Whakapaunga moni whakahaere - Operating Expenditure
Even without the COVID-19 pandemic the Council was facing significant cost increases in 2020/21 to deliver existing services and to respond to earthquake and resilience issues. These included setting up temporary library services after the closure of the Central Library. Higher asset values also meant that we needed to put aside more money to ensure crucial city infrastructure was maintained and replaced. The extra costs totalled $54 million. If we didn’t look to manage the funding impact of these cost increases it would have been equivalent to a 17 percent rates rise.
Therefore, alongside managing the impacts of COVID-19, we had reduced the impact on rates by setting an organisational savings target of $7.4m and accepted a range of other budget risks. We also reviewed costs where the benefits will occur over several years and considered whether these be debt funded to take the pressure off 2020/21 rates. There is more detail on this in the Borrowing Position section.
COVID-19: The impact and response
Since the COVID-19 lockdown, we have had some minor cost reductions. These include energy costs and some of the operating expenses in our closed facilities, but generally Council still needs to pay the majority of the costs that maintain services in the city.
The crisis also has implications for each of our Council Controlled Organisations (CCOs). The primary and almost immediate impact was the collapse of third party external revenues. As many of our CCOs rely on Council funding to support the services they provide, including the Zoo, Wellington Museums, and Wellington Venues, we expect Council costs to increase to ensure they can thrive after COVID-19. We have made an extra $5.0m provision in our 2020/21 budget for this.
The Council is trying to balance making cost savings with protecting the jobs of our staff and maintaining service levels. The Executive Team have taken a 10 percent pay cut for six months and a salary freeze for a year. All of the Elected Members chose to make donations to Wellington community organisations equivalent to 10 percent of their salary until the end of June 2020 to show their personal support for the city. This is in addition to extra Council funding for community initiatives of $1m in 2019/20 and $500k in 2020/21.
In addition to the $7.4m savings target and budget risks already assumed, the CEO is undertaking a thorough review of Council costs to ensure all savings have been identified.
The cost of delivering and running Council services in 2020/21 is forecast to be $594m or $7.52 per resident per day. As mentioned this is a $54m increase on last year, which primarily relates to increased depreciation due to new assets and a property revaluation, and inflation on contracts and personnel costs. We will be trying to reduce costs further to avoid additional rates pressure while we recover from COVID-19, but our plan also assumes we will not be reducing service levels. This presents a significant challenge as our budget already contains some risks and uncertainty around additional costs the Council might incur as part of our COVID-19 Pandemic Response Plan.
$594m - Operating spending for 2020/21
The graphic illustrates the proportion of planned operational expenditure in each of our seven strategic activity areas. Our Priority areas ensure we allocate spending based on what is important. The biggest area of organisational expenditure is Environment & Infrastructure at 35 percent of the total gross operating expenditure of $594 million; Social and Recreation and Transport follow at 23 percent and 16 percent respectively; Economic development, Urban development, Council organisational projects, Arts and Culture, and Governance follow, each with under 10 percent of total operational expenditure
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