The Financial Strategy for this plan proposes that we continue the steady-as-we-go approach started in 2015. Over the past three years we have made solid progress maintaining our assets and levels of service. This and good budget management, has put us in a sound financial position.
With a proposed capital expenditure programme of $724.3 million and operational revenues of $1.8 billion in the next 10 years, Council is a big business. As with any business, we need to carefully consider the appropriate levels of borrowing, income and expenditure that will allow us to invest in our District. Before we decide where to direct our investment, we must first evaluate and consider a complex set of financial factors. These include assessing our funding sources, including user pays, rates and government subsidies and where best to spend that money.
We aim to do this in a way that ensures that:
- the share of the costs that people pay through rates is fair
- what we do matches what we can afford
- we are creating a sustainable financial platform for future generations.
We propose sticking with an overall general rates increase of 2% beyond inflation, taking into account the normal growth in the number of ratepayers of 1% per year as our District grows over the 10 years of the plan.
Fees and charges
We propose increasing most fees and charges in line with the Local Government Cost Index (LGCI), which ranges from 2.0% to 2.7% across the 10 years of the plan. In some areas, such as food inspections and liquor licensing, Council will seek to recover actual costs. This may result in increases beyond inflation.
Our Financial Strategy aims to:
- achieve a balanced budget in every year, with revenue exceeding expenditure
- limit overall rates revenue (excluding water) to a maximum of 70% of total revenue
- set total net debt no higher than 175% of total revenue
- maintain interest costs at less than 25% of rates revenue
- achieve a net debt per capita level below $2,150 in 2017-2018 rising in line with inflation.
Over the next 10 years, this allows for:
- a capital expenditure programme of $724.3 million
- 74% of capital expenditure focused on core network infrastructure (roading, water, waste, stormwater and flood protection)
- operational revenues of $1.8 billion
- operational spending of $1.6 billion.
So what is LGCI?
Most people are familiar with the Consumer Price Index (CPI), the method used for calculating how the buying power of the average consumer’s dollar has changed over time. The CPI is based on common consumer items such as food and housing.
As we do not buy the same items as the general consumer, most local authorities use the Local Government Cost Index (LGCI).
Similar to CPI, it measures the buying power of Council e.g. oil prices; infrastructure construction costs.
LGCI is forecast to increase at approximately 2.3% per annum.
We borrow money to pay for significant assets that last for many years, such as our recent investments in Te Matau a Pohe and significant wastewater improvements. If these assets were paid for solely from the rates collected that year, today’s ratepayers would be paying the entire cost of assets that our future ratepayers would use in the years ahead.
We therefore use debt to fund assets, which allows us to share the assets cost between all users with future users repaying that debt. In other words, all the people using an asset, end up paying for it over its lifetime. Spreading of costs over multiple years is known as ‘inter-generational equity’ and is standard practice throughout the local government sector.
Over the past few years we have capped our maximum total debt. This has effectively capped our borrowing so that it lines up with today’s revenue and population, although it didn’t allow for growth or inflation. We are proposing to increase this debt cap in line with inflation and growth, to maintain our buying power.
We have also split our debt into two parts:
- Our core debt, that we incur doing our day-today business, which will peak at $182.6 million.
- Debt for two one-off projects (the new Civic Centre and Theatre), which will take the total debt peak to $239.3 million if they both proceed.
This is what we call special project debt.
Total Debt to Revenue
Total Debt per Capita