Agenda of Hutt City Council

COUNCIL
Membership:	13
Meeting Cycle:	Council meets on a six weekly basis (Extraordinary Meetings can be called following a resolution of Council; or on the requisition of the Chair or one third of the total membership of Council)

Attachment 3

Financial tables for Activity sections

Major projects planned: Integrated Community Services

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Integrated Community Services

Major projects planned: Parks and Reserves

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Parks and Reserves

Major projects planned: Community Facilities Development

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Community Facilities Development

Funding impact statement for the year ending 30 June: Leisure and Wellbeing

Major projects planned: City Environment

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: City Environment

Major projects planned: City Development

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: City Development

Major projects planned: Consents and Regulatory Services

There are no major projects planned.

Prospective income statement for the year ending 30 June: Consents and Regulatory Services

Funding impact statement for the year ending 30 June: City Growth

Major projects planned: City Resilience

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: City Resilience

Funding impact statement for the year ending 30 June: Sustainability

Major projects planned: Roading and Accessways

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Roading and Accessways

Funding impact statement for the year ending 30 June: Roading and Accessways

Major projects planned: Water Supply

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Water Supply

Funding impact statement for the year ending 30 June: Water Supply

Major projects planned: Wastewater

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Wastewater

Funding impact statement for the year ending 30 June: Wastewater

Major projects planned: Stormwater

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Stormwater

Funding impact statement for the year ending 30 June: Stormwater

Major projects planned: Solid Waste

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: Solid Waste

Funding impact statement for the year ending 30 June: Solid Waste

Prospective income statement for the year ending 30 June: City Governance

Major projects planned: City Leadership

Note: Amounts in all years is shown in today's dollars, i.e. no adjustment has been made for inflation.

Prospective income statement for the year ending 30 June: City Leadership

Funding impact statement for the year ending 30 June: Governance, Engagement and Organisation

Funding impact statement for the year ending 30 June: Whole of Council

DEBT

LIMITS ON BORROWING - NET DEBT MAXIMA

Council’s financial strategy is to maintain debt within limits expressed as a percentage of revenue. Debt is not to exceed; 150% of total revenue in years 1 to 3 of the plan, 130% of total revenue in years 4 to 6, 110% of total revenue in years 7 to 12, and 90% of total revenue in year 13 and beyond.

FINANCIAL STRATEGY

The targets in the Financial Strategy represent firm goals for Council. However, there may be instances when the targets are not achieved. There could be several reasons for this.

For example:

· a major adverse event, such as an earthquake or flood, requiring substantial additional expenditure by Council

· economic conditions change such that there is a significant increase in Council costs, or significant reduction in Council revenue

· there are significant new initiatives or projects that have community support despite funding implications.

In any instance such as the above examples, Council will consider alternative options before proposing any temporary breach of Financial Strategy targets. This would include options such as deferring expenditure, surplus asset sales and cost reductions. Ultimately, Council will make all its financial decisions in the best interests of the community.

Affordability remains a top priority for Council. We have a diverse population with varying socio-economic indicators.

OUR LEGAL OBLIGATIONS

The Local Government Act 2002 requires us to manage our revenues, expenses, assets, liabilities, investments and general financial dealings prudently. In doing so we’re aware of the impact our costs and funding decisions have on our community. We’re particularly concerned about the affordability of Council services, and have considered this in proposing our rates, net debt and other limits. We also carefully consider the level of fees and charges.

Our Revenue and Financing Policy helps us identify and distribute the costs and benefits of Council services across the different sectors of our community.

We’re also required to provide a balanced budget. Revenue raised in the current year should be enough to meet our expenses for that year. Balancing the budget helps allocate the burden of rates and charges between today’s ratepayers and those of tomorrow. We also look to fairly allocate development costs between current and future beneficiaries through our development and financial contributions policies.

PLANNING FOR GROWTH

In 2017, the total population of Lower Hutt was estimated to be 104,700 people. This indicates an increase of 3,500 people compared to 2013, when it was estimated to be 101,200 people. The recent growth, started with the inception of Council’s Urban Growth Strategy (2012-2032), is expected to be consistent, reaching 110,000 people by 2032. The ageing population of the city, together with limited Greenfield and intensification opportunities for residential development, are expected to slow down the growth to an average of 0.2% per annum after this period. The internal population projection indicates that Lower Hutt population will increase to about 114,000 by 2048.

ECONOMIC GROWTH IN THE CITY HAS BEEN MODEST

Council has responded to this consideration by adopting an Urban Growth Strategy and an Economic Development Plan. The population growth in the last few years has been greater than the population that Statistics New Zealand is projecting, as a result of the initiatives introduced through the Urban Growth Strategy. This higher population growth is expected to continue, resulting in more development and other economic activities. Therefore, the Long Term Plan includes an assumption that population growth and extra development will drive an increase in the rates base of the city by an average of 1% per annum over the duration of the plan. If this level of growth and additional rates income is not achieved the Council will be able to reduce growth related expenditure.

MANAGING OUR ASSETS AND DEBT

A major part of our business involves managing over $1.4 billion of assets from annual income of approximately $158 million. We use other funding sources such as debt and capital subsidies to fund the maintenance and development of our infrastructure and other assets.

We use asset management practices to sustainably maintain service levels to at least current levels. We balance the wants and needs of today with the demands and replacements required for the future; ensuring we fulfil legal requirements.

Council continues its commitment to encouraging a strong, diverse, enterprising business community and protecting the environment through sustainable management of waste, transport, energy, water, urban environment and biodiversity.

We plan to spend approximately $607 million over the next ten years to maintain and improve existing assets and create some new assets. Capital expenditure to 2038 rises to approximately $1,201 million due to inflation and some large projects, including significant roading network improvements and upgrading the main wastewater pipeline to Pencarrow.

Delays to the timing of projects may impact on service through reducing asset lives or increasing maintenance in any one year. Advancement of the timing of projects may positively impact service levels, but increase debt servicing costs.

We continue to set target levels to restrict net debt. Debt servicing levels are kept at affordable percentages of total operational spend. These targets also seek to fairly apportion funding costs between current and future ratepayers.

This strategy places reliance on retaining existing sources of funding of capital, through debt, subsidies, development contributions and other revenue. We have facilities in place as a safeguard against an inability to refinance existing debt.

We place reliance on a strong financial position to ensure we have capacity to borrow, both for forecast expenditure needs and any unforeseen requirements that may arise. We do this through ensuring appropriate levels of debt in accordance with our strategy limits, with no significant concentrations of debt repayment in any one year, ensuring working capital is maintained to meet ongoing commitments and surplus cash is invested or used to repay debt. We also focus on collection of monies owed to ensure no concentrations of credit risk exist.

MANAGING OUR REVENUE

We’ve managed to achieve a net surplus from our operations almost every year. We’ll continue to do this and use our surplus to help repay or limit borrowings and to fund our capital programme. In recent years we’ve used asset sales to reduce the amount of new debt and this will continue but at a reducing level.

Revenue is expected to increase over the next 20 years, in accordance with inflation. This will be sufficient to sustain the current levels of service.

We fund operating expenditure from the following sources: general rates, targeted rates, fees and charges, interest and dividends from investments, grants and subsidies, and other operating revenue.

GENERAL RATES

We use capital value as the basis for gathering general rates. Generally, the higher the value of the property, the higher the rates paid by the property owner.

General rates are assessed on a differential basis, with a differential applied to Businesses and Utility Networks, reflecting a higher share of the benefits of Council services.

Differentials are also applied to Community Facilities and Rural sectors to reflect their ability to pay and the relative levels of service received. These are incorporated into the Revenue and Financing Policy, which is reviewed regularly.

TARGETED RATES

If Council decides that the cost of a service should be met by a particular group of ratepayers, it may use targeted rates. Council’s targeted rate charges include water, wastewater, Jackson Street and recycling.

FEES AND CHARGES

Council levies charges to contribute to the cost of services. Direct benefits attributed to service users are considered a private funding component and are recovered through a fee or charge for that service.

A schedule of fees and charges is published on the Council website.

INTEREST AND DIVIDENDS FROM INVESTMENTS

Council obtains specialist advice when considering financial investments and structure. We invest surplus cash from operations on call overnight and gain interest revenue from such investing. Council also gains interest revenue from lending within its group to its Council Controlled Organisations (CCOs).

Council charges a market interest rate for this lending. Council may also gain dividend income from shares held in company holdings.

SUBSIDIES

Council receives subsidies of both an operating and a capital nature to partially fund services and contribute to the cost of capital projects. Council receives government grants to provide services.

DEVELOPMENT AND FINANCIAL CONTRIBUTIONS

Development contributions are used to fairly allocate the costs of growth to ensure equity between developers and ratepayers. Financial contributions are required where individual developments give rise to capital expenditure that is not included in the Long Term Plan and for reserves.

Other revenue includes, but is not limited to, proceeds from the sale of assets and other miscellaneous income.

COUNCIL’S POLICY ON GIVING SECURITIES FOR ITS BORROWING

Council secures borrowing by way of a Debenture Trust Deed which provides security over rating income.

COUNCIL’S OBJECTIVES FOR HOLDING AND MANAGING FINANCIAL INVESTMENTS

Council maintains liquidity and credit facilities to minimise financial risk and have secure and cost effective funding sources to meet financial needs.

Council obtains surplus daily cash from its rates instalments and other revenue generating activities. In managing its liquidity, Council looks to apply surplus cash to reduce its short term borrowings, while ensuring cash requirements until the next rates instalment are provided for. Council will place surplus cash on call or term deposits as appropriate.

Interest Rate Swaps are held to smooth impacts of fluctuating interest rates.

Council lends money to its CCOs at a commercial rate of return. This is typically set at between 50 and 100 basis points above the cost to Council.

COUNCIL’S OBJECTIVES FOR HOLDING AND MANAGING EQUITY INVESTMENTS

Council has investments in several CCOs.

WELLINGTON WATER LIMITED (ASSOCIATE)

This company is owned by Wellington, Hutt City, Upper Hutt City and Porirua City Councils, and Greater Wellington Regional Council.

The nature of the business of the company is to jointly manage the water services for these councils. Our objective for this company is for it to manage, for the long term, the provision of water, wastewater and stormwater services and to operate as a successful business.

A formal return on investment is not anticipated in the near future as the business is managed on a non-profit basis.

SEAVIEW MARINA LIMITED (100% OWNED CCO)

Council holds 100% of the shares issued by Seaview Marina Limited. Council’s objective is for it to operate a successful and profitable marina providing berth and associated services, and providing public marine recreation facilities for the enjoyment of the Lower Hutt community, without compromising its commercial objectives and environmental responsibilities.

Return on investment is 5% before tax on shareholders’ funds, in accordance with the company’s Statement of Intent. This return is reinvested within the company.

URBAN PLUS LIMITED (100% OWNED CCO)

Council’s objectives for this company are for it to own and operate a portfolio of rental housing, develop property in preparation for sale or lease, and manage Council property and building assets.

Returns are forecast in the company’s Statement of Intent.

HUTT CITY COMMUNITY FACILITIES TRUST (CFT)

Council established this charitable trust to manage and develop its leisure and community facilities.

Our objective for CFT is for it to enhance the health and wellbeing of the city’s communities through the effective and efficient provision, development and operation of leisure and community facilities throughout Hutt City. This will include securing funding to enable investment and improvement of community facilities, developing new or enhancing existing facilities, administering any facilities vested in CFT, and providing strategic direction, expert advice and championing ongoing investment and development.

No financial return on investment is anticipated at this stage.

CIVIC ASSURANCE

With over $1.4 billion in assets, Council needs to have appropriate safeguards in place to protect their value. Appropriate levels of insurance are maintained to safeguard Council from significant loss.

The recent global events have impacted on the stability of the insurance market. Historically, councils have struggled to obtain adequate levels of insurance and many years ago Civic Assurance was created to fill a gap in the market and provide some level of surety for local government. While the organisation suffered loss through the New Zealand events in Christchurch, Council considers continued investment in Civic Assurance beneficial to provide the sector an alternative to the other insurance options.

The return expected is a dividend as approved by the Board of Directors in addition to providing an avenue for Council to insure its assets. A formal return on investment is not anticipated in the near future while the company rebuilds an equity base.

LOCAL GOVERNMENT FUNDING AGENCY (LGFA)

Debt is a significant funding source for many local authorities. Interest costs are a major item of expenditure for these councils. Hutt City Council has invested in LGFA to help the sector achieve a reduction in the costs of borrowing. While Hutt City Council’s debt levels are relatively low, the LGFA provides an additional borrowing source and savings in interest costs.

In addition, the LGFA will provide local authorities with increased certainty of access to funding, including the potential access to longer funding terms. The return anticipated is through lower borrowing costs and security of longer term funding rather than a formal dividend.

As a shareholder or guarantor Council will have increased exposure to liability for repayment of debt.

SMARTLINX3

Part of the Council’s Economic Development Plan included the undertaking of a survey of businesses completed in early 2003, to understand broadband infrastructure needs in Hutt City. The survey indicated a large number of businesses had ongoing issues with either or both access to and the cost of broadband.

An outcome of the survey was the establishment of a business led, Council supported company (Smartlinx3). It was representative of businesses in Hutt City, Upper Hutt City and Porirua City, and the three councils.

Smartlinx3 has deployed broadband assets in the three cities and provided some competition to pricing of broadband services. However, the value of Council’s investment in the company has diminished over time. A formal return on investment is not anticipated in the near future.

Attachment 6

Forecast Financial Statements

FORECAST FINANCIAL STATEMENTS 2019 - 2020

These are the Forecast Financial Statements which Council has adopted to meet the requirements of Clause 12 of Schedule 10 of the Local Government Act 2002. The information may not be appropriate for other purposes.

Every three years it is a requirement of the Local Government Act 2002 to present Forecast Financial Statements that span 10 years. This provides an opportunity for ratepayers and residents to assess the appropriateness of the financial actions planned by Council. The Forecast Financial Statements outline how Council will be funded for the next 10 years and how that money will be spent. It is intended to ensure proper and prudent financial and asset management in the long term. The information contained in the Forecast Financial Statements may not be appropriate for other purposes. The Council prepared a Long Term Plan 2018-2028 (LTP) which included ten year forecasts. As part of the Annual Plan 2019-2020 process (year 2 of the LTP) the financial forecasts have been updated for future years.

Council has Asset Management Plans for its assets. These plans along with the Council’s Financial and Infrastructure Strategies have provided the basis for development of the Forecast Financial Statements.

The Forecast Financial Statements have been prepared in accordance with New Zealand generally accepted accounting practice (GAAP), as required by section 111 of that Act. Council is designated as a public benefit entity for the purposes of complying with GAAP. The Forecast Financial Statements comply with Public Benefit Entity Financial Reporting Standard No. 42 – Prospective Financial Statements and New Zealand GAAP.

The Forecast Financial Statements are based on estimates of costs and revenues into the future. The degree of uncertainty surrounding these estimates increases as the Forecast Financial Statements look out further into the future. Key assumptions and risks are outlined below.

BALANCED BUDGET

The 2019-2020 Annual Plan shows an operating deficit in 2019-20 and 2020-21. The deficits are largely due to grants paid to the Community Facilities Trust (CFT) that are required for accounting purposes to be treated as operating expenditure but are for capital works carried out by the CFT. If the capital works were to be completed by Council, the associated amounts would be treated as capital expenditure and a balanced budget would be achieved in all 10 years of the plan.

Although this treatment creates deficits in the operating statements in each of these years the financial implications are no different to what they would be if this expenditure was to be treated as capital, i.e. it does increase the debt but has no impact on rates.

THE FORECAST FINANCIAL STATEMENTS INCLUDE:

The operating budgets for 2018 - 2019 and 2019 - 2020 that were included in the 2018-2028 Long Term Plan.

The “Budget” Council has adopted for the 2019 - 2020 financial year.

The “Forecast” results for the following nine years (2020 - 2021 to 2028 - 2029).

Actual results achieved for each reporting period are likely to vary from the forecasts presented, and the variations may be material.

An Annual Plan may include Forecast Financial Statements for any Council-Controlled Organisation or other entity under the Council’s control. We have not included these due to timing issues associated with the availability of the information.

Council updates its Forecast Financial Statements annually.

FORECASTING ASSUMPTIONS

Assumption

Risk

Level of Uncertainty

Reason for the Uncertainty

Financial Impact of the Uncertainty

Inflation

There were two separate methodologies applied to inflationary increases to Councils 2018-2028 Long Term Plan budgets.

Annual Rates Income Increases

The Financial Strategy details maximum quantified limits for rates income, being no more than actual LGCI for the preceding financial year, after allowing for estimated average growth. The indices used in the LTP were from the 2017 BERL Report and ranged from 1.5% to 2.5%. In the preparation of the Annual plan 2019-2020 the 2018 BERL indicators were applied. For 2019-20 the increase aligned to that assumed in the LTP.

Operating and Capital Expenditure

Annual inflationary increases are based on the annual LGCI indices, as published in the 2018 BERL Report and range from 1.8% to 2.6%.

Actual LGCI for the year significantly differs from that included in the budgets.

Mod

The LGCI estimates used in the Long Term Plan (LTP) are the forecasts issued by BERL in September 2018. The actual LGCI rate for the most recent 12 months ending 30 June are used to set rates in the following financial year. Actual LGCI rates may differ from LGCI forecasts.

Inflationary pressure outside the forecast LGCI range is not included in the LTP.

Local Government Cost Index (LGCI) Forecasts

2019-20

Budget

2020-21

Forecast

2021-22

Forecast

2022-23

Forecast

2023-24

Forecast

2024-25

Forecast

2025-26

Forecast

2026-27

Forecast

2027-28

Forecast

Rates income increase %

1.8%

2.3%

2.1%

2.2%

2.3%

2.4%

Operating and Capital Expenditure inflation increases

2.0%

2.3%

2.1%

2.2%

2.3%

2.4%

2.5%

Note for 2028/29 Council assumes LGCI of 2.6% and 2.7% from 2029/30.

Growth

Council projections for income from rates revenue include an allowance for growth and inflation. Average growth of 1% per annum in the rating base was assumed throughout the 10 year period of the LTP. This incorporates population movements and increases in the number of houses in Hutt City, based on the targets outlined in Council’s Urban Growth Strategy.

That the actual rates for growth will be significantly different from the projected rates of growth.

Mod

Uncertainty exists as the projected increases in population and number of houses may not be realised.

Rates of growth which vary significantly from the assumed level will result in unbudgeted financial pressures.

Population Growth

In 2017, the total population of Lower Hutt was estimated to be 104,700 people. Recent population growth is expected to be consistent, reaching 110,000 people by 2032.

Population growth rates exceed or are less than forecast.

Mod

Uncertainty exists as the projected increases in population and the associated number of houses may not be realised.

Rates of growth which vary significantly from the assumed level will result in unbudgeted financial pressures.

Interest Rates

The long term cost of borrowing is assumed to be an average of 3.9% over the period of the LTP and 4% beyond the LTP.

Interest rates and swap rates are significantly different from that budgeted.

Mod

Council has interest rate swaps in place to minimise the fluctuation of interest rate movements.

Higher interest rates provide ability to earn higher income from cash holdings. Higher interest rates may lead to higher interest cost on debt.

Employee Cost Growth

Service levels are generally assumed to remain the same for the period covered by the Forecast Financial Statements. Employee numbers remain stable during the period. Pay inflation is assumed to be 3% in 2019-20 based on information provided by Councils remuneration advisors. Beyond 2019-20 employee costs are assumed to increase by the rate of LGCI.

Staffing levels are higher or lower than budgeted.

Low

Changes in service demand and/or local government structure would provide uncertainty.

Financial impacts arising from changes in service demand and/or local government structure are not included in the LTP. A 1% increase in staff numbers may result in an average cost increase of approximately $360,000 per year.

Natural Disasters and Insurance Costs

Council has comprehensive insurance policies which are designed to provide substantial, but not total, cover from the financial impact of natural disasters. The level of insurance cover is calculated by extensive loss modelling which estimates the maximum probable loss.

The damage exceeds the cover obtained by Council and its ability to fund the repair reconstruction out of normal budgetary provisions. Cost of insurance increases more than budgeted.

Mod

Council has in the past covered adverse weather events, e.g. storm damage. Council operates an emergency management function to respond to such events.

Uncertainty arises with scale, duration and location of events.

Capacity in the insurance market for New Zealand has decreased, especially in high risk areas like Wellington region.

Council has nearly $1.5 billion in assets.

The insurance cover is intended to cover 40% of the maximum loss that the Council is likely to suffer following a natural catastrophe. The Council would be dependent on government funding to cover the remaining 60% share.

Asset Revaluation

Council revalued asset classes as at December 2017 in accordance with its accounting policies, and the results of the revaluation have been applied from 1 July 2018. The Council assesses the carrying value of its revalued assets annually to ensure they do not differ materially from the assets’ fair value. For further information please refer to the accounting policies.

Asset revaluations differ from that budgeted, depreciation charges resulting may differ.

Mod

Market buoyancy and property pricing influences the value of the property assets. Contract and construction prices influence the value of infrastructure assets.

Higher level of asset valuation means more depreciation to use to fund asset renewals and some improvements. Lower levels of valuation and depreciation reduce council ability to fund capital from depreciation and place more reliance on funding improvements from other funding mechanisms such as debt or rates. Depreciation rates are contained in accounting policies.

Asset Sales

Approximately $7.4 million of asset sales have been assumed across the period of the plan.

Asset sales do not eventuate and/or timing of asset sales differs to budget.

Mod

Level of purchaser interest is unknown.

Funding mechanisms such as debt or rates are used to substitute for the loss of sales income. Higher debt levels may result. Capital programme may be reduced to compensate for delaying infrastructure upgrades.

Asset Lives

Refer to the Statement of Significant Accounting Policies

NZ Transport Agency

As of 2018 NZTA subsidy is 51% for both operating and capital works. For projects which are not fully subsidised by NZTA, a lower subsidy applies.

Current funding patterns and subsidy percentages may change during the life of the LTP.

Low

The impact of projects of national significance may change criteria.

Any change in subsidy rate would lead to a reduction in the work programme or reprioritisation of projects.

Level of Debt

Debt is not to exceed;

· 150% of total revenue in years 1-3,

· 130% of total revenue in years 4 to 6,

· 110% of total revenue in years 7 to 12, and

· 90% of total revenue in year 13 and beyond.

Net interest must be less than 10% of revenue.

Higher debt levels leads to higher servicing costs.

Low

Ability to service debt from existing funding sources reduces.

Change in capital programme, service levels offered by Council or rates revenue requirements may lead to a change in debt levels.

Sources of Funds

Refer to Councils Revenue and Financing Policy on page xx.

Climate change

Council will be able to manage and cope with adverse effects of climate change and emergency work will be funded out of normal budgetary provisions.

The impacts of changing weather patterns associated with climate change on maintenance and capital works may be greater or faster than predicted.

High

Extreme weather results.

The effects of projected climate changes will impact on council activities and asset planning.

PROSPECTIVE STATEMENT OF COMPREHENSIVE REVENUE AND EXPENSE

PROSPECTIVE STATEMENT OF CHANGES IN NET EQUITY

PROSPECTIVE STATEMENT OF FINANCIAL POSITION

PROSPECTIVE CASH FLOW STATEMENT

Attachment 7

Notes to the Financial Statements

NOTES TO FINANCIAL STATEMENTS

SIGNIFICANT ACCOUNTING POLICIES

REPORTING ENTITY

Hutt City Council (referred to as ‘Council’) is a territorial local authority established under the Local Government Act 2002 (LGA) and is domiciled and operates in New Zealand. Council was first formed as Lower Hutt City Council on 1 November 1989 by the amalgamation of five local authorities. The name was changed to The Hutt City Council by a special Act of Parliament on 8 October 1991. The relevant legislation governing the Council’s operations included the LGA and the Local Government (Rating) Act 2002.

The Group consists of the ultimate parent, Hutt City Council and its subsidiaries/Council-Controlled Organisations (CCO’s), Seaview Marina Limited and Urbanplus Limited Group (both 100% owned) and its controlled trust Hutt City Community Facilities Trust.

The Urbanplus Limited Group consists of Urbanplus Limited and its 100% owned subsidiaries UPL Development Limited (formerly Fairfield Waters Limited) and UPL Limited Partnership (formerly Fairfield Limited Partnership). The Council’s 21% equity share of its associate Wellington Water Limited is equity accounted. The Council’s subsidiaries/CCO’s are incorporated and domiciled in New Zealand.

The Council provides local infrastructure, local public services and performs regulatory functions to the community. The Council does not operate to make a financial return. Accordingly, the Council has designated itself and the Group as public benefit entities (PBE’s) for financial reporting purposes.

BASIS OF PREPARATION

Statement of compliance

The Financial Statements have been prepared in accordance with the requirements of the LGA, which includes the requirement to comply with generally accepted accounting practice in New Zealand (NZ GAAP).

The Financial Statements have been prepared in accordance with Tier 1 PBE accounting standards. These Financial Statements comply with PBE accounting standards.

The prospective financial statements were authorised for issue by Council on 27 June 2019. The Mayor and Chief Executive that authorise the issue of the prospective financial statements by Council are responsible for the prospective financial statements presented, including the appropriateness of the assumptions underlying the prospective financial statements and all other required disclosures. No actual results have been incorporated in these prospective financial statements. It is not intended to update the prospective financial statements subsequent to presentation.

Measurement base

The Financial Statements have been prepared on a historical cost basis, modified by the revaluation of land and buildings, certain infrastructural assets and financial instruments (including derivative instruments), which have been measured at fair value.

Management is not aware of any material uncertainties that may cast significant doubt on the Council’s ability to continue as a going concern. The Financial Statements have therefore been prepared on a going concern basis, and the accounting policies have been applied consistently throughout the period.

Presentation currency and rounding

The Financial Statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000’). The functional currency of Council is New Zealand dollars.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions are recognised in the Statement of Comprehensive Revenue and Expenses.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue

Revenue is recognised to the extent that it is probable that the economic benefits or service potential will flow to the Council and the revenue can be reliably measured, regardless of when payment is being made.

Revenue is measured at the fair value of consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

Revenue is disclosed as either exchange or non-exchange transactions. Exchange transactions are transactions in which the Council receives resources (assets or services, or has liabilities extinguished), and directly gives approximately equal value (primarily in the form of cash, goods, services, or use of assets) to the other party for the transaction. Non-exchange transactions are transactions in which the Council receives resources and provides nil or nominal consideration directly in return.

The specific recognition criteria described must also be met before revenue is recognised.

Revenue from exchange transactions:

Direct charges – full cost recovery

1. Rendering of services – full cost recovery

Revenue from the rendering of services (such as marina fees) is recognised by reference to the stage of completion of the transaction at balance date based on the actual service provided as a percentage of the total service to be provided.

2. Sale of goods – full cost recovery

Revenue from the sale of goods (such as rubbish bags) is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods, and when the amount of revenue can be measured reliably and it is probable that the economic benefits or service potential associated with the transaction will flow to Council.

Interest

Interest income is recognised using the effective interest method.

Dividends

Revenue is recognised when Council’s right to receive the payment is established, which is generally when shareholders approve the dividend.

Rental revenue

Rental revenue arising from operating leases or rental agreements on properties is accounted for on a straight-line basis over the lease or rental term and is included in revenue in the Statement of Comprehensive Revenue and Expense.

Revenue from non-exchange transactions:

General and targeted rates revenue

General rates, targeted rates (excluding water-by-meter) and uniform annual general charges are set annually by a resolution from Council and relate to a financial year. All ratepayers are invoiced within the financial year to which the rates have been set. Council recognises revenue from rates when the Council has struck the rate and provided the rates assessment. Rates revenue is measured at the amount assessed, which is the fair value of the cash received or receivable.

Rates arising from late payment penalties are recognised as revenue when rates become overdue.

Revenue from water-by-meter rates is recognised on an accrual basis based on usage. Unbilled usage, as a result of unread meters at year end, is accrued on an average usage basis.

Rates remissions are recognised as a reduction of rates revenue when the Council has received an application that satisfies its Rates Remission Policy.

Rates collected on behalf of the Greater Wellington Regional Council (GWRC) are not recognised in the Financial Statements as the Council is acting as an agent for the GWRC.

Government grants and funding

Council receives government grants from the New Zealand Transport Agency (NZTA), which subsidises part of the costs of maintaining the local roading infrastructure. The subsidies are recognised as revenue upon entitlement, as conditions pertaining to eligible expenditure have been fulfilled.

The Council receives grants and subsidies from other organisations. All grants and subsidies are recognised as revenue upon entitlement, as conditions pertaining to eligible expenditure have been fulfilled.

Infringement fees and fines

Council recognises revenue from fines (such as traffic and parking infringements) when the notice of infringement or breach is served by the Council. The fair value of this revenue is determined based on the probability of collecting fines, which is estimated by considering the history of fines over the preceding two year period.

Direct charges – subsidised

1. Rendering of services - subsidised

Rendering of services at a price that is not approximately equal to the value of the service provided by the Council is considered a non-exchange transaction. This includes rendering of services where the price does not allow the Council to fully recover the cost of providing the service (such as resource consents, building consents, water connections, dog licensing, etc.), and where the shortfall is subsidised by income from other activities, such as rates. Generally there are no conditions attached to such revenue.

Revenue from such subsidised services is recognised at the amount of the invoice or bill, which is the fair value of the cash received or receivable for the service.

Revenue is recognised by reference to the stage the conditions under the agreement are met, to the extent that the Council has an obligation to refund the cash received from the service (or to the extent that the customer has the right to withhold payment from Council for the service) if the service is not completed.

2. Sale of goods – subsidised

A sale of goods at a price that is not approximately equal to the value of the goods provided by the Council is considered a non-exchange transaction. This includes sales of goods where the price does not allow the Council to fully recover the cost of producing the goods (such as recycle bins), and where the shortfall is subsidised by income from other activities such as rates.

Revenue from the sale of such subsidised goods is recognised when the Council issues the invoice or bill for the goods.

Revenue is recognised as the amount of the invoice or bill, which is the fair value of the cash received or receivable for the goods.

Development and financial contributions

Development and financial contributions are recognised as revenue when the Council has the right to receive the funds for which the contribution was levied.

Vested assets

Where a physical asset is acquired for nil or nominal consideration, the fair value of the asset received is recognised as revenue when control over the asset is obtained. The fair value of vested or donated assets is usually determined by reference to the cost of constructing the asset. For assets received from property development, the fair value is based on construction price information provided by the property developer.

Donated and bequeathed finance assets

Donated and bequeathed financial assets are recognised as revenue unless there are substantive use or return conditions. A liability is recorded if there are substantive use or return conditions and the liability released to revenue as the conditions are met (e.g. as the funds are spent for the nominated purpose).

Construction contracts

Contract revenue and contract costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract at balance date. The stage of completion is measured by reference to the contract costs incurred up to balance date as a percentage of total estimated costs for each contract.

Contract costs include all costs directly related to a specific contract, costs that are specifically chargeable to the customer under the terms of the contract and an allocation of overhead expenses incurred in connection with Council’s construction activities in general.

An expected loss on construction contract is recognised immediately as an expense in the surplus or deficit.

Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense as incurred. When it is probable that the costs will be recovered, revenue is recognised to the extent of costs incurred.

Construction work in progress is stated at the aggregate of contract costs incurred to date plus recognised surpluses less recognised losses and progress billings. If there are contracts where progress billings exceed the aggregated costs incurred plus surplus less losses, the net amounts are presented as a liability.

Borrowing costs

Borrowing costs are recognised as an expense in the period in which they are incurred. Borrowing costs consist of interest and other costs that the Council incurs in connection with the borrowing of funds. The Council has chosen not to capitalise borrowing costs directly attributable to the acquisition, construction or production of assets.

Grant expenditure

Non-discretionary grants are those grants that are awarded if the grant application meets the specified criteria and are recognised as expenditure when an application that meets the specified criteria for the grant has been received.

Discretionary grants are those grants where Council has no obligation to award on receipt of the grant application and are recognised as expenditure when a successful applicant has been notified of Council’s decision. The Council’s grants awarded have no substantive conditions attached.

Income tax

Income tax expense includes components relating to both current tax and deferred tax.

Current tax is the amount of income tax payable based on the taxable profit for the current year, plus any adjustment to income tax payable in respect of prior years. Current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted at balance date.

Deferred tax is the amount of income tax payable or recoverable in future periods in respect of temporary differences and unused tax losses. Temporary differences are differences between the carrying amount of assets and liabilities in the Statement of Financial Position and the corresponding tax bases used in the computation of taxable surplus.

Deferred tax is measured at the tax rates that are expected to apply when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the entity expects to recover or settle the carrying amount of its assets and liabilities.

Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable surplus will be available against which the deductible temporary differences or tax losses can be utilised.

Deferred tax is not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of an asset and liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting surplus nor taxable surplus.

Current tax and deferred tax is recognised against the surplus or deficit for the period, except when it relates to a business combination, or to transactions recognised in other comprehensive revenue and expenses or directly in equity.

Leases

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date. The substance of the arrangement depends on whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

Council as a lessee

Finance leases

Council does not enter into Finance Lease arrangements.

Operating leases

An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term.

Council as a lessor

Leases in which Council does not transfer substantially all the risks and benefits of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term. Rent received from an operating lease is recognised as income on a straight-line basis over the lease terms and disclosed within revenue from exchange transactions in the Statement of Comprehensive Revenue and Expense.

Cash and cash equivalents

Cash and cash equivalents (current assets) in the Statement of Financial Position comprise cash at bank, cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents, as defined above, net of outstanding bank overdrafts. Bank overdrafts are shown within interest bearing loans and borrowings in current liabilities in the Statement of Financial Position.

Debtors and other receivables

Debtors and other receivables are initially measured at their face value, less any provision for impairment.

Derivative financial instruments

Council uses derivative financial instruments such as foreign currency contracts and interest rate swaps to manage exposure to foreign exchange and interest rate risks arising from the Council’s operational and financing activities. In accordance with its treasury policy, Council does not hold or issue derivative financial instruments for trading purposes.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently measured at their fair value at each balance date. As the Council does not designate its derivative financial instruments as hedging instruments for accounting purposes, the associated gains or losses on derivatives are recognised within the Statement of Comprehensive Revenue and Expense.

Derivatives are carried as current or non-current assets when their fair value is positive and as current or non-current liabilities when their fair value is negative, depending on the maturity of the instrument.

Other financial instruments

Financial assets are initially recognised at fair value plus transaction costs unless they are carried at fair value through surplus or deficit in which case the transaction costs are recognised in the surplus or deficit.

Purchases and sales of financial assets are recognised on trade-date, the date on which the Council commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Council has transferred substantially all the risks and rewards of ownership.

Financial assets are classified into the following categories for the purpose of measurement:

· Fair value through surplus or deficit;

· Loans and receivables;

· Held-to-maturity investments; and

· Fair value through other comprehensive revenue and expenses.

The classification of a financial asset depends on the purpose for which the instrument was acquired.

Financial assets at fair value through surplus or deficit

Financial assets at fair value through surplus or deficit include financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or part of a portfolio of identified financial instruments that are managed together and for which there is evidence of short-term trading.

Derivatives (e.g. interest rate swaps and options) are also categorised as held for trading.

Financial assets acquired principally for the purposes of selling in the short-term or part of a portfolio classified as held for trading are classified as a current asset.

After initial recognition financial assets in this category are measured at their fair values with gains or losses recognised in the surplus or deficit (or in the case of derivatives through comprehensive revenue and expenses).

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance date, which are included in non-current assets.

The Council loans and receivables comprise cash and cash equivalents, trade and other receivables, term deposits and community and related party loans.

After initial recognition they are measured at amortised cost, using the effective interest method, less impairment.

Gains and losses when the asset is impaired or derecognised are recognised in the surplus or deficit.

Loans to community organisations made by Council at nil, or below-market, interest rates are initially recognised at the present value of their expected future cash flows, discounted at the current market rate of return for a similar financial instrument.

The difference between the face value and present value of the expected future cash flows of the loan is recognised in the surplus or deficit as a grant expense. The loans are subsequently measured at amortised cost using the effective interest method.

Held to maturity investments

Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities and there is the positive intention and ability to hold to maturity. They are included in current assets, except for maturities greater than 12 months after the balance date, which are included in non-current assets.

After initial recognition they are measured at amortised cost using the effective interest method less impairment. Gains and losses when the asset is impaired or derecognised are recognised in the surplus or deficit.

Financial assets at fair value through other comprehensive revenue and expense

Financial assets at fair value through other comprehensive revenue and expense are those that are designated into the category at initial recognition or are not classified in any of the other categories above. They are included in non-current assets unless management intends to dispose of, or realise, the investment within 12 months of the balance date.

The Council includes in this category:

· investments that it intends to hold long-term but which may be realised before maturity; and

· shareholdings that it holds for strategic purposes.

These investments are measured at their fair value, with gains and losses recognised in other comprehensive revenue and expense, except for impairment losses, which are recognised in the surplus or deficit.

On de-recognition the cumulative gain or loss previously recognised in other comprehensive revenue and expense is reclassified from equity to the surplus or deficit.

Impairment of financial assets

Financial assets are assessed for evidence of impairment at each balance date. Any impairment losses are recognised in the surplus or deficit.

Loans, receivables and term deposits

Impairment is established when there is evidence that Council will not be able to collect all amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor/issuer, probability that the debtor/issuer will enter into bankruptcy, receivership, or liquidation and default in payments are indicators that the asset is impaired. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. For debtors and other receivables, the carrying amount of the asset is reduced through the use of a provision account, and the amount of the loss is recognised in the surplus or deficit. When the receivable is uncollectable, it is written off against the provision account. Overdue receivables that have been renegotiated are reclassified as current (that is not past due). Impairment in term deposits and community loans is recognised directly against the instrument’s carrying amount.

Financial assets at fair value through other comprehensive revenue and expense

For equity investment, a significant or prolonged decline in the fair value of the investment below its cost is considered an indicator of impairment. For debt investments, significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payment are objective indicators that the asset is impaired.

If evidence exists for investments at fair value through other comprehensive revenue and expense, the cumulative loss (measured as the difference between the acquisition costs and the current fair value, less any impairment loss on that financial asset previously recognised in the surplus or deficit) recognised in other comprehensive revenue and expense is reclassified from equity to the surplus or deficit.

Impairment losses recognised in the surplus or deficit are not reversed through the surplus or deficit.

If in a subsequent period the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment is revenue in the surplus or deficit.

De-recognition

Financial assets (or, where applicable, a part of a financial asset or part of a group of similar financial assets) are de-recognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Council has transferred substantially all the risks and rewards of ownership.

Inventory

Inventories held for distribution or consumption in the provision of services that are not supplied on a commercial basis are measured at the lower of cost (using the FIFO method), adjusted when applicable, for any loss of service potential.

Inventories acquired through a non-exchange transaction are measured at fair value at the date of acquisition.

Inventories held for use in the provision of goods and services on a commercial basis are valued at the lower of cost (using the FIFO method) and net realisable value.

The amount of any write-down for the loss of service potential or from cost to net realisable value is recognised in the surplus or deficit in the period of the write-down.

When land held for the development and future resale is transferred from property, plant and equipment to inventory, the fair value of the land at the date of transfer is its deemed cost.

Costs directly attributed to the developed land are capitalised to inventory, with the exception of infrastructural asset costs which are capitalised to property, plant and equipment.

Emission trading units are held for consumption based on landfill emissions and are valued at net realisable value.

Non-current assets held for sale

Non-current assets held for sale are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

Any impairment losses for write-downs of non-current assets held for sale are recognised in the surplus or deficit.

Any increases in fair value (less costs to sell) are recognised up to the level of any impairment losses that have been previously recognised.

Non-current assets (including those that are part of a disposal group) are not depreciated or amortised while they are classified as held for sale.

Property, plant and equipment

Property, plant and equipment consist of:

Operational assets

These include land, buildings, landfill post-closure, improvements, library books, plant and equipment, collection items and motor vehicles.

Restricted assets

Restricted assets are mainly parks and reserves owned by Council that provide a benefit or service to the community and cannot be disposed of because of legal or other restrictions.

Infrastructure assets

Infrastructure assets are fixed utility systems owned by Council. Each asset class (roading assets, water assets, stormwater assets and wastewater assets) includes all items that are required for the network to function. For example, sewerage reticulation includes reticulation piping and sewer pump stations.

Land (operational and restricted, except land under roads) and art collections are measured at fair value. Buildings and infrastructure assets are measured at fair value less accumulated depreciation. All other asset classes are measured at cost less accumulated depreciation and impairment losses.

Measurement subsequent to initial recognition - revaluation

Land (excluding land under roads), buildings, and infrastructural assets are revalued with sufficient regularity to ensure their carrying amount does not differentiate materially from fair value at least every three years.

The carrying values of revalued assets are assessed annually to ensure that they do not differ materially from the assets’ fair values. If there is a material difference, then the off-cycle asset classes are revalued.

Revaluation of property, plant and equipment is accounted for on a class-by-class basis.

The net revaluation results are credited or debited to other comprehensive revenue and expense and are accumulated to an asset revaluation reserve in equity for that class of asset. Where this would result in a debit balance in the asset revaluation reserve, this balance is not recognised in other comprehensive revenue and expense but is recognised in the surplus or deficit. Any subsequent increase on revaluation that reverses a previous decrease in value recognised in the surplus or deficit will be recognised first in the surplus or deficit up to the amount previously expensed, and then recognised in other comprehensive revenue and expense.

The fair value of land and buildings is their market value as determined by a registered valuer. The fair value of the roading, water assets, stormwater assets and wastewater assets is measured using the depreciated replacement cost.

Additions

The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to the Council and the cost of the item can be measured reliably.

Work in progress is recognised at cost less impairment and is not depreciated.

In most instances, an item of property, plant and equipment is initially recognised at its cost. Where an asset is acquired through non-exchange transactions, it is recognised at its fair value as at the date of acquisition.

Disposals

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits or service potential are expected from its use or disposal. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are reported net in the surplus or deficit. When revalued assets are sold, the amounts included in asset revaluation reserves in respect of those assets are transferred to accumulated funds.

Subsequent costs

Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Council and the cost of the item can be measured reliably.

The costs of day-to-day servicing of property, plant and equipment are recognised in the surplus or deficit as they are incurred.

Depreciation

Depreciation is provided on a straight-line basis on all property, plant and equipment (other than land, land under roads and art collections), at rates calculated to allocate the cost or valuation of the asset less any estimated residual value over its remaining useful life. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

	Years	Percentages
Operational assets
Site Improvements	2 - 35	2.86 - 50
Buildings	2 - 100	1.0 - 50
Landfill assets (including plant and infrastructure not associated with the network)	3 - 147	0.68 - 33.33
Library books	1 - 10	10 10y
Plant and equipment:	1 - 40	2.5 - 100
Vehicles	5 - 20	5 - 20
Wharves	10 - 40	2.5 - 10
Breakwaters	68	1.47
Infrastructure assets
Storm, supply and waste water utility assets
· Storm water assets	16 – 224	0.45 - 6.25
· Water supply assets	4 – 54	1.85 – 25
· Waste water assets (included treatment plant)	3 - 69	1.45 – 33.33
Roading network	2 -91	1.10 - 50
Seawalls	46	2.17

The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end.

In respect of revalued assets, the useful life is adjusted to a rate recommended by the independent valuer as at the date of the revaluation.

Upper Hutt City Council’s interest in the bulk wastewater system

The Hutt Valley and Wainuiomata bulk wastewater system is managed by Council. Upper Hutt City Council pays an annual levy to the Hutt City Council based on an apportionment formula equating to between 26% and 33% of the funding requirements. While Upper Hutt City Council does not have legal ownership of the bulk wastewater system, it is entitled to a share of the proceeds from any sale of the assets.

Upper Hutt City Council’s interest in the bulk wastewater system assets is deducted from the value of property, plant and equipment recognised in the Statement of Financial Position. Funding contributions from Upper Hutt City Council are recognised as revenue in the surplus or deficit if the contributions are for the operation of the bulk wastewater system. Funding contributions for capital work are recognised as an increase in Upper Hutt City Council’s interest in the bulk wastewater system assets.

Intangible assets

Software acquisition and development

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Costs that are directly associated with the development of software for internal use by Council are recognised as an intangible asset.

Direct costs include the software development employee costs and an appropriate portion of relevant overheads.

Staff training costs, costs associated with maintaining computer software and costs associated with development and maintenance of the Council’s website are recognised as an expense when incurred.

Resource consents

Costs associated with registering a resource consent in the wastewater activity are recognised as an intangible asset.

Amortisation

The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date that the asset is de-recognised. The amortisation charge for each period is recognised in the surplus or deficit.

The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follows:

Computer software

2 - 5 years 50% – 20%

Resource consents

5 - 35 years 2.86% – 19% (Life of the consent)

Impairment of property, plant, equipment and intangible assets

Intangible assets subsequently measured at cost that have an indefinite useful life, or are not yet available for use, are not subject to amortisation and are tested annually for impairment.

Property, plant, equipment and intangible assets subsequently measured at cost that have a finite useful life are reviewed for indicators of impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

If an asset’s carrying amount exceeds its recoverable amount, the asset is regarded as impaired and the carrying amount is written down to the recoverable amount.

Where an asset has been previously revalued, the impairment loss is recognised though the revaluation reserve of that asset category and will appear in comprehensive income. The reversal of an impairment loss is recognised though the revaluation reserve and will appear in comprehensive income.

Other assets that have not been revalued, the impairment loss is recognised in the surplus or deficit. The reversal of an impairment loss on non-revalued assets is recognised in the surplus or deficit.

Value in use for non-cash generating assets

Non-cash generating assets are those assets that are not held with the primary objective of generating a commercial return.

For non-cash generating assets, value in use is determined using the then approach based on either a depreciated replacement cost approach, restoration costs approach, or a service units approach. The most appropriate approach used to measure value in use depends on the nature of the impairment and availability of information.

Value in use for cash-generating assets

Cash-generating assets are those assets that are held with the primary objective of generating a commercial return.

The value in use for cash-generating assets and cash-generating units is the present value of expected future cash flows.

Payables

Short-term creditors and other payables are recorded at face value.

Borrowings

Borrowings are initially recognised at their face value plus transaction costs. After initial recognition, all borrowings are measured at amortised costs using the effective interest rate.

Borrowings are classified as current liabilities, unless the Council has an unconditional right to defer settlement of the liability for at least 12 months after the balance date.

Employee entitlements

Short-term benefits

Employee benefits that Council expect to be settled wholly before 12 months after the end of the period in which the employee renders the related service are measured on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave earned to, but not yet taken at balance date, retiring and long service leave entitlements expected to be settled wholly before 12 months.

Council recognise a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.

Long-term benefits

Employee benefits that are due to be settled beyond 12 months after the end of the period in which the employee renders the related service, such as long service leave and retiring leave, have been calculated on an actuarial basis.

The calculations are based on:

· Likely future entitlements accruing to staff, based on years of service, years to entitlement, the likelihood that staff will reach the point of entitlement and contractual entitlements information; and

· the present value of the estimated future cash flows.

Presentation of employee entitlements

Sick leave, annual leave and vested long service leave are classified as a current liability. Non-vested long service leave and retirement gratuities expected to be settled within 12 months of the balance date are classified as current liabilities. All other employee entitlements are classified as a non-current liability.

Superannuation schemes

Defined contribution schemes

Obligations for contributions to KiwiSaver and defined contribution superannuation schemes are recognised as an expense in the surplus and deficit as incurred.

Defined benefit schemes

Council belongs to the Defined Benefit Plan Contributors Scheme (the scheme), which is managed by the Board of Trustees of the National Provident Fund. The scheme is a multi-employer defined benefit scheme.

Insufficient information is available to use defined benefit accounting, as it is not possible to determine from the terms of the scheme the extent to which the surplus or deficit will affect future contributions by individual employers, as there is no prescribed basis for allocation. The scheme is therefore accounted for as a defined contribution scheme.

Provisions

Council recognises a provision for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that expenditures will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense and is included in “finance costs”.

Landfill post closure costs

As operator of the Silverstream landfill site, Council has an obligation to ensure the on-going maintenance and monitoring services at these landfill sites after closure. Council also has an obligation to monitor the closed landfill site at Wainuiomata and other sites previously operated by local authorities subsequently amalgamated to form the Hutt City Council.

A site restoration and aftercare provision has been recognised as a liability in the Statement of Financial Position. Provision is made for the present value of closure and post closure costs when the obligation for post closure arises.

The calculated cost is based on estimates of closure costs and future site trade waste charges and monitoring costs.

The estimated length of time needed for post closure care for Silverstream is 28 years and Wainuiomata is 26 years.

The calculations assume no change in the legislative requirements or technological changes for closure and post closure treatment. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to Council.

Amounts provided for closure and post closure costs are capitalised to the landfill asset where they give rise to future economic benefits, or if they are incurred to enable future economic benefits to be obtained. The capitalised landfill asset is depreciated over the life of the landfill based on the capacity used.

The provision of landfill post closure costs is valued annually by an independent valuer.

Weathertightness provision

The Council recognises a provision for the Council’s estimated liability relating to the settlement of weathertightness claims.

The provision related to claims made under the Weathertight Homes Resolution Services Act 2006, as well as civil proceedings directly against the Council.

The provision calculation included the estimated net settlement that the Council is expected to make on:

· All claims that are currently actively managed by the Council; and

· all claims that have been lodged with Weathertight Homes Resolution Service but are not yet actively managed by the Council.

Equity

Equity is the community’s interest in Council and is measured as the difference between total assets less total liabilities. Equity is disaggregated and classified into the following components:

· Accumulated funds (comprehensive revenue and expenses);

· Council created reserves;

· Restricted reserves; and

· Asset revaluation reserves.

Accumulated comprehensive revenue and expense is the Council’s accumulated surplus or deficit since the formation of the Council, adjusted for transfers to/from specific reserves.

Reserves represent a particular use to which various parts of equity have been assigned. Reserves may be legally restricted or created by Council.

Council created reserves are established by Council. They may be altered without reference to any third party or the courts. Transfers to and from these reserves are at the discretion of Council.

Restricted reserves are subject to specific conditions accepted as binding by Council, which may not be revised by Council without reference to the courts or third party. Transfers from these reserves may be made only for specified purposes or when certain conditions are met.

Asset revaluation reserves relate to the revaluation of property, plant and equipment to fair value after initial recognition.

Goods and services tax (GST)

All items in the Financial Statements are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. Where GST is not recoverable as input tax then it is recognised as part of the related asset or expense.

The net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of receivables or payables in the Statement of Financial Position.

The net GST paid to or received from the IRD, including the GST relating to investing and financing activities, is classified as an operating cash flow in the Statement of Cash Flows.

Commitments and contingencies are disclosed exclusive of GST.

Operating statements included in the Statement of Service Performance

The operating statements report the net cost of services for significant activities of Council. Council has derived the net cost of services for each significant activity using the cost allocation system outlined below.

Direct costs are charged directly to significant activities. Indirect costs are charged to the significant activities based on cost drivers and related activity or usage information.

Each significant activity has been charged an internal interest cost. The net interest cost incurred by Council is allocated to each significant activity based on the net book value of property, plant and equipment used by the activity.

Critical accounting estimates, judgements and assumptions

In preparing these Financial Statements, Council management has made estimates, judgements and assumptions concerning the future that affect the reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures. These estimates and assumptions may differ from the subsequent actual results.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations or future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Infrastructural assets

There are a number of assumptions and estimates used when performing depreciated replacement cost valuations over infrastructural assets. These include:

· The physical deterioration and condition of an asset, for example the Council could be carrying an asset at an amount that does not reflect its actual condition. This is particularly so for those assets that are not visible, for example stormwater, wastewater and water supply pipes that are underground. This risk is minimised by Council performing a combination of physical inspections and condition modelling assessments of underground assets;

· Estimating any obsolescence or surplus capacity of an asset; and

· Estimates are made when determining the remaining useful lives over which the asset will be depreciated. These estimates can be impacted by the local conditions, for example weather patterns and traffic growth. If useful lives do not reflect the actual consumption of the benefits of the asset, then Council could be over or under estimating the annual depreciation charge recognised as an expense in the Statement of

Comprehensive Income. To minimise this risk Council’s infrastructural asset useful lives have been determined with reference to the NZ Infrastructural Asset Valuation and Depreciation Guidelines published by the National Asset Management Steering Group, and have been adjusted for local conditions based on past experience. Asset inspections, deterioration and condition modelling are also carried out regularly as part of the Council’s asset management planning activities, which gives Council further assurance over its useful life estimates.

Experienced independent valuers perform the Council’s infrastructural asset revaluations.

Provisions

Provisions were raised and management determined an estimate based on the information available. Provisions are measured at the management’s best estimate of the expenditures required to settle the obligation at the reporting date, and are discounted to present value where the effect is material.

Provision for landfill aftercare costs: In determining the fair value of the provision, assumptions and estimates are made in relation to the discount rate, the expected cost of the post-closure restoration and monitoring of the landfill site and the expected timing of these costs. Expected costs and timing of closure are based on the estimated remaining capacity of the landfill, based on the advice and judgement of qualified engineers. The estimates are discounted at a pre-tax discount rate that reflects current market assessments of the time value of money.

Provision for weathertight homes: In determining the fair value of the provision, assumptions and estimates are made in relation to the expected value of the settlement based on the level of the original claim compared to historical settlement of similar claims. No evaluation has been undertaken to quantify the level of unreported claims.

The discount rate used is the current New Zealand Government long-term bond rate as at 30 June each year, and the inflation rate used is the annual Consumer Price Index. The discount rate is based on Council’s long-term cost of funds. The inflation factor is based on the expected long-term increase in remuneration for employees.

Critical judgements in applying accounting policies

Management has exercised the following critical judgements in applying accounting policies:

Classification of property

The Council owns a number of properties held to provide housing to pensioners. The receipt of market-based rental from these properties is incidental to holding them. The properties are held for a service delivery objective as part of the Council’s social housing policy. The properties are therefore accounted for as property, plant and equipment rather than as investment property.

2. DEPRECIATION

DEPRECIATION AND AMORTISATION EXPENSE BY GROUPS OF ACTIVITIES FOR THE YEAR ENDING 30 JUNE

3. RESERVE FUNDS

Reserves are held to ensure that funds received for a particular purpose are used for that purpose and any surplus created is managed in accordance with the reason for which the reserve was established. Surpluses held in reserves are credited with interest. The Council holds 12 reserve funds, with five being restricted reserves. Restricted reserves are reserves that have rules set by legal obligation that restrict the use that the Council may put the funds towards.

The remaining Council created reserves are discretionary reserves which the Council has established for the fair and transparent use of monies. Reserves are not separately held in cash and the funds are managed as part of the Council’s treasury management.

Below is a list of current reserves outlining the purpose for holding each reserve and the Council activity to which each reserve relates, together with summary financial balances.

Attachment 9

Funding Impact Statements including rates 2019-2020

FUNDING IMPACT STATEMENTS INCLUDING RATES FOR 2019-2020

This section includes full details of how rates are calculated. This statement should be read in conjunction with Council’s Revenue and Financing Policy, which sets out Council’s policies in respect of each source of funding of operating expenses.

SUMMARY OF FUNDING MECHANISMS AND INDICATION OF LEVEL OF FUNDS TO BE PRODUCED BY EACH MECHANISM

The Whole of Council Funding Impact Statement sets out the sources of funding to be used for 2019 - 2029, the amount of funds expected to be produced from each source, and how the funds are to be applied. Details of user charges and other funding sources, and the proportion applicable to each activity, are included in the Council’s Revenue and Financing Policy.

UNIFORM ANNUAL GENERAL CHARGE (UAGC)

Council has not set a UAGC for 2019-2020.

DEFINITION OF SEPARATELY USED OR INHABITED PART (SUIP)

For the purposes of any targeted rate set as a fixed amount per SUIP of a rating unit, a SUIP is defined as:

· any part of the rating unit separately used or inhabited by the owner or any other person who has the right to use or inhabit that part by virtue of a tenancy, lease, license or other agreement.

· at a minimum, the land or premises intended to form the separately used or inhabited part of the rating unit must be capable of actual habitation, or actual use by persons for purposes of conducting a business.

For the avoidance of doubt, a rating unit that has only one use (i.e. it does not have separate parts or is vacant land) is treated as being one SUIP of a rating unit.

RATES FOR YEAR

For the 2019-2020 year, and for subsequent years, the Council will set the following rates:

a) Water Supply Rate

A targeted rate will be set to meet the net operating costs of water supply and reticulation in the city. Lump sums will not be invited in respect of this rate. Council has set the targeted rate for water supply on the basis of the following factors:

· a charge per separately used or inhabited part of a rating unit which is connected to the water reticulation system and is not metered.

· a charge of 50% of the above charge per separately used or inhabited part of a rating unit that is not connected to, but is able to be connected to the water reticulation system.

· a charge per rating unit which is connected to the water reticulation system and contains more than one separately used or inhabited part, where a water meter has been installed to measure the total water consumed.

Provided that:

· rating units situated within 100 metres from any part of the water reticulation network are considered to be able to be connected (i.e. serviceable).

· rating units that are not connected to the system, and that are not able to be connected, will not be liable for this rate.

· where the owner of a rating unit with more than one separately used or inhabited part has installed a water meter to measure the total water consumed, the owner will be liable to pay for water consumed as measured by the meter as set out in Council’s Fees and Charges.

The charges for the 2019-20 rating year are as follows:

CATEGORY	CHARGE
Connected and unmetered	$448.50 per part
Serviceable but not Connected	$224.25 per part
Connected and metered	$448.50 per rating unit

b) Wastewater Rate

A targeted rate will be set to meet the net operating costs of wastewater collection, treatment and disposal within the city. Lump sums will not be invited in respect of this rate.

Council will set the targeted rate for the wastewater function on the basis of the following factors:

· a charge per rating unit or separately used or inhabited part of a rating unit for all rating units connected to the wastewater system

· for rating units in the business categories, an additional charge of 50% of the above charge for the second and each subsequent WC or urinal connected to the wastewater system.

Provided that:

· no charge is made to any rating unit not connected to the wastewater system.

The charges for the 2019-20 rating year are as follows:

CATEGORY

CHARGE

Connected – per rating unit or SUIP

$478.50 each

For commercial properties second and each subsequent WC or urinal per rating unit

$239.25 each

c) Recycling Charge

A targeted rate will be set to meet 100% of the costs of the recycling collection service from residential properties. Lump sums will not be invited in respect of this rate.

The targeted rate will be set as a fixed amount per separately used or inhabited part (SUIP) of each rating unit in the Residential differential category.

The charge for the 2019-20 rating year is as follows:

CATEGORY CHARGE
Rating units in the Residential category
$40.00

d) Jackson Street Programme Rate

A targeted rate, based on the capital value of each rating unit, will be set to raise revenue from rating units being operated as businesses and with a frontage to Jackson Street, Petone, between Hutt Road and Cuba Street. The revenue raised from this rate will be applied to meet the costs of the Jackson Street Programme, which is a community-based initiative to help reorganise and revitalise commercial activities in Jackson Street. Lump sums will not be invited in respect of this rate.

The charge for the 2019-20 rating year is as follows:

CATEGORY

CHARGE PER $ OF CAPITAL VALUE

PER RATING UNIT

Rating units in any business category having frontage to Jackson Street, Petone, between Hutt Road and Cuba Street

0.0008013 cents per $ of

Capital Value

e) General Rate

A general rate will be set:

· to meet the costs of Council activities, other than those detailed above

· based on the Capital Value of each rating unit in the city

· on a differential basis, based on the use to which the land is put.

DIFFERENTIAL RATING DETAILS

Each rating unit is allocated to a differential rating category (based on land use and location) for the purpose of calculating the general rate and some targeted rates. Set out below are the definitions used to allocate rating units to categories, together with details of the differential rating relationships between each category of rating unit for the purposes of setting and assessing the general rate. The relationships are calculated to produce, as near as is practicable, the correct proportion of general rate revenue from each group, as is indicated by Council’s Revenue and Financing Policy.

DEFINITION OF RATING CATEGORIES

CATEGORY	DESCRIPTION
Residential (RES)	All rating units in the city which are: · used primarily for residential purposes, excluding properties categorised as rural; · used or set aside for reserve or recreational purposes (other than East Harbour Regional Park).
Rural (RUR)	All rating units in the city which are: · used primarily for residential purposes, having an area in excess of 3,000 m2, but not connected to either water or sewerage reticulation; · East Harbour Regional Park; · not otherwise categorised in the Definition of Rating Categories table.
Business Accommodation (BUA)	All rating units in any part of the city which are used primarily for commercial accommodation.
Business Central (BUC)	All rating units which are located within the Central Area Parking District and which are used primarily or predominantly for commercial and/or industrial purposes, excluding properties categorised as: · Utility Networks; · Business Accommodation.
Business Suburban (BUS)	All rating units in any part of the city which are used primarily or predominantly for commercial and/or industrial purposes, excluding properties categorised as: · Community Facilities; · Business Central; · Utility Networks; · Business Accommodation.
Utility Networks (UTN)	All rating units which comprise all or part of a utility network.
Community Facilities 1 (CF1)	All land in the city which is: · non-rateable in terms of the Local Government (Rating) Act 2002, Schedule 1, Part 1; · 50% non-rateable in terms of the Local Government (Rating) Act 2002, Schedule 1, Part 2.
Community Facilities 2 (CF2)	All rating units in the city occupied by charitable trusts and not-for-profit organisations which either: · use the land for non-trading purposes for the benefit of the community; · would qualify as land which is 50% non-rateable in accordance with Part 2 of Schedule 1 of the Local Government (Rating) Act 2002 if the organisation did not have a liquor license, but excluding any rating unit used for residential purposes.
Community Facilities 3 (CF3)	All rating units in the city occupied by not-for-profit community groups or organisations whose primary purpose is to address the needs of adult members for entertainment or social interaction, and which engage in recreational, sporting, welfare or community services as a secondary purpose.

For the purposes of these definitions:

· rating units which have no apparent land use (or where there is doubt as to the relevant use) will be placed in a category which best suits the activity area of the property under the District Plan;

· rating units which have more than one use (or where there is doubt as to the relevant primary use) will be placed in the category with the highest differential factor;

· Central Area Parking District is as defined in the District Plan – City of Lower Hutt.

For the avoidance of doubt, “commercial purposes” includes rating units used:

· as a hotel, motel, inn, hostel or boarding house

· primarily as licensed premises

· as a camping ground

· as a convalescent home, nursing home, rest home or hospice operating for profit

· as a fire station

· by a government, quasi-government or local authority agency for administration or operational purposes

· as an establishment similar to any of the kinds referred to above, except to the extent that any such rating unit is non-rateable land in terms of the Local Government (Rating) Act 2002.

A “utility network” includes:

· a gas, petroleum or geothermal energy distribution system

· an electricity distribution system

· a telecommunications or radio communications system

· a wastewater, storm water or water supply reticulation system.

“Commercial accommodation” means the provision of accommodation for more than five persons (with or without any care, medical or other treatment or services) in the course of business, and to that extent includes:

· a hotel, motel, inn, hostel or boarding house

· any licensed premises where the provision of accommodation is the primary use

· a camping ground

· a convalescent home, nursing home, rest home or hospice operating for profit.

Subject to the right of objection set out in section 29 of the Local Government (Rating) Act 2002, it shall be at the sole discretion of Council to determine the use or primary use of any rating unit in the city.

The differential categories and charges for the 2019-20 year are as follows:

CATEGORY	DIFFERENTIAL	CHARGE PER $ OF CAPITAL VALUE PER RATING UNIT
Residential (RES)	1.00	0.31713 cents
Rural (RUR)	0.75	0.23785 cents
Business Accommodation (BUA)	2.51	0.79599 cents
Business Central (BUC)	2.72	0.86258 cents
Business Suburban (BUS)	2.63	0.83404 cents
Utility Networks (UTN)	2.36	0.74842 cents
Community Facilities 1 (CF1)	1.00	0.31713 cents
Community Facilities 2 (CF2)	0.50	0.15856 cents
Community Facilities 3 (CF3)	2.36	0.74842 cents

Relationships of Differential Categories

The rate in the dollar set and assessed in respect of each specified category of rating units shall vary from the rate in the dollar in respect of any other specified category of property as set out below. Council has amended the differential factors used in 2011/12 and 2012/13 and these were introduced over a 10 year period that commenced in 2012 - 2013.

For 2017/18, Council agreed to freeze the differential transition for one year and extend the transition period by a year, to reduce the rates impact on residential ratepayers caused by the significant increase in residential property values following the three yearly revaluation of properties (for rating purposes), in October 2016.

The differential policy was reviewed by Councillors during the preparation of the 2018 - 2028 Long Term Plan. Council decided to continue with the differential transition plan from 1 July 2018 so that from 1 July 2022 the business rate would be no more than 2.29 times (previously 2.3 times) greater than the general rate of a residential property of the same value.

CATEGORY	DIFFER-ENTIAL FACTOR	TRANSITION OVER 11 YEARS (ORIGINALLY 10 YEARS)										DIFFERENTIAL FACTOR AFTER 11 YEARS
CATEGORY	2011/12	2012/13	2013/14	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20	2020/21	2021/22	2022/23
Residential (RES)	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00
Rural (RUR)	0.65	0.67	0.68	0.70	0.71	0.73	0.73	0.74	0.75	0.76	0.77	0.80
Business Accommodation (BUA)	3.00	2.93	2.86	2.79	2.72	2.65	2.65	2.58	2.51	2.44	2.37	2.29
Business Central (BUC)	3.70	3.56	3.42	3.28	3.14	3.00	3.00	2.86	2.72	2.58	2.44	2.29
Business Suburban (BUS)	3.40	3.29	3.18	3.07	2.96	2.85	2.85	2.74	2.63	2.52	2.41	2.29
Utility Networks (UTN)	2.50	2.48	2.46	2.44	2.42	2.40	2.40	2.38	2.36	2.34	2.32	2.29
Community Facilities 1 (CF1)	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00
Community Facilities 2 (CF2)	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50	0.50
Community Facilities 3 (CF3)	2.50	2.48	2.46	2.44	2.42	2.40	2.40	2.38	2.36	2.34	2.32	2.29

257 27 June 2019

Hutt City Council

17 June 2019

File: (19/784)

Report no: HCC2019/3/122

Setting Rates for the Year Ending 30 June 2020

Purpose of Report

1. The report requests that Council set the rates for the year ending 30 June 2020.

Recommendations

That Council resolves to set the rates and add penalties to unpaid rates during the 2019-2020 rating year by passing the resolution attached as Appendix 1 to the report.

Background

2. At its meeting on 11 June 2019, the Community Plan Committee considered the Budget Changes for the Annual Plan 2019-2020 (Report CPC2019/2/588). These final budget changes were approved by Council and have been incorporated into the final Annual Plan 2019-2020 budgets and rates calculations.

3. Subject to Council first adopting the Annual Plan 2019-2020 at its meeting on 27 June 2019, Council can move to set the rates for the 2019-2020 rating year in accordance with the relevant provisions of the Funding Impact Statement Including Rates for 2019-2020, as included as Appendix 2 to this report.

Discussion

4. Council has a relatively simple rating system, that mainly includes a general rate (based on the capital value of a property), and targeted rates for water supply, wastewater, recycling and the Jackson Street Programme, (all based on a fixed charge per property), known as a rating unit. Further details are provided in Appendix 2 to this report, being the updated Funding Impact Statement Including Rates for 2019-2020.

5. Council’s Financial Strategy limits the maximum increase in the rates revenue to actual LGCI after allowing for estimated growth of 1%. The 2019-2020 budget included a total rates revenue increase of 2.8%, consisting of an estimated 1.8% rates increase for existing ratepayers (based on actual LGCI for the year ending 30 June 2018), and a further estimated 1% rates revenue increase expected to be received from growth, as a result of new builds and property investment. At the time of writing this report, actual growth in the city’s rating base since 1 July 2018 was 0.8%. Council will therefore set a total rates revenue of $128.4M (including GST) for 2019-2020, being an average increase of 2.6% from 2019-2020 and comprising 1.8% rates increase for existing ratepayers and a further 0.8% rates increase from growth.

6. When compared to budget, the lower growth rates and rates requirement may potentially result in a shortfall of $220,000 against the 2019-2020 budget. There will be some additional growth in the city’s rateable property that will be realised between setting the rates and assessing and invoicing the first rates instalment in July 2019 (backdated to 30 June 2019). It is unlikely that the full shortfall of $220,000 will be recovered. Officers will look to offset the shortfall in rates revenue during 2019-2020 through other mechanisms such as achieving expenditure savings.

7. Table 1: Comparison of planned and final rates revenue increase

	Planned	Final	Variance
Overall rates revenue increase	2.8%	2.6%	0.2%
Spread across existing rating base	1.8%	1.8%	-
From growth in the rating base (new builds, property investment)	1.0%	0.8%	0.2%

8. Based on Annual Plan 2019-2020 budgets, the changes in average property rates for 2019-2020 against 2018-2019 levels, including GST but excluding Greater Wellington Regional Council (GWRC) rates, are summarised in table 1 that follows.

Table 2: Rates samples – impact on rates for 2019-2020 (including GST)

Property Category	Capital Value $	1 July 2018 Rates $	1 July 2019 Rates $	$ Change Amount Annual	$ Change Amount Weekly	Change Amount %
Average Residential	$476,000	$2,393	$2,476	$83.72	$1.60	3.5%
Average Business Central	$1,310,628	$12,702	$12,471	($230.62)	($4.44)	(1.8%)
Average Business Suburban	$1,203,078	$11,305	$11,200	($104.70)	($2.01)	(0.9%)
Average Business Accommodation	$2,279,028	$21,633	$21,699	$66.54	$1.28	0.3%
Average Rural (No Services)	$643,147	$1,471	$1,530	$58.66	$1.13	4.0%
Utilities	$2,370,000	$17,435	$17,738	$302.86	$5.82	1.7%

9. Table 2 that follows summarises the key component of the rates increase for an average residential property valued at $476,000. Further explanation about the reasons for the increases follows thereafter.

Table 2: Increase in rates for an average residential property, excluding GWRC rates

	Average residential property rates increase $	Average Change %
Increase in general rates	$38.22	2.6%
Increase in water targeted rate	$35.50	8.6%
Increase in wastewater targeted rate	$10.00	2.1%
No change to recycling targeted rate	-	-
Total overall rates increase for average value residential property	$83.72	3.5%

Water Supply Targeted Rate

10. The increase to the overall water supply targeted rate is 8.6%, being a $35.50 increase (from $413 in 2018-2019 per separately used or inhabited part of a rating unit to $448.50 in 2019-2020);

11. The water supply targeted rate is a fixed charge applied to each rating unit or separately used or inhabited part of a rating unit. Any property, regardless of its rateable value, pays the same fixed rates before the general rate in the dollar is applied to the property’s rateable value.

12. The main reasons for increasing the water supply targeted rate relates to an increase in the GWRC Bulk Water Levy to fund GWRC’s capital programme which has an increased focus (and investment) on water quality and resilience, plus an increase in the use of water by Hutt City relative to the other cities in the region (as previously discussed with Council).

Wastewater Targeted Rate

13. The increase to the overall wastewater targeted rate is 2.13%, being a $10.00 increase (from $468.50 for first WC or urinal rating unit to $478.50).

14. The wastewater targeted rate is a fixed charge applied to a rating unit’s water closet or urinal. As above, any property, regardless of its rateable value, pays fixed rates before the general rate in the dollar is applied to the property’s rateable value.

15. The main reason for increasing the wastewater targeted rate is to fully fund increased wastewater collection, treatment and disposal costs.

General Rate Differential

16. The general rate is a rate in the dollar levied against the rateable value of each property. To continue addressing affordability, it was agreed through the LTP 2018-2028 process to continue to shift the general rates burden from business to residential sectors gradually each year such that the business differential is 2.29 times higher than the residential sector in 2022-2023.

17. The general rate differential for the “business central property sector” was 2.86 times greater than the residential property sector in 2018-2019 and is being reduced to 2.72 times greater in 2019-2020. This results in a higher rates burden on the residential property sector as a result.

18. For 2019-2020, the total general rates revenue requirement is $87.5M inclusive of GST (2018-2019: $85.85M). The total increase in the general rate revenue requirement of $1.65M in 2019-2020 is largely due to inflation (LGCI).

19. The charts below show the total general rate revenue, broken down by sectors, for both 2018-2019 and 2019-2020. As can be seen, residential general rates make up 63% of total general rates revenue in 2019-2020, compared to 62% in 2018-2019.

20. The 2019-2020 rates increases ( including GST but excluding GWRC rates) for average residential properties in each suburb are summarised below:

Residential Suburbs	Capital Value	2018-2019 Rates	2019-2020 Rates	$ Change Annual	$ Change Weekly
ALICETOWN	$560,000	$2,652	$2,743	$91	$1.75
AVALON	$450,000	$2,312	$2,394	$82	$1.58
BELMONT	$510,000	$2,498	$2,584	$86	$1.65
BOULCOTT	$550,000	$2,621	$2,711	$90	$1.73
EASTBOURNE	$700,000	$3,085	$3,187	$102	$1.96
EPUNI	$510,000	$2,498	$2,584	$86	$1.65
FAIRFIELD	$490,000	$2,435	$2,521	$86	$1.65
HARBOUR VIEW	$550,000	$2,621	$2,711	$90	$1.73
HAYWARDS	$325,000	$1,926	$1,997	$71	$1.37
HUTT CENTRAL	$670,000	$2,992	$3,091	$99	$1.90
KOROKORO	$550,000	$2,621	$2,711	$90	$1.73
MAUNGARAKI	$550,000	$2,621	$2,711	$90	$1.73
MELLING	$440,000	$2,281	$2,362	$81	$1.56
MOERA	$425,000	$2,235	$2,315	$80	$1.54
NAENAE	$325,000	$1,926	$1,997	$71	$1.37
NORMANDALE	$510,000	$2,498	$2,584	$86	$1.65
PETONE	$610,000	$2,807	$2,901	$94	$1.81
STOKES VALLEY	$340,000	$1,972	$2,045	$73	$1.40
TAITA	$325,000	$1,926	$1,997	$71	$1.37
WAINUIOMATA	$285,000	$1,802	$1,871	$69	$1.33
WAIWHETU	$470,000	$2,374	$2,457	$83	$1.60
WATERLOO	$540,000	$2,590	$2,679	$89	$1.71
WOBURN	$730,000	$3,178	$3,282	$104	$2.00

Consultation

21. Public consultation on Council’s rating system was included in the 2018-2028 Long Term Plan Consultation Document. A decision was made not to consult on the Annual Plan 2019-2020 (year 2 of the LTP) as there were no significant changes proposed.

Legal Considerations

22. The rates are to be set in accordance with the Local Government (Rating) Act 2002, the requirements of which include the following:

a. after setting the rates, sending each ratepayer:

i. an assessment showing full details of rates on each rating unit, including how each rate is calculated and what activities are funded by the rate.

ii. a brief description of Council’s rates remission and postponement policies.

b. sending a copy of the resolution setting the rates to the Secretary of Local Government within 20 working days of it being passed.

23. As in previous years, the rating resolution (Appendix 1 to the report), includes authority to charge late payment penalties of 10 per cent on rates instalments not paid by the due date. In addition it also provides for additional 10 per cent penalties to be charged each six months on rates remaining outstanding from previous years.

Financial Considerations

24. There are no financial considerations in addition to those already outlined in this report.

Appendices

No.	Title	Page
1 ⇩	Rates Resolution	258
2 ⇩	Funding Impact Statements including rates for 2019-2020	260

Author: Jenny Livschitz

Chief Financial Officer

Author: Helen Stringer

Rates and Receiveables Team Leader

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Matt Reid

Acting Chief Executive/General Manager City and Community Services

Attachment 2

Funding Impact Statements including rates for 2019-2020

FUNDING IMPACT STATEMENTS INCLUDING RATES FOR 2019-2020

SUMMARY OF FUNDING MECHANISMS AND INDICATION OF LEVEL OF FUNDS TO BE PRODUCED BY EACH MECHANISM

UNIFORM ANNUAL GENERAL CHARGE (UAGC)

Council has not set a UAGC for 2019-2020.

DEFINITION OF SEPARATELY USED OR INHABITED PART (SUIP)

For the purposes of any targeted rate set as a fixed amount per SUIP of a rating unit, a SUIP is defined as:

· any part of the rating unit separately used or inhabited by the owner or any other person who has the right to use or inhabit that part by virtue of a tenancy, lease, license or other agreement.

For the avoidance of doubt, a rating unit that has only one use (i.e. it does not have separate parts or is vacant land) is treated as being one SUIP of a rating unit.

RATES FOR YEAR

For the 2019-2020 year, and for subsequent years, the Council will set the following rates:

a) Water Supply Rate

· a charge per separately used or inhabited part of a rating unit which is connected to the water reticulation system and is not metered.

· a charge of 50% of the above charge per separately used or inhabited part of a rating unit that is not connected to, but is able to be connected to the water reticulation system.

Provided that:

· rating units situated within 100 metres from any part of the water reticulation network are considered to be able to be connected (i.e. serviceable).

· rating units that are not connected to the system, and that are not able to be connected, will not be liable for this rate.

The charges for the 2019-20 rating year are as follows:

CATEGORY	CHARGE
Connected and unmetered	$448.50 per part
Serviceable but not Connected	$224.25 per part
Connected and metered	$448.50 per rating unit

b) Wastewater Rate

A targeted rate will be set to meet the net operating costs of wastewater collection, treatment and disposal within the city. Lump sums will not be invited in respect of this rate.

Council will set the targeted rate for the wastewater function on the basis of the following factors:

· a charge per rating unit or separately used or inhabited part of a rating unit for all rating units connected to the wastewater system·

· for rating units in the business categories, an additional charge of 50% of the above charge for the second and each subsequent WC or urinal connected to the wastewater system.

Provided that:

· no charge is made to any rating unit not connected to the wastewater system.· .

The charges for the 2019-20 rating year are as follows:

CATEGORY

CHARGE

Connected – per rating unit or SUIP

$478.50 each

For commercial properties second and each subsequent WC or urinal per rating unit

$239.25 each

c) Recycling Charge

A targeted rate will be set to meet 100% of the costs of the recycling collection service from residential properties. Lump sums will not be invited in respect of this rate.

The targeted rate will be set as a fixed amount per separately used or inhabited part (SUIP) of each rating unit in the Residential differential category.

The charge for the 2019-20 rating year is as follows:

CATEGORY CHARGE
Rating units in the Residential category
$40.00

d) Jackson Street Programme Rate

The charge for the 2019-20 rating year is as follows:

CATEGORY

CHARGE PER $ OF CAPITAL VALUE

PER RATING UNIT

Rating units in any business category having frontage to Jackson Street, Petone, between Hutt Road and Cuba Street

0.0008013 cents per $ of

Capital Value

e) General Rate

A general rate will be set:

· to meet the costs of Council activities, other than those detailed above

· based on the Capital Value of each rating unit in the city

· on a differential basis, based on the use to which the land is put.

DIFFERENTIAL RATING DETAILS

DEFINITION OF RATING CATEGORIES

CATEGORY	DESCRIPTION
Residential (RES)	All rating units in the city which are: · used primarily for residential purposes, excluding properties categorised as rural; · used or set aside for reserve or recreational purposes (other than East Harbour Regional Park).
Rural (RUR)	All rating units in the city which are: · used primarily for residential purposes, having an area in excess of 3,000 m2, but not connected to either water or sewerage reticulation; · East Harbour Regional Park; · not otherwise categorised in the Definition of Rating Categories table.
Business Accommodation (BUA)	All rating units in any part of the city which are used primarily for commercial accommodation.
Business Central (BUC)	All rating units which are located within the Central Area Parking District and which are used primarily or predominantly for commercial and/or industrial purposes, excluding properties categorised as: · Utility Networks; · Business Accommodation.
Business Suburban (BUS)	All rating units in any part of the city which are used primarily or predominantly for commercial and/or industrial purposes, excluding properties categorised as: · Community Facilities; · Business Central; · Utility Networks; · Business Accommodation.
Utility Networks (UTN)	All rating units which comprise all or part of a utility network.
Community Facilities 1 (CF1)	All land in the city which is: · non-rateable in terms of the Local Government (Rating) Act 2002, Schedule 1, Part 1; · 50% non-rateable in terms of the Local Government (Rating) Act 2002, Schedule 1, Part 2.
Community Facilities 2 (CF2)	All rating units in the city occupied by charitable trusts and not-for-profit organisations which either: · use the land for non-trading purposes for the benefit of the community; · would qualify as land which is 50% non-rateable in accordance with Part 2 of Schedule 1 of the Local Government (Rating) Act 2002 if the organisation did not have a liquor license, but excluding any rating unit used for residential purposes.
Community Facilities 3 (CF3)	All rating units in the city occupied by not-for-profit community groups or organisations whose primary purpose is to address the needs of adult members for entertainment or social interaction, and which engage in recreational, sporting, welfare or community services as a secondary purpose.

For the purposes of these definitions:

· rating units which have more than one use (or where there is doubt as to the relevant primary use) will be placed in the category with the highest differential factor;

· Central Area Parking District is as defined in the District Plan – City of Lower Hutt.

For the avoidance of doubt, “commercial purposes” includes rating units used:

· as a hotel, motel, inn, hostel or boarding house

· primarily as licensed premises

· as a camping ground

· as a convalescent home, nursing home, rest home or hospice operating for profit

· as a fire station

· by a government, quasi-government or local authority agency for administration or operational purposes

· as an establishment similar to any of the kinds referred to above, except to the extent that any such rating unit is non-rateable land in terms of the Local Government (Rating) Act 2002.

A “utility network” includes:

· a gas, petroleum or geothermal energy distribution system

· an electricity distribution system

· a telecommunications or radio communications system

· a wastewater, storm water or water supply reticulation system.

· a hotel, motel, inn, hostel or boarding house

· any licensed premises where the provision of accommodation is the primary use

· a camping ground

· a convalescent home, nursing home, rest home or hospice operating for profit.

The differential categories and charges for the 2019-20 year are as follows:

CATEGORY	DIFFERENTIAL	CHARGE PER $ OF CAPITAL VALUE PER RATING UNIT
Residential (RES)	1.00	0.31713 cents
Rural (RUR)	0.75	0.23785 cents
Business Accommodation (BUA)	2.51	0.79599 cents
Business Central (BUC)	2.72	0.86258 cents
Business Suburban (BUS)	2.63	0.83404 cents
Utility Networks (UTN)	2.36	0.74842 cents
Community Facilities 1 (CF1)	1.00	0.31713 cents
Community Facilities 2 (CF2)	0.50	0.15856 cents
Community Facilities 3 (CF3)	2.36	0.74842 cents

Relationships of Differential Categories

CATEGORY	DIFFER-ENTIAL FACTOR	TRANSITION OVER 11 YEARS (ORIGINALLY 10 YEARS)										DIFFERENTIAL FACTOR AFTER 11 YEARS
CATEGORY	2011/12	2012/13	2013/14	2014/15	2015/16	2016/17	2017/18	2018/19	2019/20	2020/21	2021/22	2022/23
Residential (RES)	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00	1.00
Rural (RUR)	0.65	0.67	0.68	0.70	0.71	0.73	0.73	0.74	0.75	0.76	0.77	0.80
Business Accommodation (BUA)	3.00	2.93	2.86	2.79	2.72	2.65	2.65	2.58	2.51	2.44	2.37	2.29
Business Central (BUC)	3.70	3.56	3.42	3.28	3.14	3.00	3.00	2.86	2.72	2.58	2.44	2.29
Business Suburban (BUS)	3.40	3.29	3.18	3.07	2.96	2.85	2.85	2.74	2.63	2.52	2.41	2.29
Utility Networks (UTN)	2.50

Mayor W R Wallace (Chair)
Deputy Mayor D Bassett
Cr G Barratt	Cr C Barry
Cr L Bridson	Cr J Briggs
Cr M Cousins	Cr S Edwards
Cr T Lewis	Cr M Lulich
Cr G McDonald	Cr C Milne
Cr L Sutton

No.	Title	Page
1 ⇩	Mayor and CE message	22
2 ⇩	Annual Plan 2019-2020 non financial content	24
3 ⇩	Financial tables for Activity sections	143
4 ⇩	Financial Strategy	181
5 ⇩	Financial Summary	194
6 ⇩	Forecast Financial Statements	197
7 ⇩	Notes to the Financial Statements	207
8 ⇩	Prudence Reporting	232
9 ⇩	Funding Impact Statements including rates 2019-2020	239

LIMITS	MEASURE	TARGET	2019-20	2020-21	2021-22	2022-23	Years 5-10
Overall operating result	Surplus each year	Budgeted surplus
Limits on revenue	Increase in rates revenue	Maximum annual rates income increase (%)	No more than (Local Government Cost Index) LGCI after allowing for estimated average growth of 1%*
		Maximum rates income ($ millions)**	$108.07	$111.85	$115.76	$120.05	$806.84
Limits on borrowing	Net interest to revenue	Below 10%
	Net debt maxima	Years 1-3 : less than 150% of total revenue
		Years 4-6 : less than 130% of total revenue
		Years 7-12 : less than 110% of total revenue
		Years 13+ : less than 90% of total revenue
		Net debt can be increased to a maximum of 170% of total revenue at any time, only provided that this is due to a significant natural disaster.

DIFFERENTIAL GROUP	TOTAL RATES BY CATEGORY 2019-2020 $000 GST INCLUSIVE	PROPORTION OF TOTAL RATES
Residential	91,396	71.2%
Rural	805	0.6%
Utility Networks	4,611	3.6%
Business:
Accommodation	855	0.7%
Central	7,113	5.5%
Suburban	22,209	17.3%
Community Facilities:
1	990	0.8%
2	254	0.2%
3	164	0.1%
Total Rates Set	128,397	100%

RATE	AMOUNT (INCLUSIVE OF GST) $000	AMOUNT (EXCLUSIVE OF GST) $000
General Rate	87,534	76,116
Targeted Rates:
Water Supply	18,369	15,973
Wastewater	20,945	18,213
Jackson Street	157	137
Recycling	1,538	1,337
Total Rate Revenue	128,543	111,776

Power to (being a power that is not capable of being delegated)[1]:

Decide on:

Policy issues

District Plan

Representation, electoral and governance matters

Delegations and employment of the Chief Executive

Meetings and committees

Operational matters

Appoint:

Instalment Number	Due Date
One	20 August 2019
Two	21 October 2019
Three	20 December 2019
Four	20 February 2020
Five	20 April 2020
Six	22 June 2020

CATEGORY	CHARGE
Only rating units in the Residential category receiving or able to use the recycling collection service	$40.00 per separately used or inhabited part of each rating unit

Instalment Number	Due Date
One	20 August 2019
Two	21 October 2019
Three	20 December 2019
Four	20 February 2020
Five	20 April 2020
Six	22 June 2020