourage the spread of species from Zealandia across our city? Could we have green roofs on bus shelters and buildings bringing nature into the city for the wellbeing of people and birds? What would a true urban wilderness look like?

Wild events and hospitality – People come from across the country to attend world class events such as WOW and CubaDupa. We have great food, craft beer, coffee at a wide variety of cafes, restaurants and bars that cater to every taste. Our boutique shopping in fashion, design, and food means you can find that special something in Wellington you won’t find anywhere else.

Wildly vibrant and energetic – the most exciting cities in the world all have lots of people living in apartments and other high density housing. Our hills mean our city has developed as compact and walkable. Providing more housing for people to live in the central city and city fringe will enhance the energy and vibrancy we already have and give our amazing hospitality and retail businesses a huge customer base right on their doorstep.

Creativity in business, government, and the arts – Wellington can be a world leader in government innovation, high growth tech firms like TradeMe and Xero, a wide variety of the arts from film, theatre, music, and dance. What would it mean for Wellington if we stopped viewing these sectors as unrelated and started to nurture the thread that connects them all – creativity and innovation? Rather than having an economic development strategy and an arts and culture strategy, what if we had a creative strategy for our city?

Hothouse for creative talent – Wellington already attracts the best and brightest to live here, whether as students, young entrepreneurs in business or the arts trying to forge a new path, or highly educated and experienced knowledge workers. We have the highest education rates and most bilingual speakers of any city in New Zealand. If we want Wellington to be somewhere people can come to take a risk and try something different we need to be a city that anyone can afford to live in and easily get around.

Creative solutions for our climate – Copenhagen is recognised as the green tech capital of Europe. They have cut their emissions by 42% from 2005 levels while growing their city and their local economy. The greatest opportunities for economic growth in the near future will be low carbon. How do we make Wellington the Copenhagen of the southern hemisphere?

As we shape our city’s recovery from Covid-19, these are Wellington’s advantages that I will be working to protect and enhance. When evaluating recovery proposals these are the questions I will have in mind:

Will this improve our urban wilderness? Will this support our wildly energetic city centre and the events, hospitality, and retail that make it so vibrant? Will this support creativity in our city? Will this attract the most talented people to live and work here? Will this support our city’s transition to low carbon technology? Overall, will this support us to build back better the “wildly creative” Wellington we all love?

The medium-term recovery from a crisis is often more challenging than the immediate, emergency response. At the WCC, staff and councillors are looking for places where we can make savings, while balancing that with supporting our city’s immediate needs during this crisis, and investing in infrastructure and services to enhance Wellington’s “wildly creative” future.

Dr Jenny Condie is a Wellington city councillor for the northern ward.

16 comments:

  1. Rosamund Averton, 21. April 2020, 10:07

    The priority for Wellington is surely the upgrading of our “horizontal” infrastructure … that is, all and everything related to the carriage and delivery of water to all citizens. An excellent report was produced by a former WCC staffer Maria Archer about ten years ago; her report detailed all that was, and all that needed to be upgraded. Since then there have been many earthquakes disturbing the life blood of Wellington.

    I cannot imagine why the contract for the “convention centre” on reclaimed land should not be cancelled. Does anyone know what the break fee would be? The cleared site would make a great place for a waterfront mixed botanic garden filled with whatever will grow there. Maybe the return of the Ngaio taken from Waitangi Park when it was created on the polluted site!

     
  2. Traveller, 21. April 2020, 10:36

    Dr Condie’s arguments are all convincing. But she doesn’t address the central issue which is: whether or not most Wellingtonians can afford to pay another increase in their rates at this time of crisis.

     
  3. John M, 21. April 2020, 11:19

    Well said Traveller, that is the point that Cr Condie and this council seem incapable of grasping! Let’s leave all the “wildly” stuff for the moment and face reality. Our country and our city are in a very real crisis.

     
  4. michael, 21. April 2020, 11:36

    Dr Condie, you say the WCC will suffer “reputational damage from breaking the contract” for the Convention Centre. But in the face of the worldwide crisis which is causing unimaginable financial hardship for all countries, the only ones who are going to suffer reputational damage are city councillors if they don’t make hard decisions, and Willis Bond if they ignore the burden they would be placing on ratepayers by expecting “significant financial penalties” in times like this.

     
  5. NigelTwo, 21. April 2020, 12:39

    Dr Jenny. The global economic forecast is not consistent with the “boom time” rhetoric you have shoveled out here. Birds, WoW, cafes and Copenhagen indeed. We need some wildly creative thinking about how to manage recessionary times. Or is that too painful to contemplate? Just raise the rates instead.

     
  6. Dr Jennie Condie, 21. April 2020, 14:34

    I’ve asked for an update on the convention centre. Expecting more information later this week. I’m fairly sure there would be a hefty financial penalty for breaking the contract. I don’t know how much, but I would guess tens of millions. And reputational damage has financial consequences – higher prices on future projects! [via twitter]

     
  7. Dave Armstrong, 21. April 2020, 14:35

    Cheers Jenny. Your clear and incisive communication on council issues at the moment, including the possible rates rise, is most appreciated! [via twitter]

     
  8. James, 21. April 2020, 15:09

    Dear Jenny, Don’t necessarily agree with everything you have written, but I am really grateful you have taken the time to communicate your views.
    Now are there any Lambton ward councillors prepared to put their heads above the parapet?

     
  9. Hugh Rennie QC, 21. April 2020, 15:53

    This is the classic Council argument for rates increases. Councils list what they have to do by law (fair enough), what they are doing (a vast range of activities ranging from must do through nice to have to wildly extravagant). Then they price this. Then, aghast at the cost, they take a few things out. Usually things you can’t see like fixing the drains. Never the so-called “economic development” schemes like WREDA/Wellington NZ whose annual value is way below the $22million handed to it. Or subsidies to businesses like Singapore Airlines. They find the total still looks awful. So then they push up the business rates differential (as Wellington did last year) to try to hide the real increase from residents. End result – yet another rates rise, plus even higher “user fees”, plus Wellington businesses facing even more costs. They never start with what the ratepayers can afford, then consider how best to spend it on the core services needed.

     
  10. Northland, 21. April 2020, 17:59

    Jenny, I also applaud you for taking the time and effort to communicate your views. As stated elsewhere, it would be also nice to see some contributions from the other councillors and the mayor.

    I strongly disagree that the Council can just plough on with rates rises regardless. The economy is going to shrink and unemployment is going to rise significantly . The Council needs to show that it can tighten its belt. It should not simply borrow its way out of this mess as that would be transferring the burden onto ratepayers of the future. My suggestion would be to look very closely at the list of items provided by PCGM here. PCGM has stated the case quite clearly enough. I’m not sure how it could be made any plainer.

     
  11. TrevorH, 21. April 2020, 18:47

    I’m speechless. Any proposal to increase rates when thousands will face redundancy or bankruptcy is deeply immoral.

     
  12. Lance, 21. April 2020, 22:29

    I’m with TrevorH and Northland on this one – I continue to be gobsmacked that the council thinks anything other than a 0% raise is appropriate in this climate. While the rest of us grapple with income loss, they plow ahead and take more of what’s left of our reduced incomes claiming “contractual obligations” and other such nonsense. Absolutely immoral.

    As for breaking the contract – all contracts can be renegotiated, and the WCC is a big enough player that there will be no “reputational damage”. I would say the opposite is the case, and that Willis Bond will suffer significant reputational damage if it holds the WCC to a contract which is costing ratepayers $180m+.

     
  13. Don M, 22. April 2020, 10:35

    Full credit Jenny for engaging on the subject. But please excuse the cynicism of hard-pressed ratepayers who have heard it all before. Yes, the Chief Executive and her team will talk darkly about having to cut essential services if the budget is reduced. It’s a classic bureaucratic ploy known as Closing the Washington Monument – look it up. Meanwhile the gravy will continue to flow to the favoured non-essential activities. PCGM has identified some. There are many others. For example, when you add up various bits in the budget there is over $17.5million for cycling related activities (with other treats doubtless included under other items). Not bad pickings for one small group that has the ear of the Council. Could some of this be dropped or at least deferred with the money being returned to ratepayers. As you say, however, this is hard – it’s much easier just to increase the rates.

     
  14. april, 22. April 2020, 12:24

    I believe rates should be increased in these darker times AND all Councillors should take an 80% reduction in pay.

     
  15. Geoff Palmer, 23. April 2020, 7:40

    It’s worth repeating Hugh Rennie’s observation (above):

    [Councils] never start with what the ratepayers can afford, then consider how best to spend it on the core services needed.

    It’s time they did.

     
  16. TrevorH, 27. April 2020, 1:19

    The DomPost reports that Phil Twyford has said Councils must not cut their rates if they want government funding:
    “If you deliberately cut your revenue by scaling back rates increases, or going for zero rates, or cutting rates, how can I stand up with my colleagues and make the case that we should be investing alongside you. I can’t do that.” Sorry, but I’m speechless.