Waiheke Council Possible Budget

From 1979 to 2000 I was CEO of three different private and public sector organisations. The last one of these, before my ultimate retirement, was a contract as Chief Executive of the Hastings District Council where I stayed for 9 years.

Recently I have been doing some work on a voluntary basis with the “Our Waiheke” group, looking at the feasibility of putting a proposal to the Local Government Commission to establish a new council for Waiheke. Auckland Council has huge problems which are not that relevant to Waiheke and an independent Waiheke Council, if financially viable, would be a better proposition for future governance and financial cost to the community. All possible efforts to put a well researched proposal to the LGC make good sense, even though it will be very challenging to obtain LGC approval.

I would not want to get involved if I could not satisfy myself that a small council could pay its way, so I have spent some time analyzing the annual reports of some of the smaller councils in NZ and have visited two councils in the last few days, having discussions with their CEOs and senior staff. This has enabled me to put together an organization structure for a Waiheke council and produce a budget showing what the financial picture would probably be

Although Waiheke has about 8500 residents (based on census), the population is much larger when holiday home owners are included. There are 6593 rateable properties covering residential, business and rural. The income seems to be quite adequate for an independent council and future rate increases should be well below the Auckland City forecasts. My budget shows a surplus on today’s costs and income, even after allowing a contingency sum of $1 million.

In addition to discussions with other councils, I recently spent a few hours driving around Waiheke roads with one of the top local government engineering managers (who retired this year). He has worked through the likely roading costs with me. There are approximately 130kms of sealed and 20kms of unsealed roads on the island and although clay based, should be maintained to a suitable standard with lime stabilization in the sealing mixes.

Waiheke is different from virtually every other council in NZ in that it has no piped water or wastewater systems (apart from the small one serving some Oneroa properties), is semi-rural in most residential streets with few footpaths, kerbs and channels ,or piped stormwater drainage and few street lights. Yet we pay the same residential rate in the dollar as a fully urban residential area in Auckland.

It also does not have rivers and the associated flood protection costs that Regional councils around the country have to finance. Therefore if Waiheke became a unitary authority, those regional type costs would be insignificant.

De-population and declining economic opportunities are today impacting on a number of provincial councils around the country. The LGC has proposed an amalgamation of all the Hawkes Bay councils into one unitary authority. This is largely driven by economic issues. Waiheke has no such problems. In fact one of the challenges facing the island will be how to manage inevitable growth.

Some people may voice concern that an elected Waiheke council would be a bunch of “left-wing greenies” who would make a complete mess of things. Others may say that a council could be dominated by wealthy people who are out to further their interests. With a democracy, one cannot guarantee that a perfect set of people would be elected as Mayor or Councilors. However most councils around the country have a fairly sensible balance of elected people who are dedicated to getting the best results and governance for the community. Waiheke is likely to be the same. Also a council has a chief executive and senior managers who must adhere to the law of the Local Government Act.

The disciplines on councils today are also very substantial, including 10 year financial forecasts, annual plans and annual reports. The audit and reporting requirements are very demanding and with a community the size of Waiheke, the transparency and public involvement should ensure that governance is pretty good. The great difference between a local board and a council is of course the decision making power a council has. With a small council, decisions can be made simply, quickly and economically whereas with the huge Auckland council a great amount of time is involved simply dealing with the large bureaucracy.

A Waiheke council should be able to attract and retain suitably qualified staff at the remuneration levels I have calculated.

Anyway, I hope those who read these papers find them of some interest and help form opinions on what the future for Waiheke should be.

Potential Organisation for a Waiheke Council

This assumes that all the physical works of roads and parks continue to be contracted out. The contract costs are included in the budget.

Remuneration has been calculated for each position, but not shown in this schedule.

The details are available for confidential examination if necessary.

Potential Budget for a Waiheke Council

NOTES TO WAIHEKE COUNCIL POTENTIAL BUDGET FIGURES

1. Budget is based on the current cost of likely revenue and expenditure. IF the LGC approve, a new council is unlikely to come into existence until the 2016/17 year at the earliest.
2. Revenue figures (excluding roading subsidy) are those published by the Gulf News on 19 February, obtained from the Auckland Council under the Official Information Act. I have no way of checking the accuracy of these figures.
3. I have made minor adjustments to some figures that still show 2007 data and have used the proposed rate income from the 2015/16 year advised by Auckland council.
4. Roading costs are “total spend” covering all maintenance and renewals, signage, street lights, bridges and capital improvements for all sealed and unsealed roads. This amount has been assessed after seeing the annual costs of 11 other councils (from NZTA statistics), where comparisons are relevant, then dividing these costs by the total kms of roads in each district. I have used an all inclusive cost equal to $20,000 per km for the whole 150 kms of roads. To be on the safe side and to allow for machinery and metals to be brought to the island, this annual maintenance cost allowed for is higher than for any of these other councils.
5. The roading contracts are assumed to be “Outcome Based Contracts” which are increasingly used by councils today. This requires the contractor to do any design work (the leading contractors have organized to do this), and the council staff draw up performance based contracts specifying the outcomes and key standards to be achieved. The staff chart recognizes this.
6. The roading costs have been assessed after discussion with and calculations by, a recently retired senior council engineer, who visited the island and inspected many of the roads with me.
7. As I have no information on the lengths of footpaths on the island (which are classified as non-subsidised roading), I have not been able to insert a maintenance figure for this. However with a provision for contingencies of $1 million, there should be plenty of cover.
8. Parks and reserves maintenance and renewal costs have been calculated after discussion with a key local staff member.
9. Depreciation has been calculated for road renewals on the basis of a 40 year life, which is conservative these days, but no charge has been made to the depreciation account for works done. Depreciation has been calculated for buildings including the library, transfer station, halls, playgrounds, sports facilities etc.
10. IT costs assume the purchase of the “MagiQ” (or similar) system used by a number of councils. It is simple, does all that is required for a small council, has good support and only needs two in-house staff to function.
11. It is assumed that the library will have a support contract with Auckland council’s library system for book interchange etc. A contract would require negotiation, so for this exercise I have put in a figure of $500,000 annually.
12. The staffing structure set out in another document shows the number of employees and positions I see as necessary for a Waiheke council. This has been developed after visits recently to two other provincial councils and discussions with the CEOs and senior management. The remuneration for the various positions should be competitive with the Auckland market. The senior managers would all be on total remuneration contracts, so motor vehicles are not included in the estimate for council vehicles.
13. Salaries have been applied to each staff position on the chart, but not shown in the published one for reasons of confidentially. I can show the chart with salary costs included if necessary for a confidential inspection.
14. I have assumed that a Waiheke council would be a member of Local Authority Shared Services Limited (LASS) to benefit from bulk purchasing of things such as insurance.
15. I have assumed that any debt funding would be through NZ Local Government Funding Agency Limited at rates fully competitive with other councils.
16. If the LGC approves a Waiheke proposal, it would decide what debt is transferred from Auckland council. I understand that apart from the transfer station and new library, there has not been major debt funded expenditure since Waiheke joined Auckland in the 1989 amalgamation. I have been advised that a reasonable figure for transferred debt could be $15,000,000. Therefore if set-up costs of about $5,000,000 are debt funded the total debt would be $20 million which at 5.5% would cost $1,100,000 annually assuming the issue of bonds which would be refinanced on maturity. Alternatively, any annual surplus could be used to repay debt rather than reduce rates.
17. If there are other capital items of which I am unaware, or if the LGC determined that the debt was double the $15,000,000, then the debt servicing cost could rise to around $2 million p.a. thus virtually taking most of the budget contingency I have allowed.
18. The wharf taxes are to fund the maintenance and improvements to wharf facilities in the gulf, including Matiatia. I have therefore shown the same amount as revenue and expenditure.
19. I have included a contingency of $1,000,000 in the budget to cover any items I might have missed or if any calculations are found to have errors. I doubt this amount would be used.
20. The staffing costs in the budget are as per the organisation chart, but I have rounded up many other figures to the nearest $1,000 or more, again to be conservative.

I am comfortable with the figures, based on the information I have been able to obtain, however I would welcome any expert review.

Eric Millar 16/6/2015

POPULATIONS OF SMALLER COUNCILS IN NEW ZEALAND

Otorohanga

Waitomo

Opotiki

Kawerau

Wairoa

Central Hawkes Bay

Stratford

Ruapehu

Carterton

9,650

9,390

8,330

6,600

8,200

13,250

9,260

12,450

8,680

Sth Wairarapa

Buller

Grey

Kaikoura

Hurunui

Mackenzie

Waimate

Gore

9,910

10,550

13,600

3,640

12,250

4,320

7,580

12,400