ANNUAL PLAN 2016/17 MAYORAL PROPOSAL

PURPOSE
To present the Mayoral proposal for the Annual Plan 2016/17. This report will be referred,
with full recommendations, to the Governing Body of 17 December 2015.

EXECUTIVE SUMMARY
This Annual Plan proposal is built on a platform of an existing strong financial position and
the LTP 2015-25 which reset some of our key financial parameters. Having been through a
major review of service and investment levels in the LTP, and having had several years of
significant change in our rating system from amalgamation this Annual Plan is about
stability and delivering on our previous decisions.
Projected rate increases and debt have been reduced significantly in the current LTP from
previous projections.
Costs are tracking below the 2009 levels on a per capita basis and investment in the assets
that Aucklanders, current and future, need continues at an unprecedented level.
The only changes proposed for consultation in this Annual Plan are those that have come
from discussion through the Finance and Performance committee and Local Boards and are
all related to rating policy.

RECOMMENDATIONS
That the information be received and referred to the Governing Body for decision.

BACKGROUND
Since amalgamation, Auckland has been through significant change and faced considerable
challenges. Our focus in the first few years was very much about getting the foundations in
place and getting them right. We have largely achieved that and now is the time for a
steady and predictable approach. The LTP maps out an ambitious investment programme
for Auckland. In 2016/17 we need to be methodically implementing that programme it is a
year for delivery to Auckland and Aucklanders.
It needs to be acknowledged that amalgamation has been hard on some people delivering
much greater rate increases than the average. This was an inevitable but unfortunate
consequence of bringing together the eight previous rating systems. Having been through
this, we are now in the position of having properties of similar value across the region being

rated at similar levels. Going forward there will be a smoother and more balanced impact of
rates movements across the region.
Financial Position
One of the most misunderstood issues about Auckland Council is the state of our finances.
The way that our financial position is often portrayed leaves the public with the impression
we are in difficulty over extended on debt and struggling to meet our commitments.
Nothing could be further from the truth. You do not obtain and maintain an AA credit rating
from Standard and Poors without a very strong financial base, supported by sound and
prudent financial management and planning. We have all of those elements in place. The
extremely robust state of our finances was recently confirmed in the reports from EY and
Cameron Partners.
There is a common perception that the council has ballooning costs, staff and debt. The
amalgamation of the legacy councils is painted as having not delivered on the expected
efficiency and, if you were to believe some commentary, to have delivered less projects and
services than those legacy councils. It is as exasperating as it is untrue.
Let us look at the facts rather than the rhetoric:
Rates and cost increases:
Myth Since the Super city was formed rates have gone up faster than under the legacy
councils
The forecast rate increases under the combined legacy council LTPs compared to the
actuals achieved by Auckland Council are shown below.

General rates increases (excluding Interim Transport Levy)

7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2011/12

2012/13

2013/14

Former councils' projected average

2014/15

LTP 2012-22

2015/16

2016/17

Delivered + LTP 2015-25

Note: ITL excluded as LTP 2012-22 included alternative transport revenue.

The actual increases are below that of legacy councils in each and every year. Similarly the
2015/25 LTP proposes significantly lower increases than those proposed in 2012.
Myth since the Super city, costs are out of control

The ongoing reduction of projected rate increases was achieved by driving costs out of the
organisation through efficiency savings of over $200 million per annum so far. Council core
operating costs from 2010 to 2015 (as reported in our audited accounts) were:

Over the same period we added a city the size of Tauranga to our population. Given that
most of our core costs are driven by the size of the community we serve it is useful to look at
how that translates per capita. As can be seen from the graph below we are still well below
the level of 2009 immediately prior to amalgamation.

Core council expenditure per capita

$
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2008

2009

2010

2011

2012

Former councils

2013

2014

2015

Actual results

Operating expenditure excluding interest and depreciation

2009 level

Debt
Myth Auckland Councils debt is spiralling out of control
Debt is our mechanism for paying for infrastructure that future generations will use. By
borrowing, we ensure that those costs are shared by the current and future generations
rather than expecting todays ratepayers to pay for tomorrows users. Having said that, we
do of course need to maintain our debt within prudential limits. In the 2015-25 LTP one of the

major steps we took was to look at maintaining our debt at levels that kept interest capped at
12% of our total revenue, a significant reduction from the 15% in the previous LTP. To
achieve this we undertook a fundamental review of our capital programme. In the
assessment of our credit rating this ratio is a key element.

Key prudential ratio: interest to revenue

16%
14%
12%
10%

11.3%

11.6%

12.0%

12.0%

11.8%

11.8%

11.9%

11.9%

11.7%

11.3%

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

2021/22

2022/23

2023/24

2024/25

8%
6%
4%
2%
0%

Forecast

Limit

Target

Delivery
Myth The Super City is not delivering as much as the old councils
Over the last five years we have started to address the shortfall of previous investment in
infrastructure for both current residents and the 838 people that arrive every week.
However before we talk about what those investments look like it is worth reflecting on the
costs of running the largest council in Australasia. Yes we have a very large budget, but
most of it goes on the day to day services that Aucklanders expect and value.

Renewing and maintaining our over 7000km of road, 7000km of footpaths, 41 rail
stations, 21 wharves, 14 ferry facilities and 6 busway stations costs $310 million per
annum
Over $110 million each year to assist the funding of public transport trips
Mowing our 241 sports parks and 3000 local parks costs $17 million per annum
Renewing and maintaining 927 playgrounds and 43 aquatic and recreation centres has
an annual cost of $18 million
Running 54 local libraries along with the central library is $50 million each year
Watercare run water and sewage services at a cost of over $200 million per annum
It costs $90 million to provide, rubbish collection, recycling and inorganic collections
every year
Providing funding assistance to some major facilities such as Auckland War Memorial
Museum $29 million, MOTAT $12 million, Auckland Zoo $8 million, Auckland Art Gallery
$11 million.
Grants of $60 million support a range of regional and local community, arts and cultural
groups and facilities` e.g. ATC, Auckland Arts Festival, Auckland Philharmonia, Howick
Historic Village, Te Tuhi, Lopdell House, Q Theatre, North Shore Theatre and Arts Trust.

We will invest over $18 million next year on major and regional events including the NRL
9s, the V8s in Pukekohe, the Pasifika festival and preparation for the World Masters
Games.

In addition to those day to day services that keep Auckland running and provide a great
place to live, there is the investment in new or upgraded assets the infrastructure that we
need to grow.
Over the last 5 years we have spent:

Almost a billion dollars on roads and footpaths including Tiverton Road and
Wolverton Street in New Lynn, Albany Highway, Te Atatu Road and continued
investment in the AMETI project
$1.1 billion on public transport including the rollout of 57 electric trains, the new rail
station and transport hub at Manukau, upgraded stations and bus interchanges
across the network, and new ferry facilities and services to Hobsonville and Beach
Haven.
$220 million on land for parks including local parks in new developments
$190 million on our stormwater network
$900 million on water and sewerage infrastructure including the upgrade of the
Waikato Water Treatment Plant, the expansion of networks to support urban growth
and wastewater solutions to protect our harbours
$50 million on new or upgraded libraries including Otahuhu, Ranui, Devonport,
Wellsford and Waiheke
$25 million on other community facilities across the region, including Birkdale,
Glendene and Kelston
$30 million on upgrading regional facilities including the redevelopment of Auckland
Art Gallery, the Viaduct Events Centre and Te Wao Nui at Auckland Zoo
$160 million on the waterfront including the delivery of public spaces is the Wynyard
Quarter and the upgrade of Queens wharf.

LTP reset
As we have previously acknowledged, the budgets for the first few years of Auckland
Council were set based on the commitments of the legacy councils with some slight
reshaping of priorities in the LTP 2012-22. However the LTP 2015-25 was the first real
opportunity we had, post amalgamation, to start re-aligning our priorities to the directions of
the Auckland Plan. It was also our first opportunity to have a broad conversation with the
community about the need for transport investment and their willingness to pay for it.
The LTP we adopted in June of this year not quite 6 months ago reprioritised our
spending. There were some minor cuts to service levels with resulting savings, but the
biggest area of reduction was in the capital budgets. We recognised the need to reduce our
projected debt levels from those in the previous LTP and the way to do this was through
resetting our capital budget.

$ million
16,000

Auckland Council Group Debt

14,000
12,000
10,000
8,000
6,000
4,000
2,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Actual

Legacy Council's Debt - Actual

Final 2015-25 LTP

Projected

Auckland Council Debt - Actual

Projected 2012-22 LTP

A large part of the reduction in capital spend was in the transport area where we have
recognised that until there is an additional revenue stream, the level of investment needed to
be pulled back. Conversations with central government continue on this issue but in the
meantime we have put in place the Interim Transport Levy (for three years) which will enable
us to maintain our investment in transport until we can secure alternate funding
mechanisms.
The net result of both the reduction in operating costs and in the capital programme has
allowed us to:
a) Cap our rate increases at 3.5% in the 2015-25 LTP compared to the 4.9% in the
previous LTP and;
b) Cap our interest to revenue ratio at 12% over the life of the LTP.
However, while maintaining this financially prudent approach we have also adopted a work
programme which will continue to deliver on our key strategic priorities transport
(particularly public transport) and catering for growth. Much of our new investment is in the
basic infrastructure ($5.2 billion for transport and $3.8 billion for
water/wastewater/stormwater) which supports those objectives. However, alongside that
basic infrastructure there in an ongoing programme of investment in local communities
through parks, libraries and other local amenities.
This LTP also set the platform for further work both ongoing discussions with government
about the funding of the infrastructure needs of New Zealands only international city, and
examination of our own options for alternative funding mechanisms. The latter piece of work
has started this month and will generate some interesting discussion within the council and
the wider community leading into the next term of the council.

ANNUAL PLAN 2016/17

Approach
This will be our first Annual Plan prepared under the amended Local Government Act. The
new legislation changes the approach in that we are no longer required to produce a draft
Annual Plan. We are now only required to produce a consultation document which outlines
any proposed changes to the LTP (year 2). Given it is less than 6 months since we signed
off the LTP after one of our largest consultation processes and a historic 27,383
submissions, it is my view that this Annual Plan is one of minimal change.
We have also changed the process leading up to the point of a Mayoral Proposal for the
Annual Plan. Issues that may need to be consulted on have been canvassed through the
Finance and Performance Committee and this has resulted in a relatively small number of
matters for consultation with the public.
This proposal brings together those issues.
What the Annual Plan 2016/17 will deliver
The 2016/17 programme continues to address the challenges of growth and improving our
transport infrastructure. The capital programme of $1.9 billion includes a transport
programme of $720 million, water and wastewater of $440 million and investment in parks,
sport and recreation of $170 million. This is very much a programme of building on the
progress we have been making to date with no significant new projects. Having said that
Aucklanders will continue to see progress as we deliver projects such as:

Redevelopment of the Pioneer Womens and Ellen Melville Hall and Freyberg square
The Ormiston town centre development
Upgrade to the Pukekohe town centre
Development of the Westhaven marina village
The Wynyard Quarter innovation precinct
Rolling out organic bins and an organics processing facility
The Massey North community centre
The Albany stadium pool
The Myers Park upgrade
The Warkworth showgrounds
The Waiuku sports park
Commencing construction of the City Rail Link bringing to an end 90 years of debate
on the project
Flat Bush main street collector link
Lincoln Road and Te Atatu Road corridor improvements
Tamaki Drive and Ngapipi intersection
Warkworth western collector roading project
Continued rollout of cycleways (utilising the increased government funding)

Stage 2 of the Silverdale parknride

Public transport interchanges at Manukau, Otahuhu, Te Atatu, and Pukekohe.

The rates increase included in the LTP for year 2 based on the above capital works
programme and continuation of our day to day services at current levels is 3.2%. I would like
to see this reduced to 2.5% or very close to that level. However, having just been through a
major consultation exercise in the LTP, I am not proposing that we consult on any further
reductions to service levels. I am however, asking that staff continue to scrutinise our costs,
particularly those macro issues of inflation and interest rates, along with issues such as the
way we fund the Auckland War Memorial Museum asset replacement reserve. I expect that
this review, which will be reported back to us before we go into final deliberations on the
Annual Plan, should enable us to achieve a more acceptable rates increase.
Issues for consultation
Following the discussions with the Finance and Performance Committee we have a short list
of rating policy issues for consultation with the community. Local Boards have also raised a
number of issues that they would like considered by the Governing Body as part of this
Annual Plan process. As already mentioned, I see this Annual Plan as one of minimal
change. Local Boards will consult on their own local issues and there is still the opportunity
for minor reprioritisation decisions following the review of budgets in the early part of the new
year and before final adoption of the Annual Plan. However, the Waitakere Ranges Local
Board, supported by the Deputy Mayor, has raised the issue of extending our retrofit your
home programme to incorporate septic tank replacement. Staff advise that this could be run
as a pilot for the west coast lagoons, and have also suggested incorporating Little Oneroa on
Waiheke Island. Both of these areas already have significant community buy-in and other
complementary initiatives in place and can be managed within the current funding envelope.
Because this programme is funded via a targeted rate we would need to consult on this as
part of our rating policy issues.
Therefore the only issues I am proposing for consultation are related to rating policy options,
including the septic tank issue.
Rating Policy
I believe there is a good argument for some stability in our rating policy in this year. It would
be the first year since the formation of the Auckland Council where the effects of
amalgamation and valuation would not impact on the ratepayers. All ratepayers (within the
relevant sectors of business and non- business) would have a uniform level of increase.
However, I also recognise that there is a view that the community should be consulted on
the UAGC on an annual basis because of the impact that it has on different groups of
ratepayers; and, after the first months of introduction of the Interim Transport Levy the
community may wish to express their views on how that levy is distributed between business
and non-business ratepayers. There are also three other proposed rating policy options for
consultation with the community the rating of Maori Freehold Land, the rating of large
farms and the extension of the retrofit your home scheme to include septic tanks.

1. UAGC
As we are all aware, changing the level of the UAGC affects the distribution of rates
between higher and lower value properties. Through the Finance and Performance
Committee we have agreed to test the communitys appetite for change once more and
that the appropriate range of UAGC levels for consultation is $350-$650.
2. Interim Transport Levy
As part of the LTP we resolved to include an interim transport levy for 3 years while
discussions continued with the government on alternative funding mechanisms for
transport infrastructure. This levy was set at $182.85 (incl GST) for business ratepayers
and $113.85 (incl GST) for all other ratepayers. An alternative option has been put
forward to change the distribution of the transport levy to collect more from the business
sector (in line with the general rate) and reduce the imposition on other ratepayers. This
option would:
a) Increase the share of the interim transport levy to be met by businesses from
14.7% to 32.7% for 2016/17 and 32.3% for 2017/18; and
b) Share the business interim transport levy among business on the basis of capital
value rather than a fixed charge.
3. Maori Freehold Land Rates Remission
An extensive piece of work has been carried out by staff looking at the options for the
rating of Maori freehold land. This work included significant engagement with Maori
stakeholders and the resulting proposal, having been slightly amended and approved by
the Finance and Performance Committee is included in my proposal as an option for
consultation.
4. Rates for large farms
Another issue that has been canvassed through the rural community is the rating of large
farms (those over 50 hectares). While the initial proposal was to reallocate rates within
the rural sector so that the amount that was reduced from large farms was reallocated to
smaller farm and lifestyle blocks, the Finance and Performance Committee altered the
proposal to reallocate the reduction from large farms across the entire rating base. This
option is also included for consultation.
5. Targeted rate for septic tank replacement
This is a proposal to extend the existing retrofit your home scheme, in specific pilot
areas, to incorporate the replacement of septic tanks. A separate report on the issue will
be presented to the Governing Body on 17 December 2016.