Supersize my City: Super for Some

Is it the growth we want?

I have been thinking about the increasing cost of Auckland Council.  Is it simply a sign of growth, or is it something to do with the nature of the large councils (or large organisations in general)? And if it is all about growth, it raises other questions that remain unanswered, questions of physical and social capacity. Is it about coping with something that seems inevitable? Or is it something that the community wants and can embrace?  And if so, what will happen when that growth slows?

And how does the growth we are experiencing align with the much-touted ambition to be the world’s most liveable city?  (And what precisely does that mean?) There is a risk that we have leapt to the answers without quite understanding the questions. 

Another question

There’s another elephant on the Isthmus, one I turn to here. Can we sustain the costs of a super-sized council created to combat the supposed inadequacies of smaller councils? As the Council seeks out new sources of revenue, will they be enough to head off the fiscal headwinds that the Council may encounter, especially as the costs of living in Auckland increase?

If, as was hoped, a single city was to be more streamlined and efficient, this should be evident in its employment performance. I concentrate on council employment and its costs in this post. To do so I returned first to an analysis I have undertaken before (in 2014 and 2016).  Now that the super city has been with us for eight years the numbers should be more settled.

Employment growth: onward and upward

The amalgamation of six separate territorial authorities and a regional council (including the Auckland Regional Transport Authority and Watercare Services) was aimed at savings through integration and economies of scale.

Gains on the employment front from amalgamation were short-lived, however.  Stats NZ showed employment figures soon back above trend as indexed growth in Auckland moved ahead of the rest of the country (Figure 1). 

Figure 1: Local Government Employment Growth, Auckland and the Rest of New Zealand, 2000-2017

Source: Business Demographics, Statistics NZ

It gets worse when we look at the annual June reports for the Council since 2012.  They show significantly more employees when the subsidiaries – the CCOs – are accounted for:

Figures from:	2012	2013	2014	2015	2016	2017
Auckland council (June Reports)	6,789	7,008	7,051	7,123	7,184	7,220
Statistics NZ (as at February)	5,000	6,600	6,800	7,400	7,600	6,400
Difference (rounded)	1,790	410	250	-280	-420	820

 Source: Auckland Council Annual Reports; Stats NZ Business Demographics

Interestingly, the dip in 2016 in Statistics NZ figures does not show up in the Council’s data. This is preumably influenced by the fact that some of the Council's service delivery functions (water and waste, for example) turn up in other sectors. 

However, it turns out that employment growth has taken place primarily in Council's subsidiaries. Consider the staff figures for the period 2012 to 2017:

	2012	2013	2014	2015	2016	2017	Gain 2012-17	Share of Gain
Core Council Staff	6,789	7,008	7,051	7,123	7,184	7,220	431	6%
CCOs' Staff	3,368	3,608	4,071	4,257	4,407	4,673	1,305	39%
Total Group	10,157	10,616	11,122	11,380	11,591	11,893	1,736	17%
CCOs' Share	33%	34%	37%	37%	38%	39%	75%

Source: Auckland Council Annual Reports

While growth within the “core Council” has trailed population growth (6.3% compared with the Stats NZ estimate of a 7.2% population gain), the CCOs have grown much faster.  They accounted for 75% of employment growth in the Group, reaching almost 40% of the total. The result: overall council employment increased at more than twice the rate of population growth.  It was also well ahead of 5% inflation since 2012.  

On employment grounds council growth is easily outstripping the growth of the city.

The cost of council employment

Even if wages and salaries stayed constant, the prospect of savings in employment costs from combining councils was astray. Annual reports show growth in the cost of council employment (“Employee Benefits” including contributions to superannuation, provisions for redundancy, and the like) increased 24% from 2012 to 2017 across the Group. The subsidiaries, the CCOs, grew employment costs by 45%; the core Council by a more modest 12%, although this was still twice the rate of growth in Auckland's employment.

Figure 2: Employment Costs, Auckland Council and CCOs, 2012-2017

  Source: Income and Expenditure tables, Auckland Council Annual Reports

Across the Group, employment costs were $853m in 2017, $163m up on 2012.  So much for $66m in staff savings ($74m in 2017 dollars) touted in 2010 as justifying the super city.  . 

Super city, super salaries

If the workforce growth that took place had been at stable incomes, the cost of employment would have been $481m for the Council and $330m for the subsidiaries, $811m.  This leaves an additional $42m attributable to wage creep after inflation ($27m in the core Council and $15m in the CCOs).

How did this happen? Well, Bernard Orsman in an article in the New Zealand Herald last year put his finger on it:

“One in five staff at Auckland Council is earning more than $100,000 as the wages bill for the Super City blows out for the third year in a row.

“…  the number of executives earning more than $200,000 has increased by 25 per cent in the past year, from 155 to 194, according to figures in the council's 2016-2017 annual report”.

and

“The council and its six council-controlled organisations (CCOs) employ 11,893 staff, of whom 2,322 earn more than $100,000”.

Changes in these figures since 2012 reveal some interesting developments (Figure 3).

Figure 3: Shares of Salaries $100,00: Auckland Council 2012-2017

 Source: Auckland Council and CCO Annual Reports

First, growth in the core Council occurred entirely in the $100,000-plus bracket, rising from under 10% to 16% of employees while those earning less than $100,000 declined. This means that all growth in employees earning under $100,000 a year took place in the CCOs. Is this a sign that the core Council is already suffering organisational ossification (entrenching people, systems, and values as the outside world continues to change)?

Second, while 1,500 people in the core Council earned between $100,000 and $200,000 a year in 2017and 70 over $200,000, a disproportionate share of high salary growth took place in the CCOs.  By 2017 there were around 1,100 people earning $100,000-$200,000 in CCOs, up 48% since 2012, and 120 earning over $200,000, up 62%.

Not only has absolute employment growth focused on the CCOs, but they have provided fertile grounds for supersizing salaries, leading to significantly higher average wages compared with the core Council by 2017.  This is despite growth in the latter taking place entirely at the higher end of the salary scale.

It seems that both the council and its subsidiaries have been busy uploading salaries as well as people

Even more questions

While council reports are full of measures of progress and performance, there are still some outstanding questions.   

For example: 

• Can we justify this growth in employment costs by increased productivity?  
• Maybe we need to look at the bigger income and expenditure question?
• Did we simply replace territorial fragmentation with functional fragmentation?
• And where are the governance and efficiency gains for local democracy in that?