Crown observer steps in as Wellington City Council faces insurance risk overhaul

Crown observer steps in as Wellington City Council faces insurance risk overhaul | Insurance Business New Zealand

Catastrophe & Flood

Crown observer steps in as Wellington City Council faces insurance risk overhaul

Financial management challenges highlighted

Catastrophe & Flood

By
Roxanne Libatique

The New Zealand government has announced plans to appoint a Crown observer to support Wellington City Council in managing its Long-Term Plan (LTP) following concerns over the council’s handling of key financial decisions.

Local Government Minister Simeon Brown stated that the decision comes after the council’s recent move to amend its 2024-2034 LTP, citing issues with infrastructure management and insurance risk.

Why does the NZ government want to appoint a Crown observer?

According to advice from the Department of Internal Affairs (DIA), the council has not effectively leveraged its balance sheet to maintain critical infrastructure, particularly in water services, and has not adequately addressed rising insurance risks.

The amendment of the LTP so soon into its cycle is considered an unusual step, prompting increased government oversight.

The DIA noted that the council opted to rely on revenue from rates to fund water infrastructure projects instead of using debt financing.

Under the current LTP, 94% of the $1.1 billion required for water investment is sourced from rates, while only 6% is financed through borrowing. The government argues this approach places an excessive burden on current ratepayers and estimates it could cost Wellington residents an extra $700 million over the next decade.

Brown also pointed to recent disruptions within the council, including walkouts and disagreements among councillors, as factors contributing to the decision to intervene.

“The department is of the view that the appointment of a Crown observer is necessary to better enable Wellington City Council to address the problem and allow me to monitor their progress in addressing it,” he said.

He emphasised that the observer’s role would be advisory, and the council would retain full responsibility for decision-making.

The government has presented Wellington City Council with a draft Terms of Reference for the observer’s role and has requested a response within 10 working days, in accordance with legal requirements.

Wellington City Council welcomes Crown observer

Wellington Mayor Tory Whanau responded to the announcement, expressing openness to working with the Crown observer. She noted the importance of addressing the city’s insurance risks without increasing rates or cutting essential projects.

“We must use this as an opportunity to put past disagreements behind us and build a coherent plan that delivers for the people of Wellington,” she said.

The council is now evaluating alternative strategies to address a $2.6 billion shortfall in disaster recovery funding while also dealing with risks from earthquakes and climate change.

Key discussions around the LTP changes are set to take place in November, with a draft amendment expected by the end of the year. Final decisions regarding capital expenditure adjustments and insurance management are scheduled for late November.