Official documents reveal the Conservation Department’s new director-general walked straight into a budget crisis. David Williams reports
The Government’s Budget in 2018 was billed as a watershed moment for the Department of Conservation.
The $181.6 million increase in DoC funding, over four years, was its biggest budget increase since 2002, said Conservation Minister, Green Party MP Eugenie Sage.
The budget boost – fulfilling a promise contained in the Labour-Green coalition agreement – was mostly to be spent on predator control, biodiversity initiatives, and boosting the department’s capability and capacity.
For the first time, predator control funding was “locked in”, Sage said, meaning DoC wouldn’t have to divert funding from other work or go cap-in-hand to the Government for one-off allocations.
“After years of neglect and piecemeal funding, Budget 2018 ensures that DoC can plan ahead and target the pests that are devastating the habitats of New Zealand’s unique species.”
(Environmental Defence Society chief executive Gary Taylor says DoC has been under-resourced since it was created in 1987. “It runs one-third of New Zealand on a budget sized similar to a medium-sized city.”)
A month later, the Government opened consultation on an international visitor levy, which was expected to raise up to $40 million a year for conservation work.
It seemed DoC, perennially underfunded, was going to be relatively awash with cash to better enable it to manage about a third of the country.
Then Covid-19 hit and the borders closed. There was a boost from the $1.1 billion “jobs for nature” announcement in the 2020 Budget but that was yet another ring-fenced budget.
Faced with rising costs and decreasing revenue, including from tourism concessions and a flat-lined international visitor levy, DoC has quietly been on a cost-cutting drive.
In February, Stuff reported the department had cut back its summer science programme in the subantarctic islands and the mothballing of a new $3 million research centre.
Now, Newsroom can reveal the extent of the cuts, and how, over the second half of last year, the language in documents released under the Official Information Act amplified from a “challenge” to a “crisis”.
In June last year, DoC deputy director-general of corporate services Rachel Bruce wrote a briefing to the current Conservation Minister, Labour’s Kiritapu Allan. The department faced a combination of “financial opportunities and challenges” on its $600 million operating expenditure.
Revenue shortfalls caused by Covid-19 had been covered by the Government. But “there is currently no arrangement” for the following financial year – which started the following month.
Still, Bruce seemed unfazed. The department simply needed to find replacement revenue and reprioritise work, she said.
The size of the problem was spelled out. About $39 million used to be earned from tourism-related revenue. (That’s things like fees for Great Walks, huts and campgrounds.)
But that “third-party revenue” had dropped $12 million. The decrease was expected to be $10 million in 2021/22.
Commercial sponsorship, from the likes of Air New Zealand, rakes in $20 million a year but “is reliant on those organisations’ ability to pay”.
Waiving concession activity fees – which pays for “conservation activity and maintenance of recreational facilities” – had meant the loss of $20 million, which was “underwritten” by the Government.
However, the briefing revealed the “shortfall” was “effectively deducted from the following years’ funding”. Even when the fees were reinstated, the total was expected to be much smaller.
In all, border closures and a slow re-start to international tourism was forecast to reduce visitor levy revenue by $130 million over five years. “New projects that were intended to be funded by the IVL have been stopped,” Bruce wrote.
Then there were the cost pressures, including pay rises, a hike in lease costs and software licence fees, more expensive building materials, and the cost of maintaining ageing infrastructure.
Worryingly, the briefing said maintenance and replacement work on huts, tracks and structures was increasingly being deferred.
“This has led to an increasing backlog of deferred replacement and maintenance work, and an increasing proportion of visitor infrastructure reaching end-of-life; when it is most costly to maintain, more vulnerable to weather events and more likely to become hazardous to visitors.”
(Between 2016/17 and 2020/21, the department under-spent its capital budget by $31 million.)
Last June, operational costs were expected to rise $15 million a year, with another $4 million related to increased capital expenditure, “rising to $7 million a year thereafter”.
By September, those forecast “cost pressures” would rise to almost $30 million.
The problem with ring-fenced money
Bruce wrote a “budget 2021/22 discussion paper” for DoC’s senior leadership team last September.
A $55.5 million surplus from the previous financial year might seem like a boon, but it had to be returned to the Government. Approval was given for $51 million to be transferred to the current financial year, but all of it was ring-fenced for Jobs for Nature and work paid for by the international visitor levy.
DoC’s business units had completed “budget builds” which showed they were seeking $29.5 million more than was budgeted. That’s despite the $627 million budget allocation soaring above the previous year’s actual (Covid-disrupted) spending of $535 million.
Baseline funding, calculated by subtracting the jobs for nature money, would drop from $505 million to $496 million. But from within that, more than $100 million was for depreciation, capital charge, and centrally managed items like retirement savings.
The numbers were grim. Costs had risen $8 million, and the budget deficit increased by $10 million to $19 million.
Factors for the wider deficit included an extra $5 million of assumed third-party revenue for the operations unit which wasn’t found. There was a $5 million “oversight” primarily for the aerial 1080 programme known as Tiakina Ngā Manu.
A budget cut of $4.5 million was “not achieved”, while another $4.5 million of added costs had been “committed to” by the operations unit.
Beyond that, there was also an “overallocation” of jobs for nature by $6 million over three years, “although this figure could be higher”.
The outsized impact of jobs for nature on DoC’s finances was becoming clearer.
In this financial year, spending on that programme was expected to reach $131 million, up from $89 million in the previous year. Jobs for nature was now the department’s second biggest pot of money, behind the $216 million for operations.
It was also affecting other business units. For example, a $22 million budget increase for Kahui Kaupapa Atawhai, DoC’s cultural arm, was driven by a $19 million transfer from jobs for nature.
For some reason, annual salary reviews were “not already factored in business group 2021/22 budgets”. The following month, the “crisis” button was pushed.
“Time is running short. For every month that we delay taking decisive action, the size of the challenge grows.” – Rachel Bruce
In a memo to the senior leadership team last October, Bruce wrote that operating spending of $409 million needed to be cut to $380 million. But cost-cutting hadn’t gone well.
Top bosses had identified $10 million of possible savings in September, through reducing travel and the use of consultants and contractors, and re-prioritising work. (This kind of “loose” approach hadn’t happened the previous year, as it overspent its business unit budgets, excluding jobs for nature, for the first time.)
But of that $10 million, Bruce wrote: “$4m was annual leave reductions, which there is a high risk will not be achieved, and a further $2m would require further work and potentially Minister discussion/approval.”
To be on track to meet the budget shortfall, cuts in the financial year’s first quarter had to reach $7.5 million. The actual net under-spend was $1.7 million.
Over the next nine months, then, monthly savings of $3.2 million were needed – totalling about 9 percent of DoC’s operating costs.
Consultancy firm PWC was brought in to provide cost-reducing options.
The immediate priority was to create “momentum and a sense of urgency amongst managers and leaders”, Bruce said. The first phase would likely include “halting all non-essential recruitment and stopping any new projects”.
“In short, go hard and go fast.”
It was suggested senior leaders adopt a “crisis management” mindset by taking “command and control” of budget management for six months.
Spending unappropriated expenditure was a “very serious situation” for the department and its minister, Bruce warned. “This is not an option.”
Budget targets for the some business units seemed daunting – $15 million for operations, and $6.3 million for corporate services. The budget for director-general Penny Nelson’s office, of $3.3 million, would be untouched.
“Time is running short,” Bruce wrote. “For every month that we delay taking decisive action, the size of the challenge grows.”
The initial approach would be the “blunt instrument” of centralising spending and having a zero tolerance to over-spending. (She admitted, however, spending on new staff and contractors might have to lift if cost-savings weren’t feasible.)
Financial headroom needed to be built for future years, Bruce wrote. Longer-term, DoC would need to reduce costs, increase efficiency, and generate new revenues.
Bruce outlined the role of the senior leadership team: “Success requires time, commitment and energy, and a willingness to make tough and unpopular decisions.” She adds: “Are we ready for this challenge?”
‘This won’t be easy’
The final paper, from last November, was the basis for a two-hour presentation to a director-general “taskforce”. A re-think on apportioning cuts meant a $9.3 million drop in tourism concession revenue was now be spread across all business units, “other than operations”.
Required savings for operations were now $10 million (down to $202 million), an $8.5 million decrease for corporate services (to $80 million), and a $4 million cut for biodiversity (to $37 million.)
Bruce wrote: “There is no denying that delivering a balanced budget for this year is going to require a major focus on cost control, which will not be easy.”
Department-wide spreadsheets tracked spending on travel, training and professional development, contractor use, and personnel costs.
It was a financial pressure cooker. That very month, new director-general Penny Nelson took up the job vacated by Lou Sanson.
A quick aside here. It took some prising to get answers out of DoC for this story.
Newsroom first asked for documents related to budget cuts, which had been sent to senior leaders, last December. In January, the department’s chief financial officer Kevin Martin responded: “There have not been any decision made by Ministers that directly result in cuts to the Department of Conservation’s budget funding. There are therefore no documents within the scope of your request.”
The next day, January 22, Newsroom reminded Martin of the plain English meaning of budget cuts: “a budget that is smaller than it was before”. We hadn’t mentioned Ministers.
By early April, Newsroom complained to the Ombudsman. Martin’s apologetic response arrived eight days later.
It characterised our January email – reminding Martin of the definition of budget cuts – as having “further clarified your information request”.
“While our Teams have been extremely busy managing significant workloads since returning back from the Christmas holidays, and we have been impacted by staff absences with COVID, I acknowledge our response to you has taken longer than I would normally expect.”
Martin said DoC had to find about $28 million to stay within budget.
“We have managed to do this for the 2021/22 financial year, and have updated our forecast funding in future years to reflect the impacts of reduced funding from Covid so we can manage our budgets accordingly and make adjustments as revenue returns from opening borders and the return of international visitors.”
Tightening the belt
DoC’s annual review hearing before the Environment Select Committee was held in February.
Nelson mentioned Covid-19 had put significant pressure on its operating budget, which had forced some sacrifices.
“We’ve withheld recruitment, delayed some research, and identified the least impactful conservation work to be deferred. Essentially, we’ve done our best to tighten our belt at the back of house, not the front of house.”
(Taylor, of the Environmental Defence Society, believes budget cuts are the wrong response. “There’s a need to go back to first principles and rebuild a realistic baseline.”)
The written report from the Select Committee noted the Auditor-General had rated the department’s financial systems and controls, and its performance information and supporting systems and control, as “good”. Of course, that related to the 2020/21 financial year.
DoC’s answers to written questions to Parliament reveal more detail about recent cost escalations.
Staff costs have been a huge driver. In 2017/18 the Government removed a cap of 2217 on full-time equivalent positions. By June last year, full-time equivalents had swollen to 2824.
The new recruits, in the main, haven’t been rangers and information centre staffers, either. Back office roles increased 42 percent since 2017/18, while frontline roles went up just 5 percent.
The department’s full-year personnel budget for this financial year is $245 million.
Between 2017/18 and 2020/21 DoC’s leased office space increased 42 percent to 39,100 square metres, while costs increased from $6.33 million to $9.44 million.
Over the past four financial years, the department spent $12.5 million on vehicles. Over the same period, software licensing costs rose from $4.2 million to $8.2 million.
And then, on page 126 of the written questions, pest control.
In 2020/21, $10.8 million was spent on aerial 1080 poison operations in the Tiakina Ngā Manu programme, covering 342,000 hectares, compared with $17.3 million and 722,520 hectares the previous year.
In 2018’s Budget, then minister Sage mentioned the country’s biodiversity crisis, in which 82 per cent of native birds were threatened or at risk of extinction.
Promises about predator control funding being “locked in” can’t account for global pandemics, of course. What will be interesting is to see how Tiakina Ngā Manu's funding – and the populations of bird-chewing predators – changes because of the department’s financial crisis.
