Victor Luca

1. Background/Preamble

Central banks the world over have created unprecedented amounts of new money since the link between the USD and gold was severed in 1971. Monetary stimulus, which accelerated after the Global Financial Crisis (GFC), went into overdrive when COVID-19 hit the globe in 2020. This, together with supply chain disruptions and geopolitical tensions in the Balkans have seen inflation peak at levels that have not been seen for more than a decade. This inflation appears to be persistent and has provoked a cost-of-living crisis.

To combat inflation that the RBNZ's loose monetary policy has itself helped cause, the RBNZ has raised the official cash rate (OCR) from around 2% over the decade from 2009 to 2019 to reach lows near 0% over the period 2020 to 2021. However, from 2022 the RBNZ embarked on abrupt monetary tightening in order to bring inflation under control. Thus, between 2022 and the present the OCR has hiked from near 0% to 6%. In the RBNZ's own words it 'engineered a recession' in order to bring inflation under control.

Inflation peaked around January of 2023 at about 7.2% and it has steadily dropped to a current value of 4.7%. It is important to realise that this number is the increase in Consumer Price Index (CPI) compared to the same quarter of the previous year, so that prices of goods and services continue to increase. The effect is of course compounding.

In NZ terms the community of the District of Whakatāne has generally always been one of relatively high deprivation. More recently high inflation has contributed to a cost-of-living crisis in the entire country, and this has significantly impacted households, businesses and public institutions in our district.

In an energy system heavily dependent on fossil fuels, the price of oil is a significant driver of inflation since almost everything we do in a modern society requires energy, especially for transportation. WDC's own energy costs have risen as has the cost of goods with a high energy input such as those that the Council purchases in large quantities (e.g. cement and bitumen).

The oil price, which peaked in June of 2022 at 114 USD/Bbl, has gradually decreased and has stabilised around $75 USD/Bbl for now. The large spike in oil price in 2022 was likely driven by the Russia-Ukraine war since Russia accounts for about 13% of global oil production.

A new conflict in the Middle East, which accounts for about 31% of global oil production, could cause a new energy crisis and propel inflation higher. There is no end in sight to this latest Middle East conflict and there currently exists a high probability that the conflict spreads and escalates significantly.

Whilst no one has a crystal ball, I am of the view that excessive stimulus, high public and private debt levels and geopolitical tensions could make 2024 and beyond very challenging. It is also important to realise that much of the actions of the RBNZ post COVID have contributed to further inflating the housing bubble rather than improving infrastructure. Take for example the funding for lending programme which was jargon for throwing money at commercial banks. Many folk are highly leveraged and vulnerable to persistent hikes in interest rates.

I have signaled the above concerns in my many Mayoral Reports and public communications to emphasise my concern for the affordability of the community to rate rises.

When interest rates were near zero, it might have been prudent to loosen the purse strings and increase borrowings. However, interest rates are probably not going to go down to the levels of the post-GFC decade in the short- to near-term because inflation appears to be stuck.

The odds of a major global financial crisis seem to me to be not insignificant, and we should be prepared for significant shocks in the near to medium term. Some would regard a financial crisis to be well overdue.

Thus, I consider the next few years to be extremely challenging. It is in my opinion a time to hunker down and exhibit restraint rather than embark on spending largesse. In several of the Council's meetings I have spoken about adopting a 'defensive posture'.

2. Responsibilities of the Mayor

The Local Government Act 2002 makes clear the responsibilities that The Mayor has in regard to the development of the LTP. In section 41A(2) of the LGA it is stated that, 'it is the role of a mayor to lead the development of the territorial authority's plans (including the long-term plan and the annual plan), policies, and budgets for consideration by the members of the territorial authority'.

In the last quarter of 2023 Councillors had a meeting in which I sounded the team out on their disposition for expansive verses a conservative approach to the LTP. I would say that the team was relatively split. Some, such as I, favoured a conservative approach, whilst others expressed a desire for a more expansive approach; to keep 'moving forward'.

In a discussion that I had with Councillors on the 15th of November of 2023 I asked each Councillor that was present to articulate verbally their 'wishes and aspiration'. At the end of this round table discussion, I requested that each Councillor put their views in writing. My idea was to try to glean commonalities in order to articulate a consensus view.

In order to get the ball rolling on the 17th of November I circulated a short document defining my priorities and I requested others to do likewise. Few took up the opportunity. One of the views that was expressed was that we should listen to the 'wishes and aspirations' of Council officers.

Given that the job of Councillors is to define the WHAT and management the HOW, I would have preferred to have given guidance to managers at the start of the LTP process as has occurred in other councils around the country, and in particular the larger ones.

That process of sharing and justifying 'wishes and aspirations' has been ongoing for several months now with the governance team attending many briefings. The output from these briefings was a Version 1 budget which had the average rate strike at 27.8% for the first year of the LTP. This was a 'kitchen sink' budget with everything in it and we shared the 1st year rate for the V1 budget immediately prior to Christmas with the general public via WDC's various communications channels. Councillors asked for the kitchen sink and this is what we got. The response from the public has been relatively muted so far. However, this is starting to change.

I believe that many of us realised at the outset that this number was never going to fly and was just the beginning. In our briefing of Thursday 25th of January the consensus view seemed to be that we need to be well south of 20%. Explicit instructions were given by governors to start the pruning process and provide details of the FTE (Full Time Equivalents) requests by managers. An FTE is essentially one full time staff position.

As part of his role in leading the LTP, the Mayor of Auckland City Council, Wayne Brown, has produced a document entitled 'Mayoral Proposal on Auckland Council's Draft Long - term Plan 2024 - 2034' dated December 2023. The document makes it very clear that the Mayor is leading the LTP by providing his council guidance on where he wants it to go. I provided this document to all Councillors and requested they peruse it.

I note that since an Annual Plan has to be produced every year, there is the opportunity to change course in response to rapidly changing macro- and micro-economic conditions and the geopolitical situation.

It is against the above backdrop that I set out here a set of my expectations as we progress the development of the LTP.

3. General Expectations

1. Live within our means and do more with less: Apply restraint on spending and apply downward pressure on debt in order to better deal with economic shocks which I think are inevitable and possibly just around the corner. We need to be financially sustainable.
2. Focus on providing basic services: Basic services include 3-waters, roading, waste management, parks and facility management and so forth. These are the things we can’t live without. The 'Nice to haves' should be funded only if money is available and following evidence-based cost-benefit analysis.
3. Do a better job of problem definition: Is there really a problem to be solved and if so, what exactly is it? e.g. I don't see that the raised so-called ‘safe’ crossings are addressing a real problem. They do, however, cost a lot of money.
4. More rigorous treatment of District Affordability: If our district were prosperous and were there not a cost-of-living crisis, I might have little hesitation in contemplating higher rates. We are proceeding down the path of setting rates with at best a very qualitative notion of affordability.
5. An average rate strike below 14% for the first year of the LTP: Governance has been presented with a need to set a minimum of 12.7% increase in the first year of the LTP in order to fill 'the gap'. One might well ask why it is that we have such a gap? Based on my own calculations, I feel that anything above 14% is excessive. The Compound Annual Growth Rate of the V1 LTP budget was 8.45% and for V2 it was 7.8%. This would have rates doubling in about 9 and 8 years respectively. Subsequent additional pruning of expenditure has got us down to a doubling time of about 10 years. This is much faster than the historic doubling time and much faster than increases in incomes and especially pensions.
6. Big-ticket items on the back burner: I am not advocating eliminating big projects, but rather starting the scoping and detailed planning in preparation for the future.
7. Look for increases in efficiency and alternative funding sources: Be more creative with what we have. Develop investment strategies that can contribute to WDC's coffers. Make better use of our balance sheet. i.e. improve the revenue side of the equation.
8. Faster access to information for elected members: I have often had to wait too long to get responses to my requests for information.
9. Quicker turn-around for Business Case/Project Proposal development: Some things are simply taking too long. Business case development is one of them.
10. Keep a cap on staffing levels (FTE): Having the staff costs-to-revenue ratio increase year after year is not sustainable. There needs to be a better system for justifying additional staff.  Although I understand that there are increasing demands on councils, our staffing levels are on an unsustainable exponential curve. In other words, WDC's rate of increase in staffing costs is greater than the rate of increase in revenue. Staff-to-rate payer ratio benchmarking. How do we compare with others?
11. Better evidentiary basis for projects: Our projects should benefit the greatest number of rate payers. There needs to be greater scrutiny of project cost estimations for LTP planning.
12. Fund depreciation: WDC has historically been rather slack in this department and now the chickens are coming home to roost.
13. Commercial operations should become revenue positive: e.g. Airport, Holiday Park etc. We cannot continue to bleed money.
14. Closer scrutiny of major projects:
15. Concerted action on climate change with a focus on resilience and mitigation. Less talk and more tangible action.
16. A focus on energy resilience: WDC's energy costs have ballooned in recent times. An oil shock will exacerbate this. We need to focus on energy generation to reduce our costs utilising poor quality public land to the benefit of the community. NZ's energy requirements are expected to double by 2040. Over 150,000 people in NZ experience energy poverty.
17. Better audit performance including for CCOs.
18. Establish a disaster recovery fund (probably not doable).
19. Scrutiny of institutional bloat. Are we too administratively top heavy?
20. Mobile democracy for better engagement and consultation: Almost everyone has a mobile phone so let’s use them to get a more representative view on where our community stands on issues. I do not believe that many of us have a good read on public opinion. More direct democracy.
21. Reduce costs on non-essential travel: For instance, is membership of LGNZ really yielding benefits? Discontinuing membership would save on travel costs.
22. Consider closely what we spend on consultants: Are the sums we spend on consultants really warranted? Do we get good value?

4. Specific Projects

1. Bolster finances through some creative thinking: We cannot be reliant on ratepayers in a district with such a high rate of deprivation. The bolstering of WDC coffers could be achieved through better lobbying of central government and by setting up some sort of investment vehicle that provides better yield on our assets as well as through effective collaboration. We do not have airport shares to sell like Auckland City Council, but we do sit on a large property portfolio that generates low yields. We have a lazy balance sheet.
2. Second river crossing: This is necessary in order to build transport resilience and to reduce congestion around Whakatane which is the hub of the district. We only need to look east to see what can happen when you don't dodge a bullet. Although a secondary consideration, congestion is only going to get worse as we add more residences (we are currently adding about 110 per year).
3. Second drinking water source for Whakatane Township: The river is a vulnerability. It is a poor water source of drinking water being quite polluted and susceptible to salt intrusion and blue-green algae outbreaks as things warm up. The dirtier the input water the more disinfectant needs to be added and the higher the concentration of carcinogenic Disinfection Byproducts. We also only have 48 h of storage. Not good!
4. Build better democracy: In a participatory and representative democracy we need to know what the people think. WDC consults and engages extensively with its communities using a range of tools including The Whakatāne Beacon, Facebook and other social media, formal consultations via Korero Mai website etc. However, typically we do not get large numbers of submissions. We get submissions from the small numbers of the more engaged members of the community. I think we can do this better. Nowadays the mobile phone is ubiquitous, and I would like to see the use of a phone app that sends alerts indicating 'WDC wants to hear from you on ...). The questionnaire should take less than one minute to complete. Consider it a district-wide version of Slido.
5. Solar development (possibly in collaboration with other institutions): Necessary to reduce WDC energy costs, alleviate energy poverty and reduce vulnerability and make the airport more resilient. Our electrical system is fragile, especially in times of extreme drought. The airport loses money and doesn't need to if we build something at the site that generates revenue. 110,000 NZ households struggle to heat their homes adequately.
6. End-of-life tyre management: WDC has talked a lot about circular economies. The end-of-life tyre problem is a serious problem to be solved and a perfect opportunity to put action to words. This initiative is currently being driven initially through the Mayoral Forum.
7. Technology hub: not everything in the tech space needs to be based in Auckland. Why not in Whakatāne.
8. Resilience: Economic and infrastructure resilience is critical as is making our communities more resilient. We must define the most vulnerable parts of our infrastructure and investigate how to make them more resilient.
9. Better advocacy by elected members: We need to do a better job of lobbying our local members of parliament and ministers. This will require open channels of communication and the building of stronger relationships.
10. Targeted rates: There are certain community facilities that are very local in nature. For such assets it might be viable to engage local communities who might be disposed to pay a little more in their rates to get what they want in the immediate locality.