The Auditor-General has just released a report on NZ councils’ finances for the 2023/24 fiscal year. Some factoids:

• Councils’ total operating expenses were $18.1 billion, compared to the average $14.6 billion over the previous five years.
• Total revenue was $19.3 billion, with 45% of this from rates ($8.7 billion).
• ‘Other income’ is the next biggest chunk, accounting for $6.4 billion – items such as fees and charges, gains from land sales, fuel tax, gains on disposal, and new infrastructure that has been vested in councils.
• Councils also received $3.6 billion in subsidies and grants, mostly from central government – e.g. the Provincial Growth Fund, Better Off Funding (available through the previous Government’s Three Waters Reform Programme), Mayors Taskforce for Jobs, Shovel-Ready Programme funding, Jobs for Nature and the Tourism Infrastructure Fund.
• Councils’ total capital expenditure in 2023/24 was just over $8 billion. This is the most councils have spent on their infrastructure assets in the last 12 years.
• In the 58 long-term plans audited for this report, total capital expenditure between 2024 and 2034 is forecast to be $91.9 billion.
• Councils’ debt rose to $29.9 billion in 2023/24 (about $17 billion excluding Auckland), which is a 15% increase from $25.9 billion in 2022/23. Total council debt has effectively doubled since 2017.
• Across NZ, all but 3 councils are within their ‘debt affordability’ benchmarks. On the other hand, 47 (of 72) councils have not met their balanced budget benchmarks.

Note that the A-G attributes the rising operating expenses to “high inflation, higher costs relating to new drinking water requirements, increases in interest expenses, and higher insurance premiums.” Electricity costs are also mentioned. No mention of bloated staffs, vanity projects, or too many contractors. The report notes that: “Although skill gaps have generally been more of an issue for smaller councils, they are becoming more prominent in metropolitan areas as well.” 

The report comments specifically on HDC and CHBDC spending:

“As with last year, another reason [for higher expenses] that councils commonly gave was remediation works in response to severe weather events. For example, Hastings District Council’s other operating expenditure was 122% higher than budgeted, at $177.5 million. The Council linked this to the challenges of growing inflation and, particularly, to the ongoing recovery costs that it has incurred since Cyclone Gabrielle.”

“Central Hawke’s Bay District Council also highlighted Cyclone Gabrielle’s impact and the pressure of rapidly rising costs. Its operating expenditure of $39 million was 51% higher than budgeted. This overspending enabled it to carry out necessary repairs, which it mostly funded from external sources.”

The A-G report is particularly attentive to water services: “For many councils, responsibility for water services will shift to new organisations and governance structures. [As is happening with CHBDC, NCC and HDC.] These changes will have wide-reaching consequences for councils’ roles and functions. Our auditors will continue to work with councils to assess how these changes impact their balance sheets and what the implications are for their long-term plans.”

The report notes that although councils are spending more on water infrastructure, they “continue to underinvest in renewals, which increases the potential for asset failure and risks to levels of service”. In particular, stormwater systems investment is noted as lagging. Citing the increasing frequency and severity of extreme weather events, the report urges: “Councils should consider increasing their investment in stormwater infrastructure to ensure that it remains resilient and fit for purpose.

And regarding central government funding: “In our view, councils need to be more transparent in their annual reports about what central government funding they have received and what they have used it for.”

The report also includes analysis of various non-financial performance benchmarks.

For example, the report compliments councils for better meeting their statutory 20-working day deadline for processing most building consents, but notes this has occurred in a period of reduced new buildings consented.

On the other hand, half of councils (36) reported processing fewer than 95% of resource consent applications within the statutory time frames.

What does all this mean for Hawke’s Bay ratepayers?

Firstly, contrary to the impression given by some election candidates, councils’ finances are routinely audited by a credible external authority. It’s all on the table, if you care to do the homework.

In 2023/24, the A-G issued audit reports for 77 councils’ financial statements and performance information — six councils received a qualified audit opinion on their financial statements (including HBRC and NCC). Says the report: “A qualified audit opinion means that the auditor disagrees with a specific aspect of the audited information. It does not mean that the issue is pervasive.”

Secondly, unless an entirely new framework for funding local government services is instituted — and/or the number of councils is reduced — rate increases will continue, for reasons far more significant and systemic than too many road cone crews.

Here’s the report.

Just in … HDC has just released its 2024/25 financials, as BayBuzz reports here.