Financial overview


At a glance

Financial strategy at a glanceTop

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 limits: 2014/15
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
2014/15
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.

Finances at a glanceTop

Operational expenditure

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.

pie-operational-expenditure-by-activity-areas

Sources of operational funding

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.

pie-operational-expenditure-by-funding-source

Detailed information on all of our rating mechanisms is included on page 88 of the plan.

Your rates

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.

Explaining your rates

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.

Property valuations and rates distribution

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:

Proposed changes to rates or rating mechanisms

Water rates

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
(including GST)
Proposed for 2014/15
(including GST)
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

Changes to our rates remission policy

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:

During strengthening works (for all buildings):

Renaming the section 2.3 “Remission of Downtown Levy Targeted Rates on Property Under Development Policy” to “Remission of Targeted Rates on Property Under Development or Earthquake Strengthening Policy”; and
​– Amending the scope of the policy under section 2.3 to include remission of the commercial, industrial and business sector targeted rate and the base sector targeted rates, and extending the application of this remission to beyond the downtown levy area.

After strengthening works (for earthquake prone buildings20 only):

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.

Development contributions

We propose some changes to the Development Contributions Policy. These are summarised as:

  1. Reduce the development contribution charges (cost to developers) where the Local Government Act 2002 Amendment Bill (No 3) proposes changes under which councils would no longer be able to charge development contributions for community infrastructure, or charge commercial developments for reserves contributions.
  2. ​Introduce a remission for significant ‘green’ building developments to recognise their strategic importance in the city. This will also reduce unnecessary costs to developers in doing business with the Council by providing an alternative to the self assessment process.

Further details of these changes can be found on page 112.

Funding our activities

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.

User charges

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:

The proposed fee increase is outlined in the appendices of this plan.

Understanding the Council’s budgeted surplus

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.

Capital expenditureTop

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.

pie-capital-expenditure-by-activity-areas

Sources of capital funding

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.

pie-operational-expenditure-by-funding-source

Borrowings

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.

Land sale

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.

Variances from the Long-term Plan

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.

Consolidated Activity Statements – Operating ExpenditureTop

  AP
​2013/14
$000
LTP
2014/15
$000
DAP
2014/15
$000
Variance
to LTP
​$000
OPERATING STATEMENT        
Operating expenditure 388,697 397,922 406,179 8,257
Weathertight Homes funding 4,996 6,662 6,662 (1)
Self-insurance 750 750 750 -
Waste Minimisation - - 94 94
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)
Taputeranga Island - - (24) (24)
Total operating expenditure to be funded 376,289 386,376 386,551 175
Funded by:        
General rates 130,000 136,353 133,641 (2,712)
Targeted rates:        
Sewerage rates (including trade waste) 35,370 36,677 36,329 (348)
Water rate 38,137 39,725 39,355 (370)
Stormwater rate 18,089 18,757 18,734 (23)
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)
User charges 78,159 79,610 78,066 (1,544)
Other income        
Ground and commercial leases 32,912 31,710 34,260 2,550
Dividends 9,898 9,298 11,000 1,702
NZTA subsidies 5,341 5,085 5,561 476
Housing grants 995 1,082 1,296 214
Petrol tax 1,120 1,164 1,100 (64)
Miscellaneous 980 1,009 1,004 (5)
Prior year surplus - - - -
Total operating funding 376,289 386,376 386,551 175
         

Consolidated Activity Statements – Capital Expenditure
and Loans to Other OrganisationsTop

  AP
​2013/14
$000
LTP
2014/15
$000
DAP
2014/15
$000
Variance
to LTP
​$000
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)
FUNDED BY:        
Depreciation 72,525 90,462 72,963 (17,499)
Use of housing surplus - 26 - (26)
NZTA transport subsidies 10,264 10,884 10,590 (294)
Housing grants 30,739 27,705 32,036 4,331
Development contributions 5,000 5,000 2,000 (3,001)
Bequests & grants 1,492 1,157 749 (408)
Borrowings 37,699 25,109 38,617 13,509
Total funding for capital expenditure and loans to other organisations 157,719 160,343 156,955 (3,388)
         

 

 

Consolidated Activity Statements – BorrowingTop

  AP
​2013/14
$000
LTP
2014/15
$000
DAP
2014/15
$000
Variance
to LTP
​$000
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
Total 38,893 25,109 38,618 13,509
Other movements to borrowings:        
Asset proceeds (15,075) (15,075) (4,050) 11,025
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
Leaky homes 8,772 8,593 8,430 (163)
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)
Other movements 751 284 - (284)
Closing Gross Borrowing 375,635 428,931 404,192 (24,739)
         

Overview By Activity AreasTop

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
OPEX
per LTP
$000
2014/15
OPEX
DAP
$000
Variance
OPEX
to LTP
$000
2014/15
CAPEX
per LTP
$000
2014/15
CAPEX
DAP
$000
Variance
CAPEX
to LTP
$000
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
      16,053 15,116 (937) 55 63 8
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)
  2.3 Water 25,558 25,241 (317) 19,378 17,387 (1,991)
  2.4 Wastewater 28,395 28,260 (135) 9,819 9,478 (341)
  2.5 Stormwater 11,802 11,866 64 7,121 7,583 462
  2.6 Conservation attractions 4,708 4,793 85 1,664 1,853 189
      115,557 114,349 (1,208) 43,138 41,839 (1,299)
Economic Development 3.1 City promotions and business support 17,437 21,633 4,196 2,364 (1,936) (4,300)
      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
      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)
  5.2 Community support 40,301 39,256 (1,045) 37,258 44,208 6,950
  5.3 Public health and safety 12,606 12,452 (154) 881 718 (163)
      84,463 82,732 (1,731) 47,628 52,644 5,016
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
      26,662 27,565 903 30,192 21,512 (8,680)
Transport 7.1 Transport 24,768 23,291 (1,477) 33,001 33,871 870
  7.2 Parking 12,674 10,725 (1,949) (21) 479 500
      37,442 34,016 (3,426) 32,980 34,350 1,370
Corporate Support 10.1 Corporate (19,178) (9,578) 9,600 17,339 14,232 (3,107)
      (19,178) (9,578) 9,600 17,339 14,232 (3,107)
Whole of Council     296,781 304,040 7,259 174,526 163,555 (10,971)
                 

Reconciliation of operational fundingTop

  2014/15
$000
Total applications of operating funding (from Whole of Council FIS) 304,040
Add:  
Depreciation 102,138
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)
Unfunded depreciation (19,569)
Borrowings funded operational expenditure (4,137)
Total operating expenditure to be funded (from Opex Consolidated Activity Statement) 386,551
17From 2014/15 onwards the target is based on CPI.
18The limit on rates increases are set as an indexation based on the LGCI. The base year is the 2011/12 rates income.
19The limits on rates is based on the increase set by the LGCI annually.
20Buildings assessed as 33% or less of the National Building Standard (NBS) and on the Wellington City Council Earthquake Prone Buildings List.