22 Jun 2020

Councils relying on govt's shovel-ready projects to keep money flowing

10:31 am on 22 June 2020

As the economy heads in to a recession, the government is urging councils to invest in infrastructure and save jobs.

Road works, road repair. (file photo).

Photo: 123rf

But with revenue down by hundreds of millions of dollars due to the lockdown, councils have run out of money and are instead putting off large projects to future years.

In April, Economic Development Minister Phil Twyford urged Waikato councils to use their balance sheets to invest in infrastructure alongside the government.

Hamilton Mayor Paula Southgate was at that meeting and said as much as her council wanted to do its bit, it was instead looking at deferring $63 million worth of projects in the next year, because of a massive drop in revenue.

"All of those places where we normally generate income have been all closed. So that's really, really hurt our business. So we've ended up with around about a $12 million deficit to deal with before we even start planning the year ahead."

Like other councils around the country, Hamilton had already delivered its wishlist of things it would like to see the government pay for through its $3 billion shovel ready projects fund.

Southgate said the construction firms that relied on her council's work programme needed answers now on whether the government was going to come to the rescue.

"It would be ideal if we knew in the next couple of weeks and no later, what government has been thinking or what it has decided. It would be a shame I think, to sort of roll them out slowly over the next four or five months."

Auckland Council was proposing deferring up to $400 million in spending, mostly on roading improvements, to make up for a $500 million reduction in revenue.

Like his Hamilton counterpart, Mayor Phil Goff was hoping a good whack of the shovel ready projects money would come his way.

"That would enable us to do more than we are currently budgeting for. But we cannot put that into the budget on the hope that we get it. We can only put into the budget, the funding that we're guaranteed to get."

Mayor Phil Goff said Auckland was experiencing its worst drought on record.

Photo: RNZ / Dan Cook

Unlike the government, councils were restricted in how much they could borrow to fund infrastructure, if their revenue fell below a certain level.

Goff said the government could help by refunding the GST councils paid on rates.

"That would give us another $200 million to $300 million a year. We really do need a wider revenue base to carry out the huge responsibilities that a city the size of Auckland has."

Sense Partners economist Kirdan Lees said if the government was serious about protecting construction jobs, then it needed to lend a hand to local government.

He noted that up to a third of all spending on construction in the coming year could come from councils, thereby keeping a staggering 73,000 people in work.

"Sure central government should be taking the lead and doing the big lifting. But let's have Local government kind of work in the same direction rather than kind of taking projects off the table.

"So keep some value for money thinking going throughout local council spending. But right now's not the time to be pulling back on specific projects."

The clamour for councils to cut rates should be ignored and would only lead to further delays in job creating projects, he said.

"It's not really the time for kind of contracting and thinking about, you know, how do we save more at the local government level. We tried austerity at a national level in several countries after the GFC and it worked really badly."

Neither the finance minister nor the minister for economic development were willing to be interviewed.

Finance Minister Grant Robertson's office said a decision on which shovel ready projects would be funded would be made in the "near future".

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