Auckland Council budget: Second day of debate on airport share sale, rate hikes and funding cuts

Auckland Council has passed a proposal to sell 7 percent of shares in Auckland Airport.

Mayor Wayne Brown's second compromise proposal was passed 14 votes to six, with one abstention.

Some of the councillors who voted in favour of the sale expressed reluctance, noting they did not want to sell the shares, but were voting for other parts of the mayor's budget.

After the vote passed, someone in the crowd began shouting. Brown sighed, "Here we go again."

The meeting was interrupted earlier by a woman yelling at the elected officials.

Earlier, councillors twice voted against amendments to Brown's budget proposal, both of which would have seen more borrowing and higher rates increases instead of selling the council's shares in Auckland Airport.

On Thursday, opposition to the sale saw Brown reduce the number of shares he wanted sold, from the council's full 18 percent stake to just over 8 percent. In return, more funding cuts and higher rates would be enacted. After another break, Brown compromised further on his airport share sale proposal, suggesting selling 7 percent - rather than 8 or 18 - in the hope of "living long enough to get to the end of this meeting".

This was the offer that stuck.

Watch the council meeting here:

Friday's debate started with a pitch from Manukau Ward councillor Lotu Fuli to keep the airport shares in exchange for a bit more debt and a slightly higher rates hike. She argued that while some have claimed keeping the airport shares is costing the city in debt interest payments, that goes for all of the city's assets.

But after nearly three hours of discussion, councillors voted against it, 12-8. The mayor also voted it down, bringing the final result to 13-8 against.

A second amendment from Manurewa-Papakura ward councillor Angela Dalton, which she acknowledged was similar to Fuli's, was also voted down 13-8 - councillors voting the exact same way.

The for and against

North Shore Councillor Richard Hills asked what effect keeping the rates hike to under 7 percent, but taking on more debt and not selling the airport shares, would have on future years' budgets.

An official said the advice to the council was that up to $160 million in more debt was possible this year, but only as a "last resort", and would add pressure to rates increases in future years - possibly pushing it to between 13 and 15 percent next year.

Councillor Mike Lee suggested the figures were ignoring the dividends delivered by the council's ownership in Auckland Airport, which the finance officials rejected.

Albany Ward Councillor John Watson said it was "refreshing" to see so much scrutiny of the council's debt situation.

Deputy Mayor Desley Simpson asked what the alternative budget proposal would do to the council's debt headroom, without paying down $1 billion of it from the airport sale. Finance officials said it would reduce the headroom by 20 percent, pushing it out to 250 percent debt-revenue ratio. Brown's proposal would put it at 230 percent.

Simpson asked if it would be a "prudent" budget to pass, and was told the advice to council was that it could damage the council's credibility with credit ratings agencies.

Simpson then asked what would happen if the council's credit rating was downgraded even just "one point". Treasurer and manager, CCO governance and external partnerships John Bishop said it would add 10 to 15 basis points to the cost of the debt - costing between $12m and $18m a year.

Albert-Eden-Puketāpapa ward councillor Julie Fairey asked what effect a 12.7 percent rates hike this year instead of selling the airport shares would mean for rates next year, and was told it would "help alleviate the problem the following year".

Manukau Ward councillor Alf Filipaina asked for the council's current headroom in its debt-to-revenue ratio, and was told there was about $2 billion to go before it reached its 290 percent cap. Bishop said discussions with credit agencies had suggested that cap could be reached without having the council's AA rating downgraded, but that depended on a number of factors - including having a plan to bring it down.

Filipaina asked what the highest debt-to-revenue ratio Auckland Council had ever reached, and was told it was 264 percent, around the time Covid-19 hit.

Rodney councillor Greg Sayers said it was time to stop "kicking the can down the road", saying the debt was costing Aucklanders "a Lotto win" every day in interest payments. He argued Fuli's amendment would leave the city without the financial headroom to pay for future shocks, and blamed the city's situation on previous mayors Phil Goff and Len Brown.

He said debt was being used as a "first resort" instead of last, and argued for keeping rates hikes below the rate of inflation during a cost-of-living crisis.

"The mayor has bent over backwards to reach a compromise," he said, urging other councillors to support Brown's new proposal.

Dalton said Sayers' speech was "well-written", but she would vote for Fuli's amended budget.

"Debt is there for us to use at this point in time… I don't believe that selling our shares in the airport at this point in time is the right way to solve a $325m gap. I believe that we can work through this."

Simpson commended Fuli for the effort she put into her alternative budget, but said it would be "really hard" for her to support it, because the mayor's proposal took money off the council's debt, rather than adding to it.

She also expressed concern Fuli's budget risked the council's credit rating.

"Thank you, well done, but sorry. I just can't do it."

Waitākere councillor Shane Henderson said he was getting texts from the public even as the meeting was in progress, and could not support Fuli's proposal - noting West Auckland had expensive buyouts coming, having been hit hard by the floods, and would need debt headroom to cover it.

He also said his region had bore the brunt of most of the city's housing development, and needed more infrastructure and services which could only be funded by debt - and that would not be possible if more was added now to cover operating expenses.

Watson suggested the 8 percent sale, proposed by Brown on Thursday, was a "backdoor" to a full sale, throwing his support behind Fuli's amendment.

"Our most valuable should be a last resort."

Howick Ward councillor Maurice Williamson presented a graph showing how rates have risen faster than inflation since Auckland Council's formation over a decade ago.

"I find that unconscionable," he said, saying residents were trying to choose between heating and eating, partly thanks to rates increases. "It's happened year on year on year, and now you've had a … 60 percent increase in rates and a 30 percent increase in the [consumer price index]."

He said he would be voting against Fuli's amendment.

North Shore Councillor Richard Hills said he wished he had brought his own Powerpoint presentation, saying he could show Williamson why rates had gone up faster than inflation - to make up for years of underinvestment.

"My Powerpoint presentation would have shown the trains, and the stations, and the new builds of leisure centres… the City Rail Link, the Central Interceptor… there are countless examples."

He said the choice was made to borrow because previous councils did not.

But Fuli's amendment, he said, was to cover operational expenses - not infrastructure - and would just see a massive rates hike the following year, and more cuts to council staffing and services.

"If we fill that gap with debt and leave another hole… I think that is not a good thing."

Manurewa-Papakura ward councillor Daniel Newman said he could not support increasing the council's debt to cover this year's operating costs.

"What comes the year after that and the year after that and the year after that?"

He praised Henderson for recognising the city's long-term success would be stymied by leaving little debt headroom.

Franklin Ward Councillor Andy Baker said he agreed with Newman, and praised council staff for their "incredibly useful" advice on the matter.

"To borrow our way out of a financial hole is quite unbelievable… we cannot just put blinkers on and think about this year only," he said, noting a debt increase would just result in a higher rates hike next year.

"I will not be supporting this amendment. It's a huge step backwards."

Fairey said there was a tension between those who want council to "cost less" and those who want it to "achieve more", saying it was finely balanced this year.

She said she was not afraid of putting up rates, saying there had been years of underinvestment - and corners were constantly being cut to save money, resulting in more expensive repairs years later.

Backing a 12.7 percent increase, she said rates only made up a very small part of the cost of living - and Auckland's were low by international standards.

Maungakiekie-Tāmaki ward councillor Josephine Bartley said many people in her region were struggling, living in cars without houses to even pay rates on.

She said when the current airport company was set up, the then-Auckland councils had a 51 percent share - which some sold over the years, leaving the council with its current share of 18 percent.

She said those sales were made to pay off debt, the same situation the present Auckland Council found itself in now - calling it "insanity". She praised previous councils that held onto their shares for their "long-term thinking" and foresight.

Selling the shares now would be a "lazy" solution.

Whau ward councillor Kerrin Leoni said she would vote for the amendment, citing the airport share dividends and capital gain. She expressed fear if rates were not increased significantly soon, they would go up even faster in future years.

She said there were other assets the council could sell, but councillors had not been given enough information about what effect they could have.

Albert-Eden-Puketāpapa ward councillor Christine Fletcher said she would not be supporting the amendment.

"My instinct is that we have to preserve our position in terms of debt headroom."

Waitākere Ward Councillor Ken Turner said he had flip-flopped on his position, but said he would be voting for the mayor's compromise so the city could move on.

Howick Ward Councillor Sharon Stewart also said she would not back the amendment, because there would be a "day of reckoning" if rates were hiked too much - claiming it would force people out of their homes.

"I won't be able to support your amendment today," she told Fuli.

After all the councillors had spoken on the amendment, Brown noted a survey of the public found just over half backed selling some of the shares.

"I'm uncomfortable with the amount of debt we're using, even in my proposal," he said, noting his proposal used much less.

The vote to adopt Fuli's amendment failed, with 13 against and eight in favour.

The meeting then adjourned for lunch.

Arguments rehashed

After the lunch break, Dalton proposed an amendment, raising rates 7.7 percent, borrowing $120m and reducing the amount of funding cuts compared to Brown's budget. She said it was otherwise similar to Fuli's budget, which was voted down earlier, in that it retained the council's stake in Auckland Airport.

Rather than have another three-hour long debate, Brown urged councillors to only ask about specific differences between Dalton and Fuli's proposals.

Responding to a question from Fairey, finance officials said that would result in a 14.1 percent rates increase the following year to cover costs.

Brown noted it still left the council with $1 billion more debt than his own proposal.

Fuli said those who voted against selling the shares would be on the "right side of history".

The arguments from other councillors largely mirrored what came in the morning - some arguing rates and borrowing could cover the gap and make up for past underinvestment, and others saying they would not vote for massive hikes and more debt.

The vote inevitably ended the same way - 13-8 against, the councillors voting as they had earlier that day.

Mayor offers a further compromise

After another break, Brown compromised further on his airport share sale proposal, now suggesting selling 7 percent - rather than 8 or 18 - in the hope of "living long enough to get to the end of this meeting".

Filipaina, clearly angered, said he still would not vote for any proposal that involved selling the shares.

He said homeowners had the option to defer rates until their homes were sold, if they could not afford to pay them at the present time.

His passionate speech was applauded by some in the chamber.

Watson - who voted for the previous two failed amendments - said during their discussion on Friday, the council's shares in Auckland Airport had increased in value by more than $26 million.

"Maybe we should keep the meeting going?" he joked.

Fairey told the meeting she made a pros and cons list, and praised the mayor for his willingness to compromise.

But she said there will still some things she was not happy with, including a pause on targeted rates and some of the remaining cuts, as well as the share sale - saying the problem was just being shifted to next year.

Interruption

The meeting was interrupted by people in the public gallery shouting, Brown calling for an adjournment until she was removed.

Hills was talking about the number of changes the budget had gone through when a woman began yelling.

"They don't even belong to you," the woman said, talking about the airport shares.

She also said something about making decisions on behalf of the children. Microphones were being turned on and off, making it difficult to tell exactly what she was angry about. At one point she said something about "slaves".

The mayor asked them to stop, calling for them to be removed.

He tried to restart the meeting, but the woman continued yelling.

"We've got to get security," Brown could be heard saying.

The meeting resumed a few minutes later, Hills picking up where he left off.

Eventually, a vote was held on the 7 percent sale suggestion, passing 14-8. Councillors Watson and Walker voted in favour, expressing their reluctance to sell the shares. Fairey abstained.

Government buyout to settle Treaty claim?

Waikato-Tainui is seeking a large shareholding of Auckland Airport shares if Auckland Council agrees to sell part or all its shareholding.

The iwi already had substantial investments in the airport precinct, including two hotels.

Executive chair Tukoroirangi Morgan said the shares would be an opportunity to settle outstanding Treaty claims in the Auckland region.

"Our current negotiator, who's been at the table with ministers and also with Crown negotiators, has on a number of occasions said to the government, buy the shares. It's a creative way of resolving - in the main - the major part of our Tamaki claim," he told Morning Report on Friday.

"The airport… it's a significant piece of land [to Tainui]. It's where we have a number of our major investments and we've always regarded the airport as a key gateway, not only for this country but a key gateway, you know, historically, for our people when they made first landfall here more than 1000 years ago… So these cultural, iconic parts of our history is hugely important."

Morgan said the Crown had a problem with few assets left in Tāmaki Makaurau to use in settlements, urging officials to "be creative".

He said Tainui would not simply sell of the shares again for cash.

"We buy to hold - we're an intergenerational investor. So the fact that we've got two major hotels out there at the airport, we have a marae that was built in partnership with the Airport Authority. We have an intergenerational commitment to making sure that what we have there is held for those who come after us.

"We're not in the business of selling shares. We would want to hold for those who come after us."

While Waikato-Tainui the first iwi to sign a deal with the Crown to settle historic wrongs, it has a few claims outstanding.

'Whack-a-mole'

Howick Ward Councillor Maurice Williamson warned of a wild and rough ride at Friday's meeting.

A strong supporter of selling the council's airport shares, he described Thursday's budget debate as "whack-a-mole on steroids". He predicted more of the same for Friday, with some councillors happy to raise rates and others dead against it.

"There are a number of councillors around that table saying 'we think the rates could go up'," he told Morning Report.

"Now, they are already above the inflation rate that we've settled on yesterday, which I am very disappointed at. I want to keep rates to either inflation or below."

Brown's compromise proposal included hiking rates 7.7 percent - above inflation - rather than 6.6 percent, which about match it.

"But the problem with that argument… 'People in my ward don't seem to mind.' Well, there are some wards where the home ownership levels are very, very high and there are some where home ownership ownership is very, very low," Williamson said.

"I can tell you that in the Howick Ward, I get nothing but confronted by people in the streets saying, 'You guys better not stick my rates up beyond inflation. I'm struggling to make ends meet.'

"And I actually understand that people on fixed incomes are struggling to put food on the table and it's time we stop putting the rates lever. It's been above inflation every year, for year upon year."

Williamson said all council departments and boards need to cut their spending - rather than leaving local boards alone, as proposed by Fuli.

"To say to them, 'Oh, there's not any of your spending that's not good quality, it's all fantastic, we'll leave you with all that money' - I just, I'm sorry, I just don't agree with it."

He was not optimistic a deal would be reached on Friday.

"It's just impossible. It's impossible to tell 20 individuals all with different views in life. It's like herding cats. How do you get 20 people who have got very diverse views of the world? How do you get them all to come to the agreement on something? I don't know. I really don't."

'A manufactured ceiling'

Fuli's proposal includes adding another $140 million of "short-term debt", but keeping the airport shares - a "drop in the bucket" of the council's overall $12 billion debt, she said.

"It's not like the banks have said, 'If you borrow more than that, we're not going to give you more.' And our debt ceiling is actually 290 percent and we are nowhere near that in terms of our entire debt and our entire ability to borrow it.

"We're going to the limit that we've been advised we can go to before we start to become a little bit more risky… It's a manufactured ceiling. It's not been put on us by any institution. It's one we've put ourselves in order to be prudent and we've still got quite a lot of headroom there."

Fuli said local boards and community groups should not have their funding cut, pointing to the job they did during the floods earlier this year when "council ourselves failed".