Posted on: May 4, 2020 at 1:10 PM    

With the financial and economic impacts of Covid-19 still only starting to become apparent, central government and primary industries (agriculture, horticulture, seafood and forestry) are relatively unaffected by the global impacts of the pandemic. Government can extend its debt ceiling theoretically indefinitely, while primary industries feed, shelter and clothe the world. 

Initial analysis[1] identifies that the same is not the case for local authorities, who could be substantially impacted since their sources of income have reduced on multiple fronts. Whilst some funding may come from central government, income from community facilities, development contributions, consent fees, business licences, investment income and rates are all likely to be reduced and authorities with a high dependency on these will be more impacted than others. 

Dependence on income for councils (>25%)

Budgeted Fees income as a proportion of budgeted rates income

2020

Hurunui District

92%

Auckland Council (Group)

76%

Queenstown-Lakes District

49%

Wellington City

46%

Dunedin City

41%

Napier City

38%

Hutt City

37%

Tauranga City

33%

Source: DIA analysis of 2018/28 long-term plans

This is compounded by the fact that many local authorities already have high net debt to revenue ratios, in order to address growth challenges. 

Sensitivity analysis of debt to revenue- 15% revenue reduction scenario

Debt to revenue

2020

2021

2022

2023

2024

Auckland Council

252%

259%

261%

267%

261%

Hamilton City Council

220%

259%

256%

254%

257%

Tauranga City Council

213%

253%

262%

257%

266%

Waimakariri District Council

237%

243%

226%

212%

197%

Christchurch City

202%

217%

224%

233%

241%

Rotorua District Council

186%

203%

225%

218%

210%

Queenstown Lakes District Council

155%

206%

221%

222%

229%

Kapiti Coast District Council

238%

147%

238%

233%

170%

Source: LGFA analysis

Currently there is a drive to deliver spade-ready projects, recognising wider economic benefits from these projects. However, there is a related risk that projects that don’t really need to be built, and were deferred under normal situations, are brought out again as they are the only ones that are ready. 

Being agile in managing project development and delivery to support economic acceleration must not result in circumnavigating long term blueprints of what we want to achieve. If decisions are made within the blueprints that are laid out, then the long term outcomes we are looking to achieve will be realised, even as the world continues to change.

The tightening of fiscal belts if anything requires more cautious investment decisions, and whilst this may be obvious, the factors to consider when choosing your investments may be less evident. For example, during the last global financial crisis (GFC), some authorities under fiscal pressure stopped much of their planning spending because their development contribution income fell away. However, this created a more significant problem when the local developer market re-emerged, when they were not in a position to respond or plan appropriately. 

Progressing district plan and bylaw reviews now will position authorities well for future development activity. With NZ Transport Agency proposing to streamline the business case process, this would enable expedited delivery of updated plans. Similarly, ensuring traffic models have been validated with the latest census data and are fit for purpose will accelerate delivery of selected projects.

So, whilst there may be a desire to spend on spade-ready projects to achieve wider economic gains in the short term, planning our recovery now through wise investment decisions, is vital if we are to recover relatively quickly.

Stay Safe, Be Kind, Plan Well.

Blog written by Colin MacArthur, Associate Director

recovery