Local Government Minister Simeon Brown has decided to place a Crown observer on Wellington City Council following its decision to reopen its Long-Term Plan.

Brown said the Government had written to Wellington City Council with a draft terms of reference and has given the council 10 working days to respond, as required under the law.

Wellington Mayor Tory Whanau said she would “shortly consider” the draft terms of reference and discuss Brown’s decision with councillors.

“It is my view that we accept this and work constructively with whoever is appointed,” Whanau said.

“Ultimately, we all want a Long-Term Plan amendment that delivers the best outcomes for Wellingtonians.”

Whanau said she would not resign as mayor.

“I was elected to deliver for the people of Wellington, and I plan to work with councillors to deliver a solid Long-Term Plan. We will continue to do that work at pace,” she said.

STORY CONTINUES AFTER LIVE BLOG

STORY CONTINUES

The council was described as a “shambles” by Brown’s colleague, Nicola Willis, who today backed Brown’s decision.

Brown’s decision to get advice on intervening in the council was sparked by the council’s vote to U-turn on a plan to sell its stake in Wellington Airport, a decision which required reopening the council’s Long-Term Plan. The airport shares would have created an investment fund and freed up debt headroom to manage the council’s earthquake insurance risk.

Without the airport sale, the council will need to find up to $600 million in savings to free up debt headroom.

Brown said that the Department of Internal Affairs (DIA) advised him that while it was “not uncommon for councils to amend their Long-Term Plans, it is uncommon for a council to reverse such a critical financial decision that requires such an amendment only four months into the cycle”.

DIA identifies further financial issues

Brown said there were several other problems with the councils’ finances, including its decision to pay for most of its water investment with rates rather than debt, a decision which Brown said would “overcharge” Wellington City ratepayers by $700m over the next 10 years.

“I have been concerned about the council’s ability to manage their Long-Term Plan amendment and adoption process, following their recent decision to rewrite its 2024-34 Long-Term Plan,” Brown said.

“Under Part 10 of the Local Government Act 2002 (the act), I have powers of assistance and intervention in relation to a local authority that has a problem. Following advice from officials, I have identified there is a significant problem at Wellington City Council that warrants the Government appointing a Crown observer,” he said.

“Advice provided to me by the Department of Internal Affairs highlights that the council is not utilising its balance sheet appropriately in order to maintain critical infrastructure like water, and that is failing to manage its insurance risk appropriately. These risks have been increased due to its recent decision to amend the Long-Term Plan.”

Brown said the DIA’s advice found “found that the council has demonstrated an inability to understand the mechanisms it has available to manage financial pressures it is facing”.

“This includes the council choosing in its Long-Term Plan to use rates revenue to pay for its water infrastructure upfront, rather than appropriately using debt financing. Local Water Done Well financing mechanisms enables further debt headroom for Wellington City Council to meet its under-insurance issues.

“The advice from the department highlights that the 2024-34 Long-Term Plan shows the council’s net borrowings for water services increase by just $66 million to fund this investment (6% of the total), with the remaining $1.10 billion of capital investment proposed to be funded by rates (94% of the total),” he said.

The effect of this, Brown said, was to overcharge Wellington residents by $700m over 10 years.

It is not immediately clear whether the council could have made better use of Local Water Done Well financing mechanisms in its Long-Term Plan, given these were only developed and announced relatively recently.

Politicians react

Whanau said the situation should be seen as an opportunity for the council to put past disagreements behind it and build a coherent plan for Wellington.

“The decision not to sell our minority shares in the airport to resolve our growing insurance risk has meant we have some tough decisions to make in the coming weeks and months,” Whanau said.

”I am focused on addressing our insurance risk without increasing rates. Additionally, I do not intend to cut projects that are critical for our city’s growth and sustainability.

“For me, that means protecting our social housing, and continuing funding for water and key climate initiatives.”

Whanau said she would continue to work with councillors to amend the Long-Term Plan and give Wellingtonians certainty.

Labour leader Chris Hipkins called on the Government to “release the advice on which they have made that decision”.

“It does seem to be quite a significant step to take,” Hipkins said.

Brown promised to release the advice once the council had responded to the draft terms of reference.

Reports of ratepayers being overcharged hundreds of millions of dollars for water assets over a decade did sound “very concerning”, Hipkins said.

“The responsibility of that would not necessarily sit with the current council either. If that is an allegation that has been made, again they [the Government] should release the information they have on that,” he said.

“I think if they are going to appoint an observer to Wellington City Council, there is probably a number of other councils around the country that they will also be looking very closely at. There is a lot of disagreement amongst councils around the country.

“If this is the start of an ongoing process, then we won’t find many councils that don’t end up with some kind of intervention.”

Deputy Prime Minister Winston Peters directed questions to Brown.

“I support Simeon Brown. I am concerned that a city that was once alive is being destroyed; it is the worst I have ever seen it in a long career coming to Wellington,” Peters said.

“I attribute that to meddling politics and meddling bureaucracies without any regard to how a city properly functions, with thriving businesses and a thing called customers.”

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.