Value for money


‘Value for money’ is a term used frequently throughout Auckland Council reports in relation to its service provision and handling of ratepayer funding. This section considers whether Auckland Council is providing ‘value for money’ ranging across its income and debt reporting, staff levels, and perceptions
of residents.

The pattern shown is difficult to interpret given that ‘transition costs’ had to be absorbed. Overall there seems to have been an increase in areas of income, expenditures and staff costs, but these were uneven, especially from 2010 to 2011.

Suggestions from the data are that increases will continue from year to year, but a longer time period is required for certainty. Should cost increases become the set trend, the perception of Council providing value for money may be better found in resident feedback and indicators of satisfaction with services alongside cost considerations, rather than from cost calculations alone.92


"We need hard thinking about the costs imposed on ratepayers. There will have to be trade-offs between the services wanted by communities and the services councils can afford to provide in the future."
— Rodney Hide, 2009.

Rates revenue

Auckland Council revenue from rates increased more significantly from 2010 to 2011 than from any previous year, while the increase from 2011 to 2012 was minimal.

Total rates revenue increased across the legacy councils annually by approximately six to eight percent from 2008 to 2010, from an average of $91m per month in 2008 to $104m per month in 2010. There was, however, a significant increase of 12.5 percent in total rates received by Council from 2010 to 2011. The increase was less from 2010 to 2011 for the Council Group, however, at 3.6 percent. Rates revenue was reasonably constant from 2011 to 2012.

Table 4:
Total rates received as reported in Council annual reports, 2008 to 2012 ($millions)

  Total calculated across all legacy councils Total for Auckland Council
2008 2009 16 months to 31 October 2010 8 months to
30 June 2011
1 July 2011 to
30 June 2012
Council Group Council Group Council Group Council Group Council Group
Total rates received 1088 1174 1170 1267 1660 1786 935 927 1400 1394
Average rates received monthly 91 98 98 106 104 112 117 116 117 116

Graph 1:
Auckland local authority rates revenue (excluding water, wastewater) 2003–2011 ($000s)

Graph 1.


When water rates are removed from the rates revenue totals, the increase between 2010 and 2011 is shown to be even more significant.
93

Data on total rates received is inconsistent across the legacy councils and the new Auckland Council especially given variations in reporting for water charges. In some Councils water rates were included as part of total rates revenue but in other cases water charges were reported separately, especially where water was delivered by a CCO. Since amalgamation, Watercare’s charges for water usage and wastewater have not been deemed as rates nor included in rates revenue calculations.

Graph 1 shows the total rates received by all Auckland councils from 2003 to 2011 with water and wastewater charges excluded, providing the opportunity to consider trends in totals of all other (targeted and general) rates. This shows annual increases of between six and 12 percent from 2003 to 2010, but a more significant change from 2010 to 2011, when total rates received (excluding water and wastewater) increased 16 percent from $1,161m to $1,343m. The 2012 data from Table 4 taken from Auckland Council’s annual report suggest, however, that the significant increase from 2011 to 2012 was somewhat countered by a minimal increase (0.25 percent) the following year.

Rates revenue per capita verifies that there was a much greater increase from 2010 to 2011 than for any other year from 2006 to 2012.

Table 5 focuses on the Department of Internal Affairs’ suggested indicator for rates revenue, rates revenue received on an average per capita basis. If population estimates for the Auckland region in 2006 through to 2012 are considered alongside overall annual rates revenue, excluding water rates, and with CPI adjustment, it is apparent that rates revenue received per capita of the Auckland region population increased by 15.6 percent over the five years from $730.62 in 2006 to $844.62 in 2010, and jumped by 8.0 percent to $912.50 in just one year to 2011. The increase from 2011 to 2012 was 1.3 percent.

Rates revenue comprises about half of Auckland Council Group’s total operating revenue.

Revenue from rates is by far the largest component of income from operations for Auckland Council and compared with other councils across New Zealand, given that much of the operating revenue that other councils would include as part of their total revenue is sourced by the wider Group entities of Auckland Council; for example water charges, grants and port operations income.95 In councils across New Zealand, rates comprised approximately 55 percent of total operating revenue in 2011/12.96 By comparison rates revenue comprises nearly half, or 49.1 percent of Auckland Council Group’s total operating income. Another significant source of revenue for the group is water and wastewater charges, which comprised a further 10.9 percent of the Group’s operating income for 2011/12.97

Rates revenue data are important to consider in ascertaining perceptions of local government’s ‘value for money’ given that levels of rates charges have been an issue of on-going concern in local government in New Zealand. Rates were also debated as the implications of changes to Auckland’s governance were anticipated by the public. It is also an important indicator of the burden of costs of local government on Auckland residents.

Rates revenue is shown to have increased significantly from 2010 to 2011, especially in terms of the costs per capita. It remains to be seen whether this will create an increasing burden on Auckland’s residents in future years.

Financial and development contributions

Financial and development contributions are currently a small but important proportion of Auckland Council revenue, and likely to grow in importance in future.

Reporting on financial and development contributions in Auckland Council annual reports shows that these are a small but growing proportion of the Council’s operating income since amalgamation. Financial and development contributions totalled $52m or 2.8 percent of Council’s total operating income in 2012, and $69m or 2.4 percent of Council Group’s total operating income.98

Reporting on financial and development contributions received prior to 2010 is unreliable given that the legacy councils’ naming of development contributions appears inconsistent.99 Reporting suggests that policies for development contributions have only been established and/or reviewed in 2009, and were possibly still incompatible up until the establishment of the Auckland Council. Revenue from financial and development contributions that was reported by legacy councils from 2007 to 2010 is suggested as higher than for 2011 and 2012, being estimated as totalling $61m to $105m per year across the region.100

Financial and development contributions have been recognised as important sources of revenue which will aid Council to meet demands on existing and new infrastructure as the result of building developments in the region.101 The change to a single Auckland Council has provided a more uniform system of financial and development contributions than the previous system. The current data suggest that development and financial contributions will become an increasingly important source of Council revenue in future years. It will be important to assess how much these contributions in future ameliorate the costs of development in terms of the burden on infrastructure and services, and if they enable the provision of region-wide benefits for all Aucklanders as housing developments plans roll out under the new Auckland Council planning system.

Council debt

There was a significant increase in total liabilities of the Auckland Council from 2011 to 2012.

From 2008 to 2010 total liabilities for all Auckland region councils increased at varying rates, between four and 62 percent, but declined in total from $4,864m, Council, and $5,748m, Group, in 2010 to $4,146m and $6,302m respectively in 2011. There was another large increase both in Council and Group total liabilities from 2011 to 2012, to $5,113m, Council, and $7,449m, Group.102

Increases in total liabilities over the past decade were mainly driven by growth in term debt and non-current liabilities levels, especially from 2009 to 2012.

Consideration of council debt needs to be put in context of the composition of total liabilities. Graph 2 shows totals for current and term debt in comparison with other current and non-current liabilities, across all councils for 2000 to 2012.103 This shows that most growth in total liabilities was in term debt and other non-current liabilities, especially from 2009 to 2012.

Increases in Auckland Council’s term debt suggest that there would have been correlated growth in debt servicing costs for local authorities. Totals of debt servicing costs under the former council structure are difficult to calculate with certainty, but since amalgamation Auckland Council’s reporting shows that current and non-current borrowings mainly comprised fixed-rate bonds and floating-rate notes in 2011 and 2012. Finance expenses for the Council were reported as totalling $169m for the eight months to 30 June 2011, and $227m for the 12 months to 30 June 2012. Correspondingly, Group finance expenses totalled $221m and $300m respectively.

For the Council, these expenses represented 12.8 percent of total expenses in the eight months to 30 June 2011, and 10.5 percent of total expenses for the 12 months to 30 June 2012. Council’s finance expenses were only moderately offset by finance income in both years, with Council finance income amounting to 24.3 percent of finance expenses in 2011 and 23.4 percent in 2012. Group finance income was more minimal, being only 4.1 percent and 3.3 percent respectively.104

Graph 2:
Auckland councils’ liabilities as reported annually, 2000–2012 ($000s)

Graph 2.

To ascertain Council’s financial soundness, liability levels should be considered in relation to assets and equity. From 2005 to 2010 reported total assets of all councils increased steadily from $21,375m to $29,749m. This growth correlated with increases in reported equity over that period. There was then a substantial jump in total assets in 2011 to $43,812m.105 This was caused by the transfer of assets from Auckland Regional Transport Network Limited to Auckland Transport, and was accompanied by an increase in equity. The greater growth in asset levels than liabilities suggests that the levels of assets may serve to lessen the burden of debt on Auckland’s residents, but Council reports show that income from vested assets, derived from interest in subsidiaries, was just $31m in 2011 and $32m in 2012. Approximately 93 percent of Auckland Council Group assets are property, plant and equipment.106

Staff costs

Numbers of local government staff in Auckland have increased steadily since 2000 and are greater in 2012 than ever before.

Employment identified as in local government administration in the Auckland region has steadily increased from 2000, with only a one-off dip in the trend for 2011.107 New Zealand as a whole has had a steady increase in that category of employment, although in the Wellington region this has declined since 2010. The increase in Auckland in local government administration employees from 2000 to 2012 was 69.3 percent, which was a much higher rate of growth than all of New Zealand, 40.7 percent and Wellington, 38.2 percent.

Table 6:
Auckland Council personnel costs as reported in annual reports $ (millions)
108

  Legacy councils
2008–2009
Legacy councils
16 mnths to 31/10/2010
Akl Council
8 months to 30 June 2011
Akl Council
12 months to 30 June 2011
Total number
of FTEs employed
Inconsistent reporting across legacy councils Council Group Council Group
Total personnel
expense
($millions)
458 663 264 410 443 670
Total personnel
expense per month
($millions)
38 41 33 51 37 56

Auckland Council reported employee numbers have increased and total personnel expense has also increased to 2012.

Employee costs have significantly increased for Auckland’s local authorities over the past two decades. Graph 3109 shows substantial rises in Auckland’s local authority employee costs over the decade 2001 to 2011 across all of the legacy councils. This correlates with the growth in numbers of employees, but growth in costs has in fact been steeper than that of employee numbers. Total annual employee costs across all councils more than doubled in that decade from $222m to $498m. Reporting from the Auckland Council annual reports (Table 6) suggests that employee costs for the Council reduced slightly from 2011 to 2012, but Council Group costs showed growth from an average of $51m per month in 2010/11 to $56m per month in 2011/12.110

Graph 3:
Auckland local authority employee costs, 2001–2011 ($000s)

Graph 3.


Personnel costs comprise a greater proportion of Auckland Council’s total operating expenditure than average across New Zealand local authorities.

In 2011/12 personnel costs comprised 23.5 percent of Auckland Council’s total operating expenditure.111 This was higher than the average proportion across local authorities in New Zealand, where personnel costs were 20 percent of total operating expenditure.112

Remuneration rates for Auckland Council employees are reasonably high, but significant numbers of employees are also paid below the “living wage”.

Over 2011/2012, 601 Auckland Council employees, 10.7 percent, received remuneration of $100,000 or more.113 Further, 103 staff members were paid above $150,000 and 41 above $200,000 per year. On the other hand, over 1500 employees, estimated at 20 percent, were paid less than $18.40 per hour.114 Across the Council group the proportion of employees receiving over $100,000 per year was higher than for Council, at 14.5 percent with 255 above $150,000 and 123 above $200,000. This suggests that on average staff members in Auckland Council’s CCOs enjoy higher remuneration levels than those specifically employed by the Council.

Costs to Auckland Council for consultants and professional services averaged $9.3m per month in 2012, and $16.2m per month for the Council Group.115

Another concern expressed about amalgamation and the downsizing of staff numbers was that permanent staff may be replaced by short-term contract staff; and accordingly, costs for staffing would be more likely shifted than actually saved. Reporting on payments to consultants and for professional
services is inconsistent through the legacy councils’ annual reports, with some councils explicitly reporting these in annual reports and others not doing so. Where such costs are reported, they have at times been high. For example, Auckland City Council reported paying $98.5m to External Advisers and Contractors in the 16 months to 31 October 2010, and $76.5m in the previous year. Manukau City Council also reported paying Professional Services fees of $13.4m and $10.1m in those respective time frames. Franklin District Council further reported paying $30.5m and $23.3m respectively.

Reported costs to Auckland Council over the first two years of operation for consultancy and professional services suggest that relatively high use of consultants has taken place, especially for the Auckland Council Group.116

The costs of consultancy and professional services added between 23 and 29 percent to Auckland Council and its subsidiaries’ employee expenses in 2011 and 2012. The combined personnel expenses and consultancy and professional services in 2011/12 comprise 29.4 percent of Auckland Council’s total operating expenditure. It should be noted that the total costs reported by Auckland Council are actually similar or lower than the totals of the payments for such services across those councils that did report in 2009 and 2010.

Declines in local government staff numbers in Auckland from 2010 to 2011 suggest there was some impact from the change to Auckland Council in reducing staffing numbers across the old system. However, the greater increase in numbers and cost from 2011 to 2012 challenges the argument that amalgamation would reduce staffing costs. Evidence of significant costs of consultancy and professional services to the Council since amalgamation similarly undermine this argument, even if the costs of such services are lower than they were under the previous structure.


"Auckland Council and its assorted council controlled organisations employ more than 143 inhouse communication and marketing staff, along with many outside contractors in the same field."
Columnist Brian Rudman, NZ Herald, 2013.

Perceived value for money

There are no consistent data on how much Auckland residents perceive that they receive good value for money from their rates. The only available information comes from Auckland City Council, which
reported in their 2009/2010 Annual Report that:

When asked about the value for money they receive from the Auckland City Council, 40 percent of residents gave ratings of 7 or more out of 10 while 27 percent of businesses gave ratings of 7 or more out of 10.117There is a compelling need to develop valid and authoritative indicators relating to value for money from rates. This could include residents’ perceptions of the value they receive and objective and comparative measures with other local authorities of value for money.


92. Most of the data in the Value for Money section are from Auckland Council’s Annual Reports, from 2010 to 2012 (see endnote 63). Where possible, comparable data giving a longer term view of data have been obtained from the annual reports of the legacy councils prior to restructuring, and from Statistics New Zealand’s Local Authority Financial Statistics data. Data from the existing CCOs' annual reporting has also been referred to.
93. Compiled from Statistics New Zealand, Time Series Financial Statistics Local Authorities across New Zealand.
94. Derived from Statistics New Zealand, Time Series Financial Statistics Local Authorities across New Zealand, Reserve Bank of New Zealand New Zealand Inflation Calculator and Statistics New Zealand, Subnational Population Estimates.
95. Auckland Council (2012) Annual Report 2011/12, Vol.3, p.58 (see endnote 63).
96. Office of the Auditor-General. (2013). Local government: Results of the 2011/12 audits. Wellington: Office of the Auditor-General (p.15).
97. Total operating income for Group calculated from total rates plus total service and other income, Auckland Council. (2012). Annual Report 2011/12, V.3, p.40. (see endnote 63).
98. Auckland Council. (2012). Annual Report 2011/12, V.3, p.60 (see endnote 63).
99. In one case contributions were reported as ‘subdivision contributions’ in another ‘cash contribution’.
100. Compiled from Statistics New Zealand, Time Series Financial Statistics Local Authorities across New Zealand.
101. Contributions Policy, Auckland Council Long-term Plan 2012-2022. Retrieved from http://www.aucklandcouncil.govt.nz/EN/planspoliciesprojects/plansstrategies/Long_term_plan/Pages/Home.aspx.
102. Compiled from legacy council annual reports, 2007/2008 to 2009/10, and Auckland Council annual reports 2010/11 and 2011/12 (see endnote 63).
103. Statistics New Zealand, Local authority financial statistics; Auckland Council annual reports 2010/2011; 2011/2012 (see endnote 63).
104. Authors’ calculations from statistics in: Auckland Council. (2012). Annual Report 2011/12, Vol.3.
105. Compiled from Statistics New Zealand, Time Series Financial Statistics Local Authorities across New Zealand.
106. Auckland Council. (2012). Annual Report 2011/12, Vol.3, p.43 (see endnote 63).
107. Compiled from Statistics New Zealand, Business Demographic Statistics.
108. Auckland Council, Annual Report 2011/12, legacy council annual reports 2009/10; FTEs are as reported by Auckland Council. (2012). Annual Report 2011/12, Vol.3, p.143 (see endnote 63).
109. Compiled from Statistics New Zealand, Time Series Financial Statistics Local Authorities across New Zealand. 2011 data shows costs from legacy councils and the new Auckland Council because Statistics New Zealand reporting is on year ending June 30th, therefore cutting across the council re-structuring period.
110. This correlates with an increase in local government employee numbers from 2011 to 2012 as recorded in both Statistics New Zealand data and Auckland Council’s reporting on FTEs.
111. Authors’ calculations from statistics in: Auckland Council. (2012). Annual Report 2011/12, Vol.3.
112. Office of the Auditor-General. (2013). Local government: Results of the 2011/12 audits, Wellington: Office of the Auditor-General (p.16).
113. Authors’ calculations from statistics in: Auckland Council. (2012). Annual Report 2011/12, Vol.3, p.129 (see endnote 63).
114. The estimated proportion is based on the assumption that the 1,544 employees earning less than $18.40 per hour are full-time employed. Data from Auckland Council, Auckland Plan Committee, Open Agenda, 12 March 2013,
retrieved from http://www.aucklandcouncil.govt.nz/EN/AboutCouncil/
meetings_agendas/committees/Pages/aucklandfuturevisioncommittee.aspx

115. Authors’ calculations from statistics in: Auckland Council. (2012). Annual Report 2011/12, Vol.3.
116. Auckland Council. (2012). Annual Report 2011/12, Vol.3, Note 9, p.62 (see endnote 63).
117. Auckland City Council. (2010). Annual Report 2009/10, p.84 (see endnote 63).

Harbour Bridge being built.