Government intervenes in Wellington City Council and appoints Crown Observer observer

The Government intends to appoint a Crown observer to Wellington City Council in a few weeks, Local Government Minister Simeon Brown said this afternoon.

Brown wrote to Wellington City Council with the draft terms of reference and gave the council 10 working days to respond, as required by law.

The move follows months of controversy over the council’s long-term plan. A planned sale of the council’s stake in Wellington Airport, initiated by Mayor Tory Whānau, was scuppered at the last minute after a vote by councilors earlier this month.

Brown announced he would introduce the Crown Observer this afternoon, citing official Home Office advice in making the decision.

He said: “On the advice of officials, I have discovered that there is a serious problem within Wellington City Council which requires the government to appoint a royal watchdog.”

“The advice provided to me by the Home Office highlights that the council is not using its balance sheet properly to maintain critical infrastructure such as water and is failing to properly manage its insurance risks.

“These risks have increased due to the recent decision to amend the long-term plan.”

Whānau said it would “work constructively with whoever is appointed” as an observer.

The Mayor said: “We must use this as an opportunity to put past differences behind us and develop a coherent plan that benefits Wellingtonians.

“The decision not to sell our minority shares in the airport to address growing insurance risk means we have some difficult decisions to make in the coming weeks and months.”

Brown added: “The Department tells me that while it is not uncommon for councils to amend their long-term plans, it is not uncommon for a council to reverse a financial decision of such importance that it requires such an amendment just four months into the cycle.”

The Royal Observer helps the council solve problems, monitors the council’s progress and makes recommendations to the government on possible future actions. They can also provide some guidance to advisors and management.

The observer does not have direct decision-making power.

Mr Brown said the Home Office found the council had “demonstrated a failure to understand the mechanisms it has in place to manage the financial pressures it faces”.

“This includes the council’s decision in its long-term plan to use rates revenue to pay for water infrastructure upfront, rather than using appropriate debt financing.”

The Local Government Minister’s proposed funding mechanisms for the government’s water reform, known as the Local Water Done Well, would “provide additional debt cushion for Wellington City Council to address under-insurance issues”.

“The Home Office guidance highlights that the long-term plan 2024-2034 shows that council net borrowing for water services will increase by just $66 million to fund this investment – 6% of the total – and the remaining $1.1 billion in capital investment proposed to be financed through rates – 94%.

“This is an inefficient and expensive way to finance infrastructure investment. The council shifts the costs to current taxpayers rather than using debt financing to spread costs among current and future users of the assets.

“The Department of Home Affairs estimates that the Council’s approach to funding water services, as set out in the 2024-2034 Long Term Plan, will overcharge Wellington City residents by more than $700 million over ten years.

“At recent council meetings, council members have also walked out, refusing to vote, and there has been confusion regarding resolutions, amendments and voting. Council members have also publicly criticized each other and council staff on multiple occasions.

“This environment is not conducive to the council effectively managing the process of making amendments and adopting a long-term plan. Failure to address these issues is likely to have adverse consequences for Wellingtonians and taxpayers.

“The Department of Home Affairs believes that the appointment of a Royal Monitor is necessary so that Wellington City Council can better deal with this issue and I can monitor progress on it. I agree with their assessment.

“A Crown Monitor will be appointed to assist the Council in ensuring a financially sustainable long-term plan which will prioritize the capital investment programme.”

Brown continued: “The Government is clear that by proposing to appoint a crown monitor, the Government is not accepting responsibility for any decisions taken by the council.

“The council and mayor are democratically elected and are responsible for the decisions made by the council and will remain accountable to their constituents.

“By providing a Crown Monitor to assist the Council with governance, financial strategy and planning, the Government will work to ensure that Wellington City Council ratepayers can have increased confidence in their council and that long-term plan decisions are finalized in accordance with the Local Act self-government.”