The Council implemented its Financial Strategy as part of the 2012–22 Long-term Plan. This guides the decisions we make now and in the future to ensure our investment in the city is financially sustainable. In many ways, our strategy formalised our current practice and complements our existing financial policies. The strategy is founded on the following guiding principles:
The Council is in a sound financial position as indicated in our AA Standard and Poor’s credit rating. We will continue to manage the financial challenges associated with the costs of earthquake strengthening our assets and our weathertight homes liabilities.
Setting limits on our rates and borrowings requires prioritisation of spending decisions and ongoing review of existing services. The parameters we set for our rates levels and rates increases as part of the 2012–22 Long-term Plan are:
|Rates increase target (after growth)17||1.6%|
|Rates increase limit (after growth)18||2.5%|
|Proposed rates increase (after growth)||2.5%|
|Rates limit ($’000)19||254,289|
In the Long-term Plan the projected rates increase for 2014/15 was 3.1 percent. In this draft Annual Plan we propose a rates increase of 2.5 percent – which is in line with the rates limit set in our financial strategy.
The parameters we have set for borrowings and capital expenditure as part of the 2012–22 Long-term Plan are:
|Borrowings limits:||Operating Targets||Prudential Limits||Proposed |
|Net borrowing as a percentage of equity||<10%||<10%||6%|
|Net borrowing as a percentage of income||<105%||<150%||104%|
|Net interest as a percentage of income||<15%||<15%||5%|
|Net interest as a percentage of annual rates income||<20%||<20%||9%|
|Liquidity (term borrowing committed loan facilities to 12 month peak net borrowing forecast)||>110%||>110%||136%|
|Borrowings funded capital expenditure target - over legislative Council triennium||$45m||$60m||$46m|
For 2014/15 we propose to be within all of the borrowings limits.
Operational expenditure provides for all of our day-to-day operations and services, from waste disposal, water supply and maintaining our roads, to issuing building consents, running our recreational facilities and maintaining our parks and gardens.
The Council plans to spend $387 million on operational expenditure in 2014/15.
The graph below shows this operational expenditure by activity area in 2014/15. This compares with $386 million forecast for 2014/15 in the 2012–22 Long-term Plan.
Some 66 percent of our operational expenditure is funded from a combination of general rates (paid on all properties) and targeted rates. The remainder is funded from user charges, ground and commercial lease income, dividends and other revenue such as grants and government subsidies.
The graph below shows how our operational expenditure will be funded in 2014/15.
Detailed information on all of our rating mechanisms is included on page 88 of the plan.
For 2014/15, total rates are forecast to increase by 3.0 percent before allowing for growth in our ratepayer base. After allowing for expected growth, our total rates are forecast to increase by 2.5 percent.
Rates on the average residential property (valued at $526,940) are proposed to increase by 2.9 percent to $2080 (excluding GST) in 2014/15. An average rates increase of around 2.4 percent is proposed for commercial properties, including the impact of increases in metered water charges in 2014/15. These increases average to a 2.5 percent rates impact over all ratepayers, after rates remissions and growth in the ratepayer base have been taken into account.
Our total rates revenue is split between general rates and targeted rates.
General rates are used to fund activities where the Council is unable to clearly identify a specific group of ratepayers who receive the benefit of that activity, or where is it not possible or suitable for that group to be targeted to pay. There are two categories of general rates: the base sector general rate (residential) and the commercial sector general rate. These are both levied based on a rate per-dollar of capital value. The Council has a rates differential in place that decides how the general rate is shared between the residents and businesses in each category.
In 2014/15, the commercial sector general rate per dollar of capital value is proposed to remain at 2.8 times higher than the base sector general rate for a residential property of the same value.
Targeted rates are used to fund activities where the Council is able to clearly identify a specific group of ratepayers who receive the benefit of the activity, and where it is proper that this group be targeted to pay. The Council sets targeted rates to fund costs associated with the city’s water, sewerage and stormwater systems. Separate targeted rates are also set for our base (residential) sector, commercial sector, downtown commercial sector, Marsden Village and Tawa driveways. A new targeted rate in the form of a business improvement district (BID) is proposed for the Miramar business district.
Your total rates bill will be made up of the general and targeted rates that apply to your property.
The Council sets the total amount of rates required to fund its spending based on the budgeted costs. For the majority of its rates the Council then uses property valuations as the basis to distribute the total rates requirement proportionally across all properties in Wellington by setting a rate per-dollar of capital value on your property.
The Council is on a 3-yearly valuation cycle and for the 2014/15 rating year the September 2012 valuations will be used to distribute the total rates requirement across all properties. The current property valuation will be used to distribute the total rates requirement for the 2014/15 and 2015/16 rating years.
It is important to note that your rates bill does not automatically change when your property value changes. Your rates bill will only be impacted by the change in your property’s capital value relative to the change the in capital value for the entire city. The final rates bill for an individual property will depend on:
We propose the following increases to our targeted water rates to ensure the cost increases in the associated water activity are properly recovered:
|Targeted Water Rating Mechanism||Current |
|Proposed for 2014/15 |
|Water consumption charge for properties with a water meter||$2.067 per cubic metre||$2.151 per cubic metre|
|Annual fixed charge targeted rate for properties with a water meter||$123.63||$128.69|
|Annual fixed charge targeted rate for base (residential) sector properties without a water meter||$152.09||$158.36|
We are proposing to some changes and additions to our rates remission policy to support earthquake strengthening of the city’s most at risk buildings.
These proposals plan to encourage owners to take positive action to strengthen the buildings they own and make our city safer by ensuring our rating regime does not unfairly penalise this important work. The changes proposed are detailed as follows:
This will be achieved by the addition of a new remission policy under section 2.6 “Remission of Rates for Buildings Removed from the Earthquake Prone Buildings List”.
Full details of the rates remission policy and proposed changes can be found on page 114.
We propose some changes to the Development Contributions Policy. These are summarised as:
Further details of these changes can be found on page 112.
When we’re deciding how to fund an activity, we consider a wide range of factors including:
Our Revenue and Financing Policy outlines how we propose to fund our activities. In 2014/15 we propose to make no changes to the policy.
For 2014/15, we propose to increase user charges in only one area. Our fees are set in accordance with our Revenue and Financing Policy. The area where we propose to increase fees is:
Waste minimisation, disposal and recycling management (including trade waste)
The proposed fee increase is outlined in the appendices of this plan.
The Council is forecasting a net operating surplus of $26.3 million in 2014/15. The majority of this surplus arises from cash funding received for capital purposes (Crown grants for housing, development contributions, NZTA subsidies and bequests). This income flows through to the net operating surplus to be available to fund capital expenditure. Offsetting this are some depreciation costs on assets which we have resolved not to fund.
We’re continuing to invest in our city’s infrastructure while focusing on city resilience.
Capital expenditure pays for purchasing, building or developing the Council’s assets (eg pipes, roads, libraries, swimming pools). Our capital expenditure (excluding ‘carry-forwards’ and loans to other organisations) is forecast to be $152 million in 2014/15, $8 million less than in the same period forecast in the Long-term Plan.
The graph below shows where this capital expenditure will be spent by activity area in 2014/15.
We fund capital expenditure from depreciation, borrowings, NZTA subsidies, grants and development contributions. For asset renewals, the main funding source is depreciation. For new assets and upgrades, the main funding sources are borrowings, subsidies and grants.
The graph below shows how our capital expenditure is being funded in 2014/15.
Total borrowings are forecast to be $404.2 million at the end of 2014/15. Our forecast asset base totals $7.1 billion in 2014/15.
As borrowings are mainly a consequence of capital expenditure, our financial strategy set a borrowings funded capital investment target of $45 million for each three-yearly Council triennium, and a borrowings funded capital investment limit of $60 million for each three yearly Council Triennium. This will ensure our debt levels remain sustainable and affordable for years to come. This is expected to be $46 million over the period 2012/13–2014/15.
The Council only owns property assets that are necessary for public works or another purpose aligned to Council strategies. Property assets falling outside of this will be considered for sale or redeployed.
Reflected in the 2014/15 plan is $2 million worth of proposed property asset disposals, with proceeds being used to reduce Council borrowings. Every specific proposed property asset sale will be publicly consulted upon as per the standard Council process.
Each year we review the underlying assumptions and costs that make up each activity. For each activity we consider the impact of a number of factors including:
This means the costs for each activity may differ from those we had originally forecast in the 2012–22 Long-term Plan.
Further information is provided in ‘Our Work’ on page 8.
|Weathertight Homes funding||4,996||6,662||6,662||(1)|
|Total operating expenditure and other outflows||394,443||405,334||413,684||8,350|
|Add back City housing ring-fenced surplus||(3,480)||(3,472)||(3,427)||44|
|Less expenditure not funded under section 100 of LGA:|
|NZTA Transport funded projects||(7,438)||(7,623)||(7,814)||(191)|
|General unfunded depreciation||(4,000)||(4,000)||(4,000)||-|
|Moa Point sewerage treatment plant||(3,015)||(3,624)||(3,226)||398|
|Discontinued Living Earth Plant||(221)||(239)||(235)||4|
|Wellington Waterfront unfunded depreciation||-||-||(4,294)||(4,294)|
|Less expenditure funded by prior year surplus/borrowings:|
|Economic Development Fund||-||-||(3,554)||(3,554)|
|Wellington Waterfront interest||-||-||(559)||(559)|
|Total operating expenditure to be funded||376,289||386,376||386,551||175|
|Sewerage rates (including trade waste)||35,370||36,677||36,329||(348)|
|Base (residential) sector targeted rate||6,476||6,891||6,948||57|
|Commercial sector targeted rate||4,895||4,821||5,040||219|
|Downtown targeted rate||13,870||14,147||14,090||(57)|
|Tawa driveways targeted rate||33||33||33||-|
|Marsden Village targeted rate||14||14||14||-|
|Miramar Business Improvement District targeted rate||-||-||80||80|
|Total targeted rates||116,884||121,065||120,623||(442)|
|Total rates to fund operating expenditure and other outflows||246,884||257,418||254,264||(3,154)|
|Ground and commercial leases||32,912||31,710||34,260||2,550|
|Prior year surplus||-||-||-||-|
|Total operating funding||376,289||386,376||386,551||175|
|Renewal capital expenditure||84,094||98,610||80,777||(17,833)|
|Upgrade capital expenditure||55,625||61,733||71,178||9,445|
|Capital expenditure carried forward from 2012/13||28,000||-||-||-|
|Capital expenditure carried forward from 2013/14||(10,000)||-||25,000||25,000|
|Capital expenditure carried forward from 2014/15||-||-||(20,000)||(20,000)|
|Total capital expenditure to be funded||157,719||160,343||156,955||(3,388)|
|Loans to other organisations||-||-||-||-|
|Total capital expenditure and loans to be funded||157,719||160,343||156,955||(3,388)|
|Use of housing surplus||-||26||-||(26)|
|NZTA transport subsidies||10,264||10,884||10,590||(294)|
|Bequests & grants||1,492||1,157||749||(408)|
|Total funding for capital expenditure and loans to other organisations||157,719||160,343||156,955||(3,388)|
|Opening Gross Borrowings - total||345,668||401,996||363,262||(38,735)|
|New borrowings to fund capital expenditure:|
|- Housing capital expenditure||-||-||-||-|
|- Other capital expenditure||20,893||25,109||33,618||8,509|
|- Carry forward capital expenditure||18,000||-||5,000||5,000|
|Other movements to borrowings:|
|Ring-fenced housing surpluses - opex||3,479||3,472||3,428||(44)|
|Ring-fenced housing surpluses - capex||(9,954)||(5,471)||(6,387)||(916)|
|Self insurance fund contribution||(750)||(750)||-||750|
|Economic Development Fund||-||-||3,554||3,554|
|Wellington Waterfront Interest||-||-||559||559|
|Use of prior year surplus||-||-||-||-|
|Depreciation reserve movement||3,851||10,772||(3,222)||(13,994)|
|Closing Gross Borrowing||375,635||428,931||404,192||(24,739)|
The below table summaries the funding activity statements that are required by the Local Government Act 2002 (Act).
This shows the operation and capital funding of each activity and compares to the same period in the 2012–22 Long-term Plan.
Due to legislative requirements these operational funded expenditure do not include funded and unfunded depreciation and borrowing funded expenditure. For full reconciliation please see reconciliation on the following page.
|Activity Areas||Activity||2014/15 |
|Governance||1.1||Governance, information and engagement||15,801||14,893||(908)||55||61||6|
|1.2||Māori and mana whenua partnerships||252||223||(29)||-||2||2|
|Environment||2.1||Gardens, beaches and green open spaces||32,058||31,388||(670)||4,338||4,942||604|
|2.2||Waste reduction and energy conservation||13,036||12,801||(235)||818||596||(222)|
|Economic Development||3.1||City promotions and business support||17,437||21,633||4,196||2,364||(1,936)||(4,300)|
|Cultural Wellbeing||4.1||Arts and cultural activities||18,345||18,207||(138)||830||851||21|
|Social and Recreation||5.1||Recreation promotion and support||31,556||31,024||(532)||9,489||7,718||(1,771)|
|5.3||Public health and safety||12,606||12,452||(154)||881||718||(163)|
|Urban Development||6.1||Urban planning, heritage and public spaces development||6,947||7,213||266||15,714||3,736||(11,978)|
|6.2||Building and development control||19,715||20,352||637||14,478||17,776||3,298|
|Whole of Council||296,781||304,040||7,259||174,526||163,555||(10,971)|
|Total applications of operating funding (from Whole of Council FIS)||304,040|
|Total expense (from Prospective Statement of Comprehensive Financial Performance)||406,178|
|Add Rates funded repayment of borrowings||7,506|
|Total operating expenditure & other outflows (from Prospective Statement of Comprehensive Financial Performance)||413,684|
|City Housing ring-fenced surplus/(deficit)||(3,427)|
|Borrowings funded operational expenditure||(4,137)|
|Total operating expenditure to be funded (from Opex Consolidated Activity Statement)||386,551|