Government to appoint Crown Observer to Wellington Council

The Coalition Government plans to appoint a Crown observer to Wellington City Council as it rewrites its long-term plan after voting to retain its stake in the city’s airport.

Left- and right-wing councilors have joined forces to stop the sale of a 34% stake in Wellington Airport, criticizing Mayor Tory Whānau’s plan to reduce the city’s insurance risk and diversify its investments.

The sale could raise half a billion dollars, which would be reinvested in the perpetual fund and reduce net debt levels. The Council will now have to reconsider its long-term plan and possibly reduce investment in some infrastructure projects.

Local Government Minister Simeon Brown said he was concerned about councils’ ability to manage the process and use their financial resources effectively.

The Home Office told Brown that the council had not used its balance sheet “appropriately” when planning for water infrastructure and insurance risks.

According to the minister, water supply upgrades were financed mainly by tariff revenues, when they should be financed by debt.

This appears to mean the Crown Observer will be tasked with pushing for the Council to take on higher levels of debt, although Brown did not specify whether this would be the case.

“Ultimately, they borrow for other needs, but… 94% of their capex (water) is financed directly from rates. They could fund and fund in different ways, reducing the burden on taxpayers,” he told reporters.

He said he notified Mayor Tori Whānau on Tuesday morning in a “pleasant manner” and she had expressed no intention of challenging the decision – Council has 10 days to respond before a monitor is formally appointed.

Council responds

Whānau said she was pleased to be working with the Crown Observer and that it could be beneficial to the council.

“I think we accept that and work constructively with any candidate,” she told reporters on Tuesday.

However, councilor Tim Brown told BusinessDesk the decision was premature but Simeon Brown had “painted himself into a corner” with his previous criticisms.

Tim Brown had a long career as an infrastructure investor at Morrison, which operates Infratil, before running for Wellington Council in 2022.

Whānau also expressed confusion at the minister’s criticism of water funding. She said Wellington used both debt and interest rates to cover infrastructure upgrades.

“The way we fund water is fundamentally the same as most countries, so again I was surprised by these comments, but I will work closely with the minister.”

While she generally welcomed the creation of the Crown Observer, she noted that taxpayers would have to foot the bill for having a central government representative at the table.

“It’s a little frustrating for me… it’s a cost we didn’t want, but it’s the government and we’ll work with them,” she said.

Credit ratings

Finance Minister Nicola Willis said it was in whanau’s best interests to cooperate and show taxpayers that the Council was doing everything it could to deliver good results.

She didn’t want to say that the Council wasn’t taking on enough debt. Instead, she said, many taxpayers don’t believe the company is taking a “sound financial approach to financing long-term assets such as water infrastructure.”

“Ultimately, the Council needs to work through these issues, but ensuring good financial management, managing the balance sheet and getting good advice is one of the issues that the Crown Observer can look at.”

In September, S&P Global Ratings downgraded Wellington City Council’s credit rating to AA from AA+, citing rising debt levels and costs. The council will significantly increase debt to cover the cost of upgrading water infrastructure and the rising costs of providing services, it said. (See an explanation of credit scores here.).

Debt levels have historically been around 100% of operating earnings, but have already reached 213% and will rise to 286% by 2027, and rising rates are helping to support that growth.

“The sharp rise in debt reflects the significant increase in Wellington City’s capital development programme, significant increase in operating costs and the council’s pre-financing strategy.”

Opposition Leader Chris Hipkins said there was a high threshold for government interference in elected councils and he was not confident it had been met in this case.

“There are many other councils across the country who are struggling to put together a long-term plan as a result of government changes to water infrastructure… that doesn’t mean central government should step in,” he told reporters.