Auditor-General worried councils letting assets deteriorate, putting costs on the next generation

Local councils spent considerably less than they budgeted on capital expenditure in 2015, with some spending below the rate of depreciation, according to the Auditor-General.

In the report on local government audits for the year to June 30, 2015, which was presented to Parliament today, the Auditor-General said local authorities recorded capital expenditure spending of $2.2 billion, down from $2.3 billion in 2014 and just 66% of the total budgeted capital expenditure of $3.4 billion.

With Auckland Council excluded, that shrank to 62% of total spending compared to budget. Auckland Council's spending is 17% of spending for all local authorities, and the council spent 99.5% of its budget in 2015.

The auditor categorised capital expenditure into spending on new assets for extra demand, spending to improve levels of service, and spending to renew or replace existing assets.

"For all local authorities, spending against each category of capital expenditure was well below budget," the report said. "It ranged from 66% for spending to meet additional demand to 91% to improve levels of service and 71% to renew existing assets. This low level of capital expenditure calls into question the accuracy of budgets and highlights the risk if under-investment continues, that local authorities might not be doing enough work to maintain service levels in the future."

Nineteen local authorities spent less than depreciation, with a range of 51% to 99% spent compared to depreciation. Of those, 13 local authorities' spending on renewal or replacement of existing assets was 40% or less of depreciation, more than double 2014's six authorities.

"Such low results are likely to indicate that the quality of the assets is deteriorating and could indicate costs that will fall on future generations," the report said. "However, it is not appropriate to assume, based on this, that the level of spending is inadequate. Individual local authorities need to consider whether they are adequately managing their assets.

"If the depreciation rates are not a reasonable reflection of actual consumption and asset deterioration, this ratio will not indicate the true state of the infrastructure network. It is important that local authorities continue to focus on improving the accuracy of their forecasting of future physical infrastructure needs and their budgeting for delivering these services."

(BusinessDesk)