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OPINION: Supercity? Super shambles!

OPINION

Another civic authority is in financial strife after years of mismanagement, excessive borrowing and living above its means. 

Only this time, it’s not some far flung district hidden away in the depths of California, or an earthquake ravaged city in the South Island, or even a small district council up north.

No, it’s the city of Auckland, home of an amalgamation of local councils that were pulled together less than five years ago, with a view to create a more effective organisation.

As the full extent of Auckland’s financial position begins to come clear, it’s interesting to hear the proposed cost reduction measures being promoted. Thus far the focus appears to on reducing park maintenance, cutting library hours and possibly even closing some of the city-owned and operated swimming pools. (Ironically, this from the same Mayor who trumpeted “free swimming” for all kids under 16 only a few years ago.)

Way to go councillors! Let’s focus on cutting back those minimum wage earners. This is akin to the troubled corporations who kick off the cost reduction programme by taking the biscuits out of the kitchen.

Meanwhile, we hear Auckland City has more than 1500 people who are paid more than $100,000 per annum. In recent years I have lost a couple of corporate people to “jobs at the council.” I couldn’t believe what they were getting paid then and I can’t now. And these are not the top-drawer people; they are actually pretty average. 

A quick glance at the annual reports of five of the companies listed on the NZX top 10 (Contact Energy, F&P Healthcare, Ryman, SkyCity and Sky TV) reveals they have just 1387 people who are paid more than $100,000 per annum between them – in total! Surely this is where we must start. Not necessarily with the people but with their departments and roles and the services they are meant to be performing.

You need to break the discussion down to two areas: 

  • Operations – the execution of day-to-day functions and operational activities within the organization; and
  • Governance – the leadership and operation of the council.

Operations
It’s important to remember the council’s core roles.  Things like transport, sewerage, water, parks and recreation. So you have to ask, what are all the other things that require an organisation of thousands of people, many grossly overpaid.  Since when was working for the council a highly paid career move?

In simple terms, there is a need to consider the following questions and actions:

  1. What are the council’s core (read essential) functions?
  2. Are those functions being run as efficiently and effectively as possible?
  3. Who is responsible for each function?
  4. Can each of them save 10% per annum? (Note: The answer to this question is always yes.)
  5. If not, what do we have to sacrifice in order for them to do so?
  6. Can the person responsible for each council function develop a plan to save 10% (real money) in the next 12 months?
  7. What are the other (non-core) functions?
  8. Why do we have those non-core functions?
  9. Which ones can we do without?
  10. Who is responsible for each of the non-core functions?
  11. If they are not absolutely necessary, the person responsible should develop a plan to answer the following question: How quickly can we close them down and what are the implications we have to manage?
  12. If they are deemed necessary, the person responsible should develop a plan showing: How can we modify the way we operate them in order to decrease the cost substantially (ie, 30-50% or more) and quickly (within 6-9 months)?
  13. Compile a business case for every function outlining the basis on which they will continue or discontinue.
  14. Finally, all contractors (ie, individuals who are not employees but are contracted to the council) should be immediately reviewed and terminated forthwith wherever possible. (They are less expensive to let go than employees who will rightly require redundancy.)

So here’s another thing. When was the last time you heard about a local council considering a cost reduction programme? Never. Despite the fact that most businesses have had to go through various and often dramatic downsizing three or four times in the last 20 years I am yet to hear of a council doing the same. 

Why? Because they don’t have to worry about revenue. They just put the prices (rates) up and add new charges for existing services (water and rubbish), irrespective of the financial climate. 

If Aucklanders look hard at their TOTAL rates bills over the past five years (including water, rubbish, etc.) they will find they have at least doubled, and in some cases tripled.  Incidentally, that period has been among the most financially difficult in history. These people must really care about their people.

Governance
When Auckland became a supercity, seven small, difficult to manage organisations were merged into one big, impossible to manage organisation. 

But here’s the biggest problem. They may have made a bigger organisation but they didn’t upgrade the capability, particularly at board level (read “council level”). 

I can still remember the new Mayor, Len Brown, fresh from beating John Banks in the first supercity election, talking about a fresh start for a vibrant new city and then turning to the councillors and thinking, “it ain’t going to happen.”

Take a look at that first board: George Wood, Ann Hartley, Mike Lee, Christine Fletcher, Len Brown, Sandra Coney, Arthur Anae and Richard Northey. They’re the same old faces in a different guise. Guess what? If nothing changes, nothing changes.

It is important to highlight these people have often worked tirelessly for communities for a very long time and we should be enormously grateful to them because they have performed a role that many of us (myself included) would not want to volunteer for. 

However, we need to understand that someone who has held a board seat in a failing system at Rodney, Papakura or North Shore is not necessarily qualified to sit on a board of the supercity. It’s like going from the board of the local school and putting your hand up for a gig at BNZ. (Slight exaggeration, I know, but you get the idea.)

Unfortunately, the democratic process does not deliver the best candidates for the job. Most highly capable people with strong leadership and governance experience could think of nothing worse than entering the political process, lobbying and campaigning, all for a role that takes up a lot of time, particularly evenings and weekends. Not to mention having to go through it all again in three years’ time.

Added to the lack of capability is the fact that even the most senior local government officials are not subjected to anything like the level of scrutiny of nationally elected officials. Imagine if Mr Brown and company had to face the press pack after each council meeting like central government ministers. 

There is no accountability. These people campaign, get elected, then disappear for three years, and because we don’t know what they have been doing we vote for them again. Well now we do know. They’ve been borrowing and spending and issuing promissory notes on our behalf.

So how do you get the right people and skills around the council table? Other boards that are governed by constitutions, such as in sport, not for profits, industry associations and education, have the same problem. They overcome it by appointing board members with the skills they need, to complement a lesser number of elected officers.

Sadly, the reality is, that when a large organisation hits financial trouble, democracy doesn’t work. (Just ask Barack Obama.) We need to change the constitution of the supercity so that just half of councillors are elected and the other half appointed. 

So where to now?
If Auckland City was a company, this is what you would do:

  • First, the situation needs to be accepted for what it is – a crisis – and immediate actions along the lines of the 14 items listed above need to be put in place to dramatically reduce costs over the next three years.
  • All employee and contractor remuneration should be frozen immediately.
  • All capital expenditure must cease. Any mission critical capex should then continue after being reviewed but costs must be closely monitored. Every major project must be reviewed. In particular, the Mayor’s rail loop – which shows commendable vision – must be mothballed for the time being. 
  • Revisit the supercity merger – not to try to reverse it, that is far too late, but to investigate whether the anticipated synergies and savings were achieved. Making mergers work is challenging and requires serious discipline to get the projected benefits. Put in place a project team to review and execute what wasn’t done properly before. 

Better late than never.

Bruce Cotterill is a company director and former chief executive who advises business leaders on leadership, governance and management

bruce@cotterill.co

Comments and questions
28

Okay can you please explain then how the Council delivered a OPEX surplus of $246 million which was audited by the Auditor General?

If the Council was in financial dire straits as such we would be seeing OPEX deficits like the Central Government but we are not.

Now admittedly we are awaiting the next set of figures but again indications show again an OPEX surplus.

As for CAPEX well that always is contested and honestly needs a review in itself.

So with that OPEX surplus the Council has two choices:
1) Cut rates
2) Reinvest

It is easy to make an Opex surplus. Work out what you want to spend add 10% and then charge the ratepayer. I would love to own a business like that. The issue is that rates are rising faster than inflation. Which shows inefficiency.

Add in the fact that the inflation rate is inflated by things like council and the nin tradeable sector shows how poor they have been.

Staggering the number of employees over $100k. First move sack 10% of all staff. Large companies often do and still get things done.

Careful, agree with the 10% but there has to be a focus on removing a very large proportion of the $100k plus and all of the $250k plus. Then start to align the Indians (workers) with productive valued jobs.

Who ever approved the $150k silk curtain for that local library also gets the boot.

Who ever approved the mini bus purchases to shift staff from city to the burbs, sack them as well.

Kill the Rail Loop, remove all but a few of the IWI board representatives and now spend some time listening to the council staff they probably know how to solve the problems the council faces.

Love it. Opex, Capex? Just games to hide debt from the punters. This council is deep in it and devoid of any commonsense if they think they can play games with numbers to hide the exacerbating debt.

I'd have thought $8b debt with an asset base of $37b and a AA credit rating and a quarter-billion dollar operating surplus was an extraordinarily healthy financial position. The city can easily debt-fund the essential infrastructure spend. If we don't get on and build the City Rail Link we will look pretty stupid in a few years when we have another million people. Forget driving anywhere - will be quicker to swim.

They have a AA rating because the government does and they can sell your house to pay off their debt if they have to. It has NOTHING to do with their financial management. In fact it is their mismanagement that is putting that rating at risk.

With the exception of the port and the airport, the assets are non-income producing, and for the most part could never be sold. It is one thing to run up a huge debt against these assets now, but at some stage in the future that debt will have to be repaid.

Not quite - the $37B of assets includes things which could never realistically be sold, nor be cash-flow positive.

For example, there is plenty of "value" in the roads and footpaths that Auckland Council owns, but its never going to be able to charge people to use footpaths or the roads in their neighbourhood. Neither will the council ever be likely to sell its art collection, the art gallery, the town hall or other such buildings. It won't be selling the Domain, various playgrounds and sports parks either.

Comparing debt to all assets like one might with a company is therefore pointless. Real "book value" for Auckland Council could potentially be $10-15 billion less than stated. In which case, the debt to book value does look parlous.

I want the city rail loop to succeed, but not at all costs. Len Brown has grown both the size of council (and its scope) plus also embarked on this major project. We can't do both. It's time to slow, stop and reduce a lot of the opex (free pools, community grants, growth in staff numbers), and plan a city rail loop that meets with the timeframes that ratepayers can afford.

Let's not also forget we are in a period of historically low interest rates. That could change faster than we expect, and with disturbing consequences for ratepayers 3-5 years down the line. Debt funded capex built in the last few years could become a lot more expensive to pay for in the future when the interest rates council pays jumps from circa 5% to 6.5% or greater.

Great article!

This is exactly what we get when we have another of Labour's socialist Mayor's - who has eventually run out of other people's money to spend... and then finally reached the debt ceiling.

Raising the debt ceiling is not the answer.

Len is so busy trying to create a monument for himself by way of a train set, his delusion of self-importance and his over-blown ego is blocking his ability for any form of credible, financial analysis. But what else could Auckland really anticipate when Len doesn't even trust himself with a "company credit card" due to misuse and barely legal spending from his Manukau City Council days - so why would anyone expect an avowed Labour socialist over-spender to behave any different to the recidivist behaviours he constantly demonstrates again and again?

Who needs 2 x "diary administrators"? Not even the PM, but this proven corrupt individual (nepotism anyone?) thinks he does as he goes about building an ivory tower from which to sit behind his polished desk fondling a $100,000 dollar, invisible silk curtain.

For the sake of Auckland and all of Aotearoa - we need Commissioners installed immediately into Auckalnd Council, plus a joint task force of a newly formed ICAC, SFO & AG to investigate the prolific debt burden Len and his crony's have foisted upon Auckland rate payers.

Besides the over-bloated empire building and over-stuffed council head count - where has all the rate payer money gone?

Did you not read the previous two comments?

Regardless of what someone else might say for or against - the observable facts still stand...

Fewer services, debt limit reached, ever-increasing rates, wasteful spending, socialist Labour Mayor with questionable financial abilities and ethics...

You might not like the message - however something about message... messenger...

We got this mess - not because of a labour's socialist Mayor - but because of an uneductaed national party stooge, the ACT party! From inception the notion of a big council deivering efficiencies was flawed and overseas peer reviewed & published research proves the point. The 'first' CEO and so called Minister of LG need to be held responsible for the uncontrolled salary rates and the rambling organisational structure.

The problem is consultants.

Aren't you just trying to manufatrre a crisis to suport your pre judged political view of the supercity? You propos ea review presumably to do an evidence based analysis but them immediately say what the results will be?

Any way of making councillors (and so called "top" managers) personally responsible for non-core pet projects ? ( i.e.: any extra spending / blow-out of costs are to be paid for by councillors that voted for that project). Yeah, I know - I am dreaming.

If I recall correctly Bruce Cotterill presided over as CEO the Yellow Pages debacle and possibly one of the largest destruction of shareholder value ever in New Zealand, taking Yellow Pages from a $2.24b company into Bank control.

There was a $1.6 billion impairment of intangible assets in the year to June 2010, leading to a loss of $1.4b.

I think we'd be better taking our advice from elsewhere....

To be fair the internet killed all paper-based services.

Need a top CFO in asap to advise new CEO

Rather than sacking the 1500 odd over paid staff members, change their job descriptions - they could be in charge of mowing grass verges, collecting rubbish, supervising and running libraries and swimming pools etc. it would save the money that would have to be paid for redundancies. A win, win solution I believe. I'm sure they would still be proud to say they work for "The Super City" not.

I think the demise of Yellow pages was more to do with the internet than anything else.

Aucklands situation is not a lot different than local government throughout the country generally. Few of those involved either as elected representatives or employees have ever succeeded in a wealth producing activity. They are by and large a group of do gooders who suddenly end up with the finances they always aspired to have but never had the ability to create by their own talent and hard work.

Under the Clarke/Cullen 2002 amendment to the Local Government act the four pillars of activity were introduced giving these same people a vastly expanded horizon that allowed them to wallow in their socialist dreams. Additionally government then and now continued to duck their own traditional responsibilities and pass these onto local government. Whilst not nearly strict enough National attempted to concentrate efforts by removing the four pillars with a requirement to concentrate on core services and essential infrastructure. I attended a local government conference a few years ago when there was unanimous objection to removing this total freedom to do as they wanted.
The problem is the people involved in local government. They look for monuments because there is nothing sexy about underground pipes that are out of sight to most. As a result councils look for high visibility projects that almost always lose money for which the only recourse is ratepayers. Problem is the voters rate equally stupid because they keep re-electing the same people so they get the same outcomes.

So why did Yellow Pages CEO not manage it properly to anticipate the effects of the internet? That would have been his job. And how much was he paid while he was failing his shareholders?

Forget Yellow Pages. Focus on what the guy is saying. I know it's a miserable Sunday, and you've probably stayed to long at lunch.
What does any company do in situations like this....it flogs off assets or transforms them. List or flog off the Waterfront properties (resource consent and council approval will control the aesthetic results) and the other elephant (jumbo?) in the room.....the precious Auckland Airport shares and that'll also knock a hole into some of the bigger salaried staff numbers too.
Fire the clown....name escapes me......who was the er, professional tasked with putting the Super City together (merely hire his Watercare staff....I know, I know its like getting monkeys to throw darts to pick stocks...... after amateur polly, R Hide had a go. But we continue to pay him like a rockstar to run the out-of-control Watercare mess, the chair Auckland Transport....ditto a mess ....and his Nat mates chip in by giving him the chair of the stuffed resources SOE. Let him do the latter and don't replace him on the other two jobs, which he clearly hasn't been doing. Close the Maori Advisory Board. Most would just miss the credit card and the fees and not the 'community service', methinks.
This could be cleaned up in no time in the commercial world. Time it was done.

At least the council management have not caused it to go bust yet unlike the sterling management of Yellow Pages.

I wonder what 14 point plans were drawn up in that enormous crisis and why they weren't implemented effectively and efficiently for success? Perhaps this could be explained in your next article?

In my business I see Council inefficiencies, poor decision making and complete lack of accountability everyday. Take most of the people on the board like Mike Lee, Sandra Coney and Len Brown for that matter and they wouldn't last 5 minutes in the real world. We are asking our less than average managers to run one of the biggest businesses in the country. Seek fundamental change to the board selection process and instigate an independent company to take complaints and review performance for accountability. The people who hide in a big organization will want to leave because they won't stand the heat.

I belong to a sporting club that is in a building owned by the Council and it was in need of work. The Council agreed to redo the two small toilets using their contractors. The final bill was just over $60,000. We have a man in our club who does bathrooms for a living, he said he could have done the work for $15,000, using all the very best of everything. The Council contractors had a guy come every day to check on the progress and quality of the work. It was installing two toilets, two sinks and tiling the areas with a bit of plumbing work.

If they can't look after the small jobs showing dollar restraint and receiving value for money, how can they handle the big jobs?

Great reporting..fair and balanced ..but George Woods swings like a weather vane and was in the thick of it..plus Darby and Hartley.. all are also LABOUR Party active supporters and all those other left lending nutters who act as councilors who voted it through ...who in fact all voted to support Brown in the no confidence vote..and McKay then simply pushed it through Hayden, look no further ..smart people do smart things the problem was no one was accountable..then look at Hide who drafted the terms ..total power fails all humans .. think of that as you pay the rate notice ..Brown could not even look after his own and his councils own credit card,,,NOGAF until it hurts themselves ...

You may recall that a handful of us opposed the Auckland 'Supercity - SUPER RIPOFF' from Day One?

Bigger contracts for fewer but bigger private contractors.

Follow the dollar .......

How many member companies from the unelected private lobby group (which really runs the Auckland region) - the Committee for Auckland - are represented on the Boards of CCOs?

CCOs being the mechanism for this, in my opinion, corrupt corporate coup.

What are the connections between those awarding the contracts and those who get these Auckland Council and CCO contracts?

Why is the Public Records Act 2005, not being properly implemented at Auckland Council?

Why are the public not being given the 'devilish detail' showing where exactly our public monies are being spent / invested and borrowed?

Now do some of you finally get why I am refusing to pay my rates?

Because I'm defending my/YOUR lawful rights as a citizen to 'open, transparent and democratically accountable' local government.

Penny Bright
www.pennybright4mayor.org.nz

2014 Independent Candidate for Helensville

One has to wonder at the mentality behind the commentary above in respect of personal jibes about the author.

Mr Cotterill was bought in as CEO of the yellow pages to clean up the debacle....he did not create it and thanks to him it went on to retain some value....the idiots who floated it and invested in it are the ones who didn't see the internet coming.....

As to the article itself.....I would love to see a response from Council/Mr Rodney Hide!!!