Financial overview

A strong financial strategy means we can implement our programme of activities and plan for the future, including our new infrastructure strategy.


Strategy aims for balance

Our financial strategy is about achieving a balance. We want to:

deliver affordable rates to the community.
keep our borrowings down, and.
get the most out of our capital spending.

Our rates, our borrowings and our capital spending are the three financial ‘levers’ that influence what services we can provide. The strategy is represented by a triangle showing the three levers. A bigger triangle means increased or new services; a smaller triangle means reduced or fewer services.

StrategyAims

We have set limits for each of the ‘levers’ to ensure we can deliver on all the initiatives in the plan, keep our rates increases modest and our borrowings reasonable.

 

Financial strategy limits

Rates Limit 5.5%, 20 year average 3.3%, peak level 5%
Capital spending Limit $38 million, 20 year average $29 million, peak level $36 million
Borrowings Limit $200 million, 20 year average $172 million, peak level $199 million.

 

Reducing rates impacts

As outlined, this plan includes a modest rates increase – an average of 4.2% in the first year and an average of 3.3% over the twenty years. This is a longer period of minimal rates increases than in recent years.

Cost increases are largely based on inflation (2% to 3.5%). Beyond inflation, the key driver of rates is increasing funding for depreciation to ensure we are fully funding all depreciation by the end of year seven. This is to enable us to borrow more in the future when we will need to invest in infrastructure.

Keeping costs low and finding other funding

The strategy takes into account how growth and affordability specifically impact our district.

  

Growth

Some economic growth opportunities will come from the major new roads, but we don’t anticipate a significant commercial base being established in the district in the next 20 years. In terms of population growth, we have taken a conservative view that it will take three years to peak at 1% per year.

 

Affordability

We are aware of affordability constraints in the district. The national benchmark is for rates to be 3% of household income and, while our rates sit just over 4% on average, we try to keep fees for services at popular facilities like our pools and libraries accessible for people on limited incomes. We provide some discounts for community services and gold card holders. We also have a rates remission policy. This means homeowners facing extreme hardship may not have to pay the full rates assessment, or can arrange to postpone payments, or if they fall behind, may not have to pay penalties.

Our operating spending per ratepayer is among the lowest in the country. This shows we are delivering value for money, but, it is harder to make efficiency gains.

While our costs are low, as shown in the diagram at right, more than 75% of our costs are funded by rates. We are seeking other funding – particularly user-pays. However, any changes would be phased in gradually, in line with our aim of achieving a balance. Our economic development strategy is part of a longer term solution – creating more jobs and wealth to increase the number of ratepayers.

Our sources of income

IncomeSOurces

 

Ensuring water rates cover costs

Our district has separate water rates and we need to consider them in our overall rates setting.

Water rates ultimately need to cover the cost of providing water into all homes, schools and businesses and these costs are continuing to rise. We plan to gradually increase our water rates over the first five years of this plan, to a level that makes sure we cover the full cost. We are making a gradual increase to ease the impact for the community.

Property rates vary across the district

While the average property rates increase for 2015/16 is 4.2% and 3.3% per year for the 20 years, specific rates increases vary quite widely. This variation is caused by a change in the valuation of properties as approximately 43% of rates are allocated on property value.

Every three years, Quotable Value independently values each property. This was done in 2014 and the new value applies from 2015/16. Some areas experienced significant changes in value. Parts of Waikanae experienced land value increases of 15%, while some areas in Ōtaki experienced decreases of 10%. The valuation changes affect how much different households pay in rates.

 

How rates are spent

The graphic below shows how funding received from rates is apportioned across the different activities and services we provide.

Allocation of rates

RateDistribution

 

Planning for our infrastructure needs

Infrastructure accounts for approximately 65% of capital spending. It has always been a major consideration in our planning. Now we are required by law to have a 30-year infrastructure strategy and we have prepared our first strategy as part of this plan.

We have $1.3 billion in assets, the bulk of which are core infrastructure (roads, water, wastewater and stormwater). To maintain this asset base, our annual spending includes a significant budget for renewals. We will spend an average $9.4 million on renewals each year during this plan.

Most of our assets have long lives – water reticulation pipes for example, have an average life of 70 years. A majority of our pipes − 85% − were installed after 1970 so they are expected to last for another 30 or more years. However, we do need to prepare to replace them.

Throughout this plan, we will use a portion of rates to repay what we have already borrowed so we will be in a position to lift borrowings for future investment when required.

Costs for infrastructure are expected to rise by anything from 105% for roading to 253% for energy; so long term financial planning is vital.

We also have to upgrade infrastructure as our community grows. Some of this is funded by contributions from developers.

You can read the full financial and infrastructure strategies in the Supporting information document.

Projected infrastructure needs for the next 30 years

InfrastructureStrategy Graph