Palmerston North City Council was one of the few to receive a fail grade from the watchdog because they made assumptions about future funding. Photo: RNZ / Samuel Rillstone
The Auditor-General's office wants the government to do long-term planning like councils, who have done well despite "significant uncertainty" over transport and water policy.
The report on 58 councils' Long-Term Plans - produced every three years and covering the next decade - says it was a "significant achievement" most were able to meet their requirements on time given the "uncertain operating environment".
The two main exceptions are the Palmerston North and Chatham Islands councils, which the watchdog gave failing grades because they made assumptions about future funding, including from the government.
A dozen councils were not assessed because they have delayed their plans by a year, and eight more affected by severe weather have been given a reprieve - able to produce three-year plan instead.
The report notes councils are dealing with an infrastructure deficit and have increased rates revenue "much higher than forecast inflation" and are borrowing "at historically high levels" to invest more in their assets than previous years.
However, a limited pool of contractors could make it difficult for them all to complete capital upgrades on time and to budget.
"Councils are planning to invest more in assets to improve drinking water service levels, but planned investment in stormwater assets is at a much lower level, which is a concern given the increasing occurrence of severe weather events," Deputy Auditor-General Andrew McConnell said.
"Demand for these contractors from local government is high. There are risks that some councils will not be able to deliver on their capital programmes."
Uncertainty
The report said changing government policies and funding decisions affected some of the assumptions long-term plans were based on.
This was linked to a range of factors:
- Government funding including for transport and infrastructure
- Delivery of capital programmes
- Forecast cost savings
- Risks associated with plans to defer water services asset renewals outside the LTP period
Several other programmes of government work had been started which would also have big implications for councils, including changes to the Local Government Act, funding and financing for infrastructure, the RMA reform programme, Going for Housing Growth policy and the framework for "regional deals".
Delays to the publication of the government's Policy Statement on Land Transport "meant that councils had to estimate the amount of funding they would receive for local transport projects from the New Zealand Transport Agency Waka Kotahi".
"Some councils had to make late changes to their long-term plans because the final funding amounts differed significantly from the amounts they had estimated."
The report also pointed to changes in three waters policy, noting the "historical underinvestment in water infrastructure assets is affecting service levels". The 58 councils that produced LTPs plan to spend $38.6b on water assets in the decade, an increase of 57 percent on three years ago.
"Despite the uncertainty, most councils were able to meet legislative requirements and time frames. This is a significant achievement," McConnell said.
He said councils had significantly improved asset planning, financial strategies and community engagement since being required to produce the 10-year LTPs from 2006, and called for similar approaches in central government.
"The lack of requirements for comparable long-term planning for central government agencies seems to me to be an important gap for central government to address."
Failing grades for Palmerston North, Chatham Islands
The report gave "adverse opinions" for Palmerston North City and Chatham Islands councils. Adverse opinions - essentially a failing grade on the audit - were "quite rare" and pointed to "unreasonable" underlying information or assumptions in the LTPs.
It was Palmerston North's second adverse opinion in a row.
The failure came from assumptions that "upgrading its wastewater treatment and disposal system would be entirely funded through the Infrastructure Funding and Financing Act ... that constructing new roads and redeveloping the central library and Te Manawa museum would be funded by a combination of external grants, funding under the Act, public-private partnerships, and developers".
"At the time of the audit [the council] had not applied for funding through the Act, nor had it secured other external funding or agreed public-private partnerships."
The Chathams' council was failed because of assumptions in its consultation documents, which included that "future government financial support will be based on 2023/24 government funding plus an annual inflationary adjustment totalling $7 million".
"... the amount of government support had not yet been confirmed and there is no history of the government annually adjusting support for inflation," the report said.
The council also assumed it could make cost savings of $1.8m.
Concerns with other councils
The Auditor-General also highlighted uncertainties with some other council plans.
This included Auckland, where "storm recovery funding arrangements, costs related to the City Rail Link Project, returns on the proposed Auckland Future Fund," and the impact of the coalition's water reforms were concerns.
West Coast Regional Council's consultation assumed it would have the required in-house capacity, access to external contractors and ability to get resource consents to complete its flood resilience project within three years.
"Because the council had not completed the design phase for the full project, we did not consider that these assumptions were reasonable".
Environment Southland's consultation document assumed the government would fund 75 percent of the $180m cost of improvements to flood protection infrastructure.
Council finances snapshot
The long-term plans set out an averaged revenue increase of 47 percent over the 10 years to 2034, an increase of 37 percent compared to the same councils' forecast in their previous plans three years ago.
Expenditure is increasing 43 percent and debt rising 54 percent over the 10 years.
Rates account for 53 percent of revenue, a 2 percentage point increase over the plans produced three years ago, with subsidies and grants falling from 3 percent to 2 percent. Rates across the country are increasing by 45 percent compared to three years ago, from about $86b to about $124.5b.
Interest expenses are increasing by 108 percent compared to the plans prepared three years ago, with increased debt levels and borrowing limits exacerbated by global interest rates.
Inflation also added to operating expenses, particularly due to rising insurance premiums as a result of climate change and earthquakes. Staffing costs increased by 32 percent on the previous LTPs, lower than the 38 percent increase in total operating costs.
Councils own and operate about 26 percent of New Zealand's infrastructure, worth at least $76b.
The report said renewals expenditure was forecast to be 85 percent of depreciation - which was better than the 82 percent forecast in the previous LTPs but "councils still might not be planning to reinvest enough in their assets to maintain levels of service".
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