Agenda of Long Term Plan/Annual Plan Subcommittee

PART 1: WE WANT YOUR FEEDBACK:

In 2018, Council produced its 2018-2028 Long Term Plan (LTP). The next Long Term Plan will be in 2021. As well as the LTP, we have an Annual Plan which sets out what we do each year.

As far as possible, we try not to change the LTP but there are some challenges we need to address right now. They can’t wait and that’s why we’re proposing an amendment to the current LTP. These issues are:

· Recycling and rubbish collection: environmentally this is one of our biggest issues. Our community is telling us Council has to get better at collecting rubbish, minimising what is sent to our landfill and how we recycle.

· Naenae Pool and fitness centre: in April 2019, seismic issues forced the closure of Naenae Pool. People across Lower Hutt told Council they would like a new pool and fitness centre, and also for the Naenae town centre to be reinvigorated.

· Rates: our community is letting us know that how rates are spread between different property categories and rate payers must be fair and equitable. The message is good financial management and long term sustainability must underpin everything we do.

· Council must produce a balanced budget and keep in mind both the costs and benefits for all rate payers.

Between 6 April and 3 May, we want your feedback on how best to resolve issues around:

1. Recycling and rubbish collection

2. Naenae Pool and town centre

3. Rates charges and financial sustainability

· The next few pages examines these issues in more depth, provides options on how we could address these, and outlines the effect on rates and our city’s debt levels, and invites your views on what we’re proposing.

1. Recycling and rubbish collection

Background:

Every year, on average every person in the Wellington region sends more than 600kg of rubbish to landfill. We need to get better at reducing, re-using, reprocessing, and recycling, and we need to rethink how we collect rubbish.

Council is proposing significant change to how kerbside collection operates in our city.

Council currently provides a weekly recycling collection service and there are five community recycling stations across Lower Hutt.

For rubbish, households can choose to use Council’s official rubbish bags or pay a private company.

As well, Lower Hutt has a problem with people illegally dumping rubbish, indicating many households are unable or unwilling to use either of the current ‘user pays’ rubbish collection systems.

Council would like to see:

Our preferred proposal is that Council moves to a new recycling collection model involving large bins, funded by rates. For rubbish collection, Council proposes to discontinue its rubbish bag collection service, but wants to hear from the community on its preferred approach involving bins.

A Council-contracted kerbside recycling and rubbish collection service would be introduced in July 2021.

Council wants the city to have a rubbish and recycling service that:

· is cost-effective

· is safe

· reduces greenhouse gases and carbon emissions

· customers want and can use appropriately

· reduces waste and protects the environment.

What’s wrong with what we have now?

Recycling

Rubbish

Recycling crates are too small, requiring community recycling stations to take the overflow. Recycling at stations is often contaminated by illegal dumping, which is costly to remove.

Litter is often sent flying on windy days; it can get into our stormwater systems and lead to ocean and beach pollution.

It is not a full cost service. Users are expected to pay for their own crates and nets.

There are many health and safety risks for the people who collect rubbish bags.

Increasing costs of bags could lead to more illegal rubbish dumping.

Bags are prone to ‘animal strike’, e.g. damage from rats, dogs, and cats

The market is increasingly moving towards alternative collection models with bins. $4,522,000

We’ve worked with other Councils and rubbish and recycling experts and come up with these options as a way forward:

Option 1: Council provides: · a recycling collection service, and · a weekly rubbish bin collection service.
Recycling		Rubbish	Total Cost
	Households would receive: - a 240-litre wheelie bin for mixed recycling, and - a 45-litre crate for glass - both collected fortnightly.	Households would receive: - a 120-litre wheelie bin collected weekly. NOTE: Households could choose a smaller or larger bin to match their needs, with associated costs reflecting the smaller or larger bin size.	Total average cost for both recycling and rubbish collection:
Estimated Cost	$69 per property/year	$144 per property/year	$213 per property/year

Option 1 up close:

· all costs recovered through rates

· impact on Council rates per year estimated at $2,164,000 for the recycling service (currently $1,300,000), and $4,522,000 for the rubbish collection service (currently $0)

· recycling litter and capacity concerns addressed

· no more Council rubbish bags would end health and safety and 'animal strike' issues

· more cost effective for households currently using a private rubbish bin service

· potential to reduce incentives to illegally dump household rubbish.

· But, could cost more for those who create very little waste, e.g. those who use one rubbish bag or less per week every week.

Option 2: Council provides: · a recycling collection service, and · a fortnightly rubbish bin collection service.
Recycling		Rubbish	Total Cost
Households would receive: · a 240-litre wheelie bin for mixed recycling, and · a 45-litre crate for glass · both collected fortnightly.		Households would receive: · a 240-litre wheelie bin collected fortnightly. NOTE: Households could choose a smaller or larger bin to match their needs, with associated costs reflecting the smaller or larger bin size.	Total average cost for both recycling and rubbish collection:
Estimated Cost	$69 per property/year	$115 per property/year	$184 per property/year

Option 2 up close:

· all costs recovered through rates

· impact on Council rates per year estimated at $2,164,000 for the recycling service (currently $1,300,000) and $3,456,000 for the rubbish collection service (currently $0)

· recycling litter and capacity concerns addressed

· no more Council rubbish bags would end health and safety and 'animal strike' issues

· this option will mean less cost for those currently using a private bin collection service and also many of those that currently use rubbish bags

· reduces incentives to illegally dump household rubbish

· reduces the number of rubbish vehicles on the roads and is kinder to the environment

· But, some maybe concerned that fortnightly collections could lead to odour concerns.

Option 3: Council provides: · only a recycling collection service. · Council would no longer offer a rubbish collection service.
Recycling		Rubbish	Total Cost
Households would receive: · a 240-litre wheelie bin for mixed recycling, and · a 45-litre crate for glass · both collected fortnightly.		NOTE: Instead of Council providing a rubbish collection service, households would pay a private rubbish bin service provider.	Total average cost for both recycling and rubbish collection:
Estimated Cost	$69 per property/year	$285 per property/year* private sector costs vary – estimated value as at May 2019*	$354 per property/year

Option 3 up close:

· only the costs for the recycling service recovered through rates

· impact on Council rates per year estimated at $2,164,000 (currently $1,300,000)

· no rates impact regarding rubbish collection, as households would engage their own provider

· recycling concerns around litter and capacity resolved

· no more Council rubbish bags would end health and safety and 'animal strike' issues.

But,

· costs would rise for most households

· costs would increase for the majority of those that use rubbish bags

· more household rubbish could be illegally dumped.

Option 4: Council provides: · a recycling collection service, and · a ‘pay-as-you-throw ‘rubbish collection service.
Recycling		Rubbish	Total Cost
Households would receive: - a 240-litre wheelie bin for mixed recycling, and - - a 45-litre crate for glass - both collected fortnightly.		Households would be offered: - a pay-as-you-throw rubbish bin collection service, using a 120-litre bin. NOTE: Households would only pay when the bin content was collected. Actual costs to households would depend on how frequently the bin was emptied.	Total average cost for both recycling and rubbish collection:
Estimated Cost	$69 per property/year	$234 per property/year (if bin emptied weekly)	$303 per property/year

Option 4 close up:

· only recycling service costs recovered through rates

· total impact on Council rates per year estimated at $2,164,000 (currently $1,300,000)

· no rates impact for the ‘pay-as-you-throw rubbish service’

· costs paid directly by participating households to the selected service provider

· recycling concerns around litter and capacity resolved

· health and safety concerns with current rubbish bag collection resolved

· costs are similar for households currently using a private rubbish bin service

· cost effective for smaller households creating very little waste.

But

· recycling likely to be contaminated with household waste

· illegal dumping of household waste could continue.

Optional add-on: Council provides green waste collection service.

Council could provide households with a 240-litre green waste wheelie bin, collected every four weeks. Households would only pay for this service if they have opted-in. The green waste bin would only be available for garden waste, it would not be able to be used for any food waste.

Estimated $60 per household/year – optional cost added on to annual rates for that property.

All options:

Under all options, if feasible and cost-effective, the 45-litre crate for glass collection may be substituted with an 80-litre, ‘glass only’ bin.

For options 1, 2 and 4, bins would be fitted with latches to avoid content spilling out during windy days or when bins tip over.

How could this affect rates?

Proposed recycling changes

There is currently a targeted rate for recycling of $40 per property – this is estimated to increase to $69 per annum on the 1 July 2021/22.

Cost per year (including GST)
	2020/21	2021/22	2022/23	2023/24	2024/25 onwards
Impact on average residential property rates.	-	$29	$XX	$XX	$XX

How could Council’s finances be affected?

Net changes to budgets per year
	2020/21	2021/22	2022/23	2023/24	2024/25 onwards
Capital expenditure funded from debt	$XM Increase				-
Increased operational expenditure to be funded from targeted rate	$XM	$XM	$XM	$XM	$XM

*Figures include inflation, but exclude GST

Rubbish collection changes

How could this affect rates for the average residential property?

A proposed new targeted rate will be introduced for rubbish collection services for options 1 and 2, whilst options 3 and 4 would require households to pay for services directly to the service provider. The new targeted rate would be introduced from 1 July 2021. Estimated set up costs of $XM in 2020/21 would be funded from general rates.

Cost per year (including GST)
	2020/21	2021/22	2022/23	2023/24	2024/25 onwards
Option 1	-	$144	$XXX	$XXX	$XXX
Option 2	-	$115	$XXX	$XXX	$XXX
Option 3 and 4	-	-	-	-	-

How could Council’s finances be affected?

Net changes to budgets per year
	2020/21	2021/22	2022/23	2023/24	2024/25 onwards
Capital expenditure funded from debt – Options 1 and 2. Nil for options 3 and 4	$XM Increase				-
Net increased operational expenditure funded from targeted rate options 1	$XM	$XM	$XM	$XM	$XM
Net increased operational expenditure funded from targeted rate options 2	$XM	$XM	$XM	$XM	$XM
Net increased operational expenditure options 3 and 4	-	-	-	-	-

*Figures include inflation, but exclude GST

What’s the timeline if we change the recycling and rubbish system?

· April/May 2020 – Community feedback on service changes

· 30 June 2020 – Decisions on service changes have been made

· 1 July 2020-30 June 2021 – getting ready for the service change

· 1 July 2021: Service changes in place.

Have we got it right? Do you agree with our proposals for change? Thought of another option?

We want to hear from you before we make our decision. Go to page xx to have your say

2. Naenae Pool and fitness centre

Background:

Naenae Pool and fitness centre was a great asset for Lower Hutt. When it closed in April 2019 due to earthquake safety concerns there was a significant impact for Naenae residents, pool users from around the region (who made up two thirds of users) and local businesses who benefited from the foot traffic the pool generated.

During a three month long engagement with these groups and other Lower Hutt residents Council were told loud and clear that replacing the pool was critical. There was also support to develop a Spatial Plan ^{^[1]} to guide future development of Naenae town centre. A lively and functional centre would enable Naenae to contribute to a stronger Lower Hutt economy.

What is Council proposing?

1. to replace Naenae swimming pool and fitness centre as soon as possible, given the planning, designing, and economics of the project; and

2. develop a Spatial Plan for Naenae town centre so it can prosper and grow

Find out more:

There’s more detail about the proposed Naenae pool and fitness centre redevelopment on www. ADDLINK.

The cost of developing a Spatial Plan for Naenae and the cost of the any proposed redevelopment will be funded from existing Council budgets.

Funding the proposals:

· The estimated cost $54 million would be funded by borrowing; this would replace the $9 million of funding for Naenae Pool and fitness centre currently included in the 2018-2028 LTP.

· The increased operational costs, including demolition, would be funded in 2020/21 from a 1% rates increase.

· Funding of higher operational costs, including debt interest, would be covered by an estimated 0.5% rates increase in 2022/23 and 2024/25.

How could this affect rates?

Cost per year (including GST)
	2020/21	2021/22	2022/23	2023/24	2024/25 onwards
Impact on average residential property rates.	$25	$25	$37	$37	$50

How could Council’s finances be affected?

Net changes to budgets per year
	2020/21	2021/22	2022/23	2023/24	2024/25 onwards
Capital expenditure funded from debt	($9.2M) Reduction	$24.1M Increase	$24.6M Increase	$4.8M Increase	-
Net increased operational expenditure funded from rates	$1.5M	-	$0.2M	$1.8M	$1.8M

*Figures include inflation, but exclude GST

3. RATES CHARGES: what could a fair deal for all look like?

Background:

Residents and businesses pay a different proportion of our city’s overall rates.

Over the years Council has worked hard to make sure the amount residents, businesses, utilities, and people living in rural areas pay in rates are fair for all and that everyone benefits.

Rates are levied on how much a property is worth, as determined by Quotable Value Limited (QV) every three years.

AT A-GLANCE: What’s happening in 2020?

In 2019, Quotable Value figures showed that on average, between 2016-2019 Lower Hutt:

· residential property increased in value by 31.8%

· commercial property increased in value by 16.9%, and

· utilities increased in value by 12.8%.

In other words, over the last three year Lower Hutt property values increased substantially more than business and utility values – triggering an increase residential property rates.

Business versus residential rates:

Back in 2012, general business rates were almost four times the amount of residential properties of the same value.

That’s when Council began adjusting the share of general rates paid by businesses, residential and rural ratepayers. This adjustment is called the rates differential, and Council’s approach was to progress changes over a ten year period.

When the policy was set there was uncertainty about how the city would grow and our modelling has indicated a target of about 60% residential share of the general rate was planned.

Over time, there’s been a significant transfer of rates from the business sector to residents:

· residential property values have moved from 51% in 2010/11 to a 63% share in 2019/20 of general rates,

· business has moved from 44% in 2010/11 to a 31% share in 2019/20 of the general rates.

While this shift couldn’t have been anticipated back in 2011/12, the end result remains the same: the three yearly general revaluations have changed property values across different categories resulting in residents potentially picking up 65% of the overall rates bill in 2020/21which goes far beyond the intent of the original policy.

Graph 1: This graph shows the mix of low rates revenue is split between property rating groups

After 2019’s property revaluations, Council wants to ensure the amount of rates paid by our various ratepayer groups reflects the benefits they receive.

Full Review of Revenue and Financing Policy

A full review of Council’s Revenue and Financing Policy is planned for the 2021-2031 LTP which will include a review of the rating differentials

As an interim solution for 2020/21 there are three options to discuss.

Option 1: Do nothing

Continue with the differential transition adjustment to the share of general rates paid by businesses, residential and rural ratepayers.

But:

· homeowners would pay more and

· when Council made this decision they didn’t intend it to have the impact it is having now

Option 2: Freeze the differentials to be the same as 2019/20
In 2017/18 after 2016 residential property the same thing happened – residential property values rose higher than commercial property values. Council consulted the community about what to do and set a precedent by freezing the differential transition for a year.	The current situation is directly comparable to 2017/18 and one option would be to freeze the differential transition for a year.

Option 3:a holding position based on percentage splits

Keep the allocation of general rates at the same levels of percentage between all property rating groups as in 2019/20.

New differentials would need to be set for the 2020/2021 year.

This would keep the percentage amounts paid towards general rates on the same basis as the 2019/20 rating year, but would not continue with the direction of reducing the business differential.

But, because business capital values have been reducing since 2010 compared to residential values, it’s likely they have already achieved Council’s objectives.

How each option could affect average residential property rates?

Option	Rates 2019/20	Rates 2020/21	% Change	Amount per annum	Amount per week	Compare to option 1
Option 1: Do nothing	$2,477	$2,739	10.5% higher	$261	$5.02
Option 2 : Freeze the differentials	$2,477	$2,715	9.6% higher	$238	$4.58	$22 per annum lower
Option 3: Holding position based on percentage splits.	$2,477	$2,684	8.4% higher	$207	$3.98	$54 per annum lower

How each option could affect average central business rates?

Option	Rates 2019/20	Rates 2020/21	% Change	Amount per annum	Amount per week	Compare to option 1
Option 1: Do nothing	$13,074	$13,080	0.05% higher	$6	$0.12
Option 2 : Freeze the frame	$13,074	$13,554	45 higher	$480	$9.23	$474 per annum higher
Option 3: Stay level.	$13,074	$13,645	11%higher	$1,420	$27.31	$1,414 per annum higher

You can find further information about the rates impact at this link haveyoursay.huttcity.govt.nz

FINANCIAL SUSTAINABILITY

To be a thriving city we need good basic services provided where and when needed, investment in our assets for future generations and to support growth, to nurture our natural environment, work with our communities to be the best we can be, and focus our attention on climate change and a sustainable future.

Our role as a council is to ensure our city functions properly and that services are available to our community so that everyone who lives and works here has an opportunity to thrive. We need to build a resilient city that is prepared for climate change and has done everything it can to mitigate the worst impacts. We also need to harness the power of our businesses, research institutes and tertiary education institutes to drive innovation and to become a zero carbon technology driven hub for the region.

To meet all of these and other aspirations we need to have a financial strategy that allows council to invest now and into the future. Our current level of income is not enough to cover the basics and won’t be enough to ensure we can make the most of the opportunities available to us as a city.

Over the past decade there have been relatively small increases in rates charges compared to other councils across the region, with Hutt City Council approving rates revenue increases ranging between 1.7% to 3.7%. These figures included additional income from rates resulting from a growing city so the actual increase for ratepayers was lower. This has resulted in Lower Hutt’s rates being the lowest in the region and the second lowest average rates growth per capita in the country. While this approach has been welcome by ratepayers it has meant that a lot of things were put off to another day.

Within the resources we had available our focus was on fixing or rebuilding some community facilities so that, at a minimum, our communities that most needed them could have spaces and facilities they could be proud of. We also wanted to attract new businesses to our city and to encourage more building through more housing and commercial developments. Policies were put in place to encourage this growth and to do that we had to forgo income that we could have been receiving. These policies are no longer in place, but their financial effects will continue for a number of years.

All this has meant that maintenance and improvements to other assets and investment in other key areas was either deferred or not done at all. Investment in core infrastructure like water, seismic strengthening of pools and libraries, roads and footpaths and effective rubbish and recycling was not prioritised as highly as it should have been. This means we are now facing some big financial challenges and we need your feedback on what we need to do and how we’re going to pay for it.

Financial strategy

Ensuring long term financial sustainability is critical. Council must produce a balanced budget – that’s the law, it’s financially prudent and something we must do for ratepayers who trust us to maintain assets and invest for the future. While the 2018-2028 LTP had rates revenue increasing for inflation only we need to increase our rates revenue to a higher level than originally planned.

Projections show significant net operating deficits for most of the years out to 2030 as latest financial forecasts are not as favourable as originally anticipated. Drivers of this include unanticipated cost pressures such for Three Waters infrastructure, Naenae Pool, seismic strengthening of community facilities, District Plan review, digital investment, insurance costs and the Development Stimulus Package.

To maintain debt at a sustainable level we have set limits on the council’s borrowings in our financial strategy. Council net debt was $172 million as at 30 June 2019, whilst the value of assets was $1.5 billion. This debt level is a prudent level in comparison to our income at a 103 per cent ratio. Another way of looking at our debt position is by using the analogy of a household mortgage. Our position is equivalent to a household earning $75,000 a year and having a mortgage of under $78,000.

Our projected debt position in the 2018-2028 LTP was conservative, with debt ranging up to a maximum of 129 per cent of our annual income over ten years, and within the maximum level set of 150 per cent. With the proposed investment for the Naenae pool redevelopment, the limit of debt to revenue set in the LTP is exceeded. It is proposed that Council change the debt to revenue limit to a higher level of 180 per cent. The proposed new limit of 180 per cent is well within the limit of 250 per cent set by the Local Government Funding Agency from which we receive most of our funding. It is considered financially prudent and affordable, particularly given the proposed increase to rates revenue to fund the ongoing costs of the debt.

Right now interest rates are at the lowest they have been for some time. Not only does it make sense to review debt to revenue limits because of this, fairness to current and future ratepayers and prudent financial management demands it.

As a result we are seeking feedback on possible changes to Council’s financial strategy.

Rates revenue proposed changes

Debt limits proposed changes

Proposed overall rates revenue increase for 2020/21 of 7.9% together with further rates revenue of about 1% from growth in the city

Indicative increase for average residential property: $207 per annum or $3.98 per week

Includes $71 for Three Waters and $25 for Naenae Pool

Increase debt limits largely to enable funding of Naenae pool as well as other updates to capital investment, such as Three waters infrastructure.

Current debt to revenue ratio limit has a maximum of 150% in the first three years and reduces down to 90% in years 13 and beyond of the LTP.

Proposed change is to a limit of 180% across all years of the plan.

Graph: Indicative impact on average residential property

Further information of rates impact is available here (insert link)

While we are seeking your feedback on a rates increase we will focus on delivering our services in the most efficient manner and to ensure we get the best value from every dollar we collect. Our Chief Executive is leading a targeted savings programme with a goal of achieving operational savings of $1M in 2020/21. Ongoing efficiency initiatives include:

· improved business processes

· better use of technology

· better procurement and tendering processes.

· controlling the growth in our core operating expenditure.

PART 3: WHAT’S COMING UP: Page outlining challenges and costs on Council’s horizon e.g. Wellington Water’ climate change; combatting climate change; other.

Lower Hutt, like the rest of Aotearoa, is subject to a number of natural hazards such as coastal erosion, earthquakes, tsunami and flooding. These natural hazards all have different risks, and all have the potential to affect human health, infrastructure, property and the environment

We are beginning to tackle these challenges. For example we are currently mapping our city to identify areas prone to flooding and taking steps to mitigate this risk by increasing floor levels in new builds. We have declared a climate emergency and are required by law to achieve net zero carbon emissions by 2050. A lot of work and investment will be needed to address these environmental challenges. We need to plan to make our city’s infrastructure and land use resilient to these climate effects.

The three waters and the infrastructure needed to look after it properly, is fundamental to a functioning city and the well-being of its residents. Around 60% of the city's water infrastructure needs to be renewed in the next 30 years. On top of that, the city is expecting population to grow by 10-20% in that time. Due to the way our city has grown our water infrastructure is nearing the end of its useful life and is underperforming. Since our water systems were built, people's expectations about what's acceptable, such as allowing wastewater to enter the environment has changed. So has the climate which affects key environmental factors such as rainfall and sea levels. The data and research available to us now demonstrates that comprehensive planning and investment is needed. This is not an issue we can afford to defer. We don’t want to be in the same position as others, where water systems have failed or are failing, putting people and places at risk.

The past approach has made the most of the funding available to ensure the asset’s lifespan is extended as much as possible. The information shows we need to do more when it comes to our core infrastructure. We are signalling that a significant investment in underground water infrastructure to improve performance and support growth must be one of our top priorities. Now is the time to plan well for the future and make funding decisions that will give the city the most control over the circumstances it faces, rather than having the circumstance control the city.

PART 4: HOW YOU CAN HAVE YOUR SAY:

· complete the enclosed freepost questionnaire

· visit huttcity.govt.nz/haveyoursay and provide online feedback

· write to us or post your comments to:

o your local library

o Hutt City Council, 30 Laings Road, Lower Hutt

o Annual Plan, Freepost 100039, Private Bag 31912, Lower Hutt 5040.

We need your feedback by 3 May 2020.

If you want to meet with the Mayor and Councillors in person, there will be an opportunity for this on 16 and 17 May. Council will meet to make final decisions on 6 June 2020.

Feedback Form

Contact details panel to be added

QUESTIONNAIRE – give us your feedback between 6 April and 3 May:

Hutt City Council is facing a funding shortfall and between 6 April and 3 May, we want your feedback on how best to resolve issues around:

1. Recycling and rubbish collection

2. Naenae Pool and fitness centre

3. Rates charges and financial sustainability

55 11 February 2020

Long Term Plan/Annual Plan Subcommittee

23 December 2019

File: (19/1426)

Report no: LTPPS2020/2/3

Impact of General Revaluation 2019 and Rating Options for Consultation

Purpose of Report

1. The recent three yearly general revaluations have resulted in significant changes in property values across different categories. This will result in an overall increase in general rates for residential properties and decreases for commercial properties and utilities. Further to this, Council policy on rating differentials will exacerbate this impact.

2. The purpose of this report is for Council to decide on rating changes that could potentially be implemented and the related consultation to be progressed as part of the Draft Annual Plan 2020/21.

Recommendations

That the Subcommittee recommends that Council:

(i) notes that the overall Revenue and Financing Policy, including the differential factors, will be reviewed from a first principles approach as part of the 2021-2031 Long Term Plan process;

(ii) notes the significant changes between and within the different categories in the capital values in the 2019 rating revaluation;

(iii) notes the proposed options available in relation to rating differentials for 2020/21;

(iv) agrees that option 3 is the preferred option for 2020/21 and that consultation is progressed on this basis

Summary of option 3 proposal: to allocate the general rate using modified differentials in 2020/21, and to ensure the percentage of the 2020/21 general rates collected from each of the differential categories used in 2019/20 remains the same as the percentages of general rates collected in 2019/20;

(v) notes that option 3 requires an amendment to the current Revenue and Financing Policy when Council proposes to modify the current General rate differentials; and

(vi) notes that this consultation matter will be included in a Statement of Proposal to amend the 2018-2028 Long Term Plan and will be audited ahead of the next meeting of the Long Term Plan/Annual Plan Subcommittee on 18 March 2020.

Acronyms:

DAP – Draft Annual Plan 2020/21

LTP – Long Term Plan 2018-2028

Executive summary and key messages

- The 2019 three yearly revaluation in Lower Hutt has seen residential property values increase substantially more than business values:

o residential property increased by 31.8%

o commercial property increased by 16.9%.

- In 2012, general business rates were almost four times the amount of residential rates. Council began a process to reduce the share of rates paid by businesses over a 10 year period - a transition differential. Our modelling has indicated a target of about a 60% residential share was intended.

- Since 2012 there has been a significant transfer of rates from the business sector to residents:

o business has moved from a 44% share in the general rates in 2010/11 to a 31% share in 2019/20.

o residential property has moved from a 51% share of general rates in 2010/11 to a 63% share in 2019/20, ie, the target of 60% has been achieved sooner than originally anticipated.

- The 2019 revaluations have changed property values across different categories resulting in residents potentially picking up 65% of the overall rates bill in 2020/21 – this goes far beyond the intent of the original policy.

- The next Long Term Plan 2021-2031 will include a full review of the Revenue and Financing Policy, which includes the rating differentials.

- In the interim for 2020/21, it is proposed that Council progress consultation:

o Option 1 – Do nothing and continue to reduce the share of rates paid by businesses;

o Option 2 – Freeze the rating differentials for one year. Due to the revaluation, residential would continue to have a larger share of the rates but not as much as option 1; or

o Options 3- “A holding position” - Keep the allocation of general rates at the same percentage levels between all property rating groups as was the case in 2019/20.

Strategic financial context

3. A key underpinning strategy of Council’s LTP is the affordability of rates to ratepayers. As a result the Financial Strategy includes the following elements:

- Capital value is the basis for gathering general rates revenue; the higher the value of the property, the higher the rates paid by the property owner.

- Differentials for businesses reflect their higher share of the benefits of certain Council services.

- Differentials applied to community facilities and rural sectors to reflect ability to pay and relative levels of service received.

- Rates relief is offered through rates rebates which are funded by central government; in 2018/19 Council processed 1,890 rebate requests totalling $1.1M.

- Rates postponement and remission policies (includes financial hardship, wastewater charges for schools, community, sporting and other recreation organisations).

- Limits in annual rates revenue increase.

Broader strategic context – Housing affordability

4. Council is aware that households are under increasing financial pressures. Households in Lower Hutt have experienced increasing costs for housing in both rental and ownership markets in recent years. House prices increased by 46 per cent between 2015 and 2019, while rental costs increased by 31 per cent during the same period. These housing costs have increased at a much faster rate than household incomes which means that, as well as an increase in homelessness and housing hardship, a growing number of households are experiencing difficulties accessing and sustaining accommodation.

5. What Council is doing:

- A recent change to the District Plan enables the construction of more homes in the city.

- Developing a housing plan to identify additional actions to help deliver more suitable and affordable homes.

- A full review of the city’s planning framework.

- Investment of over $1.6M over the current and next two years to prevent homelessness and help households access and sustain accommodation.

Background - rates revenue components

6. The Annual Plan 2019/20 includes total revenue of $174M, of which 62% is from rates revenue. The key components of Council income are

- Rates funding based on capital value $72.3M, 41.7%

- Rates funding based on fixed charges $35.7M, 20.6%

- User charges, eg, building consent fees, $41.8M, 24%

- Other revenue and capital contributions, eg, New Zealand Transport Agency funding, $23.6M, 14%.

7. The components of a standard Hutt City Council (HCC) rates bill are:

1. General rate calculated based on capital value; and

2. Targeted Rates

i. Wastewater, fixed charge per pan/toilet;

ii. Water supply, fixed charge per connection; and

iii. Recycling, fixed charge per rating unit.

8. Many New Zealand councils have a Uniform Annual General Charge (UAGC) as part of their rating system. A UAGC is a fixed charge applied to all rating units. HCC ceased collecting a UAGC in 2003 because of its regressive nature. A UAGC is deemed to be highly regressive and counteracts the rates affordability premise because a property worth $3M pays the same UAGC as a property worth $300,000.

9. Every three years there is a general property revaluation – this is a legislative requirement. The general rates funding needed to fund services is spread across the city in amounts proportional to each property’s capital value. If you think of Council’s rates income as a pie, the size of the pie does not get any bigger as a result of the revaluation but the share for some ratepayers will either increase or decrease depending on changes in their property’s capital value relative to other property value changes.

10. As HCC does not have a UAGC (fixed charge component of the general rates) there is a higher variable component of the rates charges which are dependent on capital values and hence there is more movement on individual property rates charges ie, increases or decreases.

11. Important note: This report includes comparative information about rates charges in 2019/20 and 2020/21. Information on two scenarios of rates increases are included in the report:

- An overall rates revenue increase of 2.8% (for inflation) and a further 1% assumption for growth in the rating base.

- An overall rates revenue increase of 7.9% and a further 1% assumption for growth in the rating base. Comparative data for this scenario is available in Appendix 3 to this report. A separate report in this meeting agenda, “Financial aspects”, includes explanation about the 7.9%.

Problem definition

12. Every three years Quotable Value sets a new property valuation for Hutt City Council as required by rating legislation. The new valuations have been set based on property values as at 1 September 2019 and will be used to set the 2020/2021 rates. There have been significant changes across different property categories. For example, residential properties increased on average by 31.8% whilst there were lower increases on average for Commercial properties at 16.9% and Utilities at 12.8%. These changes will result in general rates increases for residential properties and decreases for commercial properties and utilities. This will be exacerbated by Council differential transition reducing the non-residential differential to 2.29 by 2022/23.

13. The net transfer of the general rates charges between property categories is shown in table 1 and graph 1.

Table 1: Impact of no change to rating policy on allocation of general rates

Property categories	General rates revenue $M		Change in amount of general rates		Percentage movement
Property categories	2019/20	2020/21	Change in amount of general rates		Percentage movement
Business	27.0	26.3	($0.7M)	Lower	(3%)
Residential	55.1	58.1	$3.0M	Higher	5%
Utilities	4.6	4.1	($0.5M)	Lower	(11%)
Total	86.7	88.5	$1.8M		2%

Note: This data refers to the 2.8% overall rates revenue increase plus 1% assumption for growth, refer to Appendix 3 for the comparative 7.9% rates increase information.

Graph 1: Change in allocation of general rates since 2010/11, including indicative 2020/21 if there is no rating policy change

Background – previous Council decision

14. At the Council meeting held on 10 December 2019, the Report No. HCC2019/1(2)/227 “Annual Plan 2020/21 and Long Term Plan Amendment – Financial Aspects” paragraphs 20 to 22 advised that urgent work was being progressed to consider the possible options that could be considered as part of an LTP amendment on rating policy. “Initial indications are that community feedback will be sought on possible changes to the way rates are spread between different property categories (ie, residential, business etc,), to consider if this is fair and equitable. This is likely to include a review of the rating differentials. It is expected this amendment will include proposed changes to the Revenue and Financing Policy”. Council resolved to “approve the proposed LTP amendment to consider changes to rating policy following the three yearly general revaluations of properties”.

Revenue and Financing Policy (R&FP)

15. Under Section 101 of the Local Government Act (LGA) 2002, the funding needs of the local authority must be met from those sources that the local authority determines to be appropriate. As part of the 2018-2028 LTP, there was a review of the R&FP. A ‘two-step’ process was followed.

16. In summary the review undertaken included, ‘step one’, firstly consideration being given to each activity to be funded:

1. the community outcomes to which the activity primarily contributes;

2. the distribution of benefits between the community as a whole, any identifiable part of the community, and individuals;

3. the period in or over which those benefits are expected to occur;

4. the extent to which the actions or inaction of particular individuals or a group contribute to the need to undertake the activity; and

5. the costs and benefits, including consequences for transparency and accountability, of funding the activity distinctly from other activities.

17. Once Council had considered each activity and how it should be funded it then applied ‘step two’, being judgement as to the overall impact on the community. In doing so Council considered:

1. The impact of rates and rates increases on residential properties, and in particular on the affordability of rates and rates increases for low, average and fixed income households.

2. The impact of rates and rates increases on businesses and on the competitiveness of Hutt City as a business location.

3. The fairness of rates (and changes in rates) relative to the benefits received for “stand-out” properties with unusually high capital values.

4. The special characteristics of particular classifications of property - including their purpose and proximity to the city.

5. The complexity of the rating system and the desirability of improving administrative simplicity.

18. It was through ‘step two’ of the process, that the rating differentials were set. Refer Appendix 4 for an extract of the R&FP.
What is the rating differential and how is it assessed?

19. The differential is the share of general rates paid by businesses, residential and rural ratepayers. General rates, together with targeted rates, are the largest source of funding for Council. General rates are used to help fund activities that exhibit strong or dominant public good characteristics. A public good/service is defined as one that demonstrates the following characteristics:

1. Non-rival – the enjoyment by one person does not prevent the benefit from being enjoyed by others. An example is street lighting.

2. Non-excludable – no person or group can easily be prevented from enjoying the benefit. An example is a beach or park.

20. In these cases, all ratepayers pay towards the cost of the activity. However, where the activity also provides private benefits over and above the general public good, rates are used to fund the balance of costs after the potential for user charges has been exhausted.

21. Council has determined that as a general rule most activities will be funded by general rates allocated to each sector of the community in line with each sector’s percentage share of the capital value of the city. However there are two exceptions where the business and utility sectors should be carrying a greater or lesser proportional share.

1. Roading and Traffic - general rates are weighted towards the business and utility sectors because of the particularly high use of the roads (or road space) by these sectors. Trip generation data is used as an indicator of the cause and benefit of this activity’s costs – this data shows that the business/utility and residential sector trip generation is 72% and 28% respectively. The share of general rates costs are allocated accordingly.

2. Stormwater - is weighted towards the business/utility sector to reflect the fact that this sector accounts for approximately 37% of the city’s impervious area (after making an allowance for roads). The share of general rates for Stormwater is allocated on this basis.

22. To achieve the desired weighting of general rates allocation towards the business and utility sectors in these cases Council increases each sector’s assumed share of the overall capital value of the city. This produces the differential.

HCC transition plan for rating differentials

Table 2: Business rating differentials in 2011/12 compared to future target

Property category	Differentials in 2011/12	Target for differential by 2021/22
Business central	3.7	2.3
Business suburban	3.4	2.3
Business accommodation	3.0	2.3
Utility networks	2.5	2.3
Rural	0.65	0.8

23. Table 2 shows that in 2011/12 the general business rates were between three and nearly four times the amount of a residential property of the same value.

24. In the 2012-2022 Long Term Plan the priority focus for the Council was on “growth and rejuvenation of the city”. Council began a process of adjusting the share of general rates paid by businesses, residential and rural ratepayers. A gradual transition over 10 years of the rating differentials was introduced. This was considered to be a more equitable allocation between sectors. The intention was that by 2021/22, the general rates paid by business ratepayers would be 2.3 times that of a residential ratepayer (a reduction down from 3.7 in the case of business central, refer table 2).

25. Following the three yearly revaluation of properties in 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 property values.

26. The Annual Plan 2019/20 included the updated differential transition plan. This is detailed in Table 3 and shows the target of 2.29 by 2022/23 (with a minor revision from 2.30 to 2.29 included in LTP 2018-2028).

Table 3: Annual Plan 2019/20 - extract from differential transition plan

Differential	2019/20	2020/21	2021/22	2022/23
Business accommodation	2.51	2.44	2.37	2.29
Business central	2.72	2.58	2.44	2.29
Business suburban	2.63	2.52	2.41	2.29
Utility Networks	2.36	2.34	2.32	2.29

Approaches by other Councils in relation to business differential

27. Table 4 summarises comparative information on other Council’s commercial or business differential in the Wellington region. The HCC target differential of 2.29 is comparatively very low compared to these other Councils.

Table 4: Business/commercial differentials in Wellington region

Council	Differential 2019/20	Commentary
Wellington City Council	3.25	The commercial differential was adjusted from 2.8 to 3.25 in 2019/20 following significant changes to property values through the general revaluation. WCC was faced with a similar issue to HCC with residential property values increasing at a much higher rate than commercial property values. The differential change ensured that the rates proportions derived from commercial property category and residential property category were retained at similar proportions to before the general revaluation.
Porirua City Council	3.32	Alongside the business differential, there is also a shopping plaza differential at 2.83. The latest general revaluation is effective 1 September 2019.
Upper Hutt City Council	2.7	The latest general revaluation is effective 1 August 2019.

General revaluation changes

28. Over the last three revaluations residential properties have consistently increased in value at a greater rate than commercial properties as shown in table 5 and graph 2. Appendix 2 is a copy of the presentation by Quotable Value when the 2019 general revaluation information became available.

Table 5: Comparison of capital value at general revaluations in 2010 and 2019

Property category	Revaluation 2010 $Billion	Revaluation 2019 $Billion
Business	2.96	4.09
Community facilities	0.07	0.15
Residential	12.99	22.93
Rural	0.27	0.42
Utility	0.59	0.69
Total	$16.89 Billion	$28.28 Billion

Graph 2: Trend of general revaluation values since 2010

29. Over the last three revaluations, residential properties have increased 9.13% greater than the city average increase while business properties have decreased 29.16% less than the average. This is summarised and demonstrated by table 6, with further details available in Appendix 1.

Table 6 Accumulated change in capital value since 2010 and compared with average

Property category	Accumulated change since 2010	Movement compared with Average
Business	38.18%	Lower (29.16%)
Community facilities	114.19%	Higher 46.85%
Residential	76.48%	Higher 9.13%
Rural	53.42%	Lower (13.93%)
Utility	14.12%	Lower (53.23%)
Average	67.34%

30. Table 7 compares the percentage of Council’s current differential property types as a percentage of the total city’s capital value. This highlights that the business sector since 2010 revaluation (the base year used for the 2012 rates) has decreased by 3% and the residential sector has increased by 4%. This effectively has transferred 3% of general rates from the business sector and 1% from the utilities sector to the residential sector without using differentials.

Table 7 Comparison of differential property groups percentage of total value

Differential property Groups	Share of total capital value		Percentage Change
Differential property Groups	2010 revaluation	2019 revaluation	Percentage Change
Business Central	3.10%	2.15%	(0.95%)
Business Eastbourne	0.10%	0.08%	(0.02%)
Business Queensgate	1.77%	0.85%	(0.92%)
Business Suburban	12.24%	11.02%	(1.21%)
Total Business	17.52%	14.47%	Lower (3.05%)
Community Facility 1 ¹	0.06%	0.09%	0.03%
Community Facility 2¹	0.27%	0.39%	0.12%
Community Facility 3¹	0.10%	0.07%	(0.03%)
Total Community facilities	0.43%	0.55%	0.12%
Residential	76.89%	81.09%	Higher 4.20%
Rural	1.61%	1.48%	(0.13%)
Utility	3.55%	2.42%	Lower (1.13%)
	100.00%	100.00%

Note 1: Refer Appendix 1 for definitions of Community Facilities. Also note: that this data shows the detail business differential categories set in our rating system.

31. When the reducing differentials is then applied to the total general rates, graphs 3 and 4 show that over time there has been a significant transfer of rates from the business sector to residential sector.

- Residential has moved from 51% in 2010/11 to a 63% share in 2019/20 of general rates.

- Business has moved from 44% in 2010/11 to a 31% share in 2019/20 of the general rates.

32. While this was partly intended by the differential transition plan to reduce the non-residential differentials to 2.30, the movement in the business sector properties revaluations has been consistently lower than residential. This could not have been anticipated by Council at the time when the transition plan was developed.

Graph 3: General rates revenue by dollar amount by property category

Graph 4: General rates revenue percentage by property category

33. Graph 4 includes an indicative 2020/21 projection - this shows that if no rating policy changes are made then the residential share of the general rates will continue to pick up a higher proportion in 2020/21 of 65%, a further increase of 2% from 2019/20.

34. Indicative modelling from 2011/12 to understand the intent of Council with the differential policy shows that a target of about 60.5% share of the general rates by residential was intended when the policy was implemented. Whilst it is unclear what the growth and development assumptions were when the differential transition plan was put in place, it appears that the target has been achieved earlier than originally anticipated largely due to the impact of the changes in property values.

35. Development in the city: During the period 1 July 2010 to 30 November 2019, nearly $1.1B of new developments have been issued building consents for construction in Lower Hutt. This includes 2,778 new residential dwellings valued at $770M and non-residential developments of $325M. Appendix 6 provides further information related to this.

Options and process to implement options

36. There are four options for approaching the current situation:

Option 1 - Status quo

Do nothing and continue with the differential transition adjustment to the share of general rates paid by businesses, residential and rural ratepayers.

Option 2 - Freeze the transition differential for one year

In 2017/18, following consultation with the community, Council decided to freeze the differential transition for one year. This freeze happened because the 2016 residential property values increased far more rapidly than commercial property values. The same uneven increase in capital values has happened in 2019.

Option 3 – Maintain the same allocation splits between property groups as per 2019/20

Keep the allocation of general rates at the same levels of percentage between all rating property groups as based on the 2019/2020 general rates. This would require new differentials to be set for the 2020/2021 year.

Option 4 - Revert to the intention of the differential of 2.29 now

As noted in paragraph 30, the business sector rateable values have reduced at a greater rate than residential sector; therefore an option would be to assess the amount the business sector would pay towards the general rate based on the percentage of 2010 values using a 2.29 differential. This option, does not take into consideration changes in property groups (ie, increase in property numbers due to growth etc,). It could be argued that changes in the property groups, could change Council’s view as to who pays as per ‘step one’. Council does not have sufficient time to undertake a review of ‘step one’ by 30 June 2020. Therefore, this option has not been further considered.

Option 5 - To undertake a full review of the R&FP

While this is an option, Council does not have sufficient time to undertake such a review by 30 June 2020 to comply with the requirement of the Local Government Act 2002. Therefore, this option has not been considered, but it is recommended that full review be completed in time for the 2021- 2031 Long Term Plan.

37. Table 8 provides a summary analysis for each option and the impact on the R&FP. From this analysis Officers recommend option 3 as the preferred option for setting of rates for 2020/21.

Table 8: Analysis of options

Option	Analysis	Impact on Revenue & Financing Policy
Option 1: Status quo	The residential sector would pay more	No change to policy
Option 2: Freeze the transition differential for one year	Council set a precedent in 2017/18 when it intervened to freeze the differential transition to ease the affordability burden on residential ratepayers. The current situation is directly comparable to that of 2017/18.	Minor change to policy or Council could resolve that the proposed rates do not comply with the current policy and that Council intends to complete a full review before the 2021-2031 Long Term Plan
Option 3: Keep the allocation of general rates at the same levels of percentage between all property rating groups	This would result in keeping the percentage amounts paid towards general rates on the same basis as the 2019/20 rating year, and would not comply with the direction of reducing the business differential to 2.29. However, because of the reducing capital values of business compared to residential values since 2010, it is very likely that the reducing values have already achieved Council’s objective. There would still be movements within each of the classes based on the revaluation movements.	This would require an amendment to the policy which must be consulted on.

Consideration of options and impact on the Revenue and Financing Policy

38. Any change to the differentials must be considered against the existing R&FP. If a policy is amended, then Council must identify the components it intends to amend. While ‘Step one’ does contain references to differentials as noted in paragraph 16, the current policy uses ‘step two’ to set the differential (as set out in Appendix 4) including with the direction of reducing the business differential to 2.29.

39. Because of the reduction in business capital values in comparison to residential value increase, the effect of the ‘step one’ differentials would likely have increased the business differentials rather than reduced the differentials. Therefore, Council does not need to modify ‘step one’ if it wishes to modify the current approach to current differentials.

40. If Council wishes to implement option 3, it must amend the current ‘step two’ of the R&FP and consult according.

Indicative impact of rates charges

41. Modelling of the indicative impact has been completed based on the latest information for the 2020/21 Draft Annual Plan and an initial assumed overall average 3.8% rates revenue increase (ie, inflation of 2.8% and 1% for growth in the city). The latest property capital values have been used although there is likely to be further growth in the rating base before 30 June 2020 when the rates are set.

42. The targeted rates for 2020/21 have been recalculated based on the latest draft budgets. The overall increase for wastewater charge is 7.6% mainly due to higher maintenance and capital renewals costs. Water rates have increased by 7.1% mainly due to higher water usage and asset maintenance and renewals costs. This equates to the targeted rates as detailed in table 9 for each SUIP/Separately Used or Inhabited Part. These increases in targeted rates impact different properties differently depending on how they are applied.

Table 9: Indicative targeted rates for 2020/21

Differential	2019/20	Indicative 2020/21	$ Change
Wastewater – per rating unit or SUIP	478.50	515.80	37.30
For commercial properties second and each subsequent WC or urinal unity per rating unit	239.25	257.90	18.65
Water supply rate – per rating unit	448.50	482.00	33.50
Residential recycling charge	40.00	40.00¹	0.00

Note 1: Proposed changes to the recycling targeted rate will be effective from 1 July 2021.

43. For the average residential property it is important to note that the targeted rates are increasing by $70.80 per property, being $37.30 for waste water services and $33.50 for water services.

44. Table 10 provides the recalculated differentials based on option 3. Each differential for a property group has been recalculated to ensure that the same percentage/share of the rates is retained as per 2019/20.

Table 10: Option 3 indicative differential for 2020/21 compared to 2019/20

Differential	2019/20	Indicative 2020/21
Business accommodation	2.51	2.64
Business central	2.72	2.98
Queensgate	2.72	3.73
Business suburban	2.63	2.61
Community facilities 1	1.00	1.11
Community facilities 2	0.50	0.50
Community facilities 3	2.36	2.40
Rural	0.75	0.75
Utility Networks	2.36	2.80

45. Due to the three yearly revaluations, the average residential property across the city has increased in value from $476,000 to $627,000, whilst the average central business property has increased from $1.38M to $1.69M. The indicative rating impact is shown in table 11, 12 and 13. Additional indicative rating impact details are available in Appendix 3 - this includes information for average residential property changes in each suburb, together with further information for other property categories, including business suburban and utilities.

Table 11: Indicative impact of options on the average residential property

Option	Rates 2019/20	Rates 2020/21	% Change	Amount per annum	Amount per week	Compare to option 1
Option 1: Status quo	$2,477	$2,629	6.1% Higher	$152	$2.92
Option 2 : Freeze the transition for one year	$2,477	$2,607	5.2% Higher	$130	$2.50	$22 p.a. Lower
Option 3: Keep the allocation of general rates at the same levels of % between property rating groups as 2019/20	$2,477	$2,578	4.1% Higher	$101	$1.94	$51 p.a. Lower

The above amounts are inclusive of the wastewater, water supply, and recycling targeted rates. $70.80 of the 2020/21 increase is attributable to these targeted rates.

Table 12: Indicative impact of options on the average business central rates

Option	Rates 2019/20	Rates 2020/21	% Change	Amount per annum	Amount per week	Compare to option 1
Option 1: Status quo	$13,074	$12,321	(5.8%) Lower	($753)	($14.48)
Option 2 : Freeze the transition for one year	$13,074	$12,764	(2.4%) Lower	($310)	($5.96)	$443 Higher
Option 3: Keep the allocation of general rates at the same levels of % between all property rating groups as 2019/20	$13,074	$13,645	4.4% Higher	$571	$10.98	$1,324 Higher

Note: This data in Table 11 and 12 refers to the 2.8% overall rates revenue increase plus 1% assumption for growth. Please refer to Appendix 4 for the comparative 7.9% rates increase information.

Consideration of standout ratepayer - Queensgate Mall

47. Of the 2016 rating valuation, 1.1% of the city’s total value was held by Queensgate Mall (the Mall) but because of the commercial differential, 2.5% of the general rate was paid by the Mall. Therefore, the Mall is a standout ratepayer and Council must consider the impact of the proposed policy change on the Mall. Based on the 2019 valuation, the Mall’s share of the City’s value reduced to 0.8%. This reduction is due in part to the rebuild of the Mall. When Council developed the differential, it identified that the Mall should be subject to the same differential as other commercial properties including the reasons below:

- The impact of rates and rates increases on businesses and on the competitiveness of Hutt City as a business location.

- The fairness of rates (and changes in rates) relative to the benefits received for “stand-out” properties with unusually high capital values.

48. While the values have changes (including a decrease) the benefits received for “stand-out” properties with unusually high capital values still remains. Therefore, the Mall should be treated in the same manner as other commercial properties during the proposed policy change.

Table 13: Indicative impact of options on the Queensgate shopping centre

Option	Rates 2019/20	Rates 2020/21	% Change	Amount per annum	Amount per week	Compare to option 1
Option 1: Status quo	$2.18M	$1.59M	(27%) Lower	($0.59M) Lower	($11.3k)
Option 2 : Freeze the transition for one year	$2.18M	$1.65M	(24%) Lower	($0.53M) Lower	($10.2k)	$63k p.a. higher
Option 3: Keep the allocation of general rates at the same levels of % between all property rating groups as 2019/20.	$2.18M	$2.2M	2% Higher	$0.046M Higher	$885	$636k p.a. higher

Proposed change to ‘step two’ of the Revenue and Financing Policy

49. Appendix 5 includes an indicative Revenue and Financing Policy assuming Council chooses to consult on option 3. This draft policy is currently being progressed through a review process which includes a legal review. Following the external audit, the proposed policy for consultation will be presented to Council on the 18 March 2020 for approval.

50. An extract of the policy follows which includes a summary of the rationale to be applied if option 3 is progressed:

‘The differential policy was reviewed by Councillors during the preparation of this the 2018-2028 Long Term Plan. Council decided to continue with the differential transition plan from 1 July 2018 so that from 1 July 2023 the business rate would be no more than 2.29 times (previously 2.3 times), greater than the rate of a residential property of the same value.

However, because of significant changes in the relative capital values in the 2019 rating valuation, the allocations of general rates based on the current policy would place an increased burden on residential properties. Therefore, the Council is proposing to allocate the General rate using modified differentials to ensure the percentage of 2020/21 General rates collected from each of the categories used in 2019/20 remains the same as the percentages of General rates collected in 2019/20.

REVIEW

The overall Revenue and Financing Policy (including the differential factors) will be reviewed from a first principles approach as part of the 2021-2031 Long Term Plan.’

Community Engagement and Consultation

51. If Council decides to consult on changes to the rating policy then this will be progressed as an LTP amendment for consultation as part of the Draft Annual Plan 2020/21 process. An external audit of the proposed amendment will be undertaken ahead of consultation progressing. This rating policy change will be included in both a summary consultation document and the more detailed ‘Statement of proposal to amend the Revenue and Financing Policy in the 2018-2028 Long Term Plan”.

Legal Considerations

52. The most relevant legislation includes the Local Government Act 2002, Local Government (Rating) Act 2002 and the Rating Valuations Act 1998. Specialist legal advice is being provided in support of the proposed changes to rating policy to ensure that Council meets legislative compliance requirements.

Financial Considerations

53. External specialist advice is being provided in support of the potential changes to the policy included in this report. This is being funded from within existing budgets.

Appendices

No.	Title	Page
1 ⇩	Appendix 1 Detailed information on movement in general revaluations since 2010	79
2 ⇩	Appendix 2 Quotable Value presentation on changes in Lower Hutt 2019 general revaluation	82
3 ⇩	Appendix 3 Detailed rating impact, including suburbs	101
4 ⇩	Appendix 4 Extract of Revenue and Financing Policy	116
5 ⇩	Appendix 5 Indicative revised Revenue and Financing policy	118
6 ⇩	Appendix 6 Further information about development and growth in the city since the transition differential policy has been in place	120

Author: Jenny Livschitz

Chief Financial Officer

Author: Wendy Moore

Head of Strategy and Planning

Reviewed By: Helen Oram

Acting General Manager, City Transformation

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Jo Miller

Chief Executive

156 11 February 2020

Long Term Plan/Annual Plan Subcommittee

20 December 2019

File: (19/1424)

Report no: LTPPS2020/2/4

Draft Annual Plan 2020/2021 and Long Term Plan Amendments - Financial Aspects

Purpose of Report

1. The purpose of this report is to progress Council decisions on key financial matters relating to the preparation of the Draft Annual Plan 2020/21 and the Long Term Plan amendments, ahead of the external audit process and community consultation.

Recommendations

That the Subcommittee recommends that Council:

(i) notes the Draft Annual Plan 2020/21 and Long Term Plan (LTP) amendment financial information as detailed in the report;

(ii) considers the initial draft of the “guiding principles” related to the financial strategy as detailed in paragraph 12 and provides feedback to officers;

(iii) notes the legislative requirement related to a balanced budget and financial prudence as detailed in paragraph 24 and that this is an important consideration on the overall average rates increase to be consulted on as part of the proposed 2018-28 Long Term Plan (LTP) Amendment;

(iv) approves consultation on the proposed changes to fees and charges as detailed in Appendix 2 attached to the report;

(v) approves consultation on the proposed changes to the rates revenue increase related to the LTP Amendment for the Naenae pool and fitness suite as detailed in table 9, being a 1% rates increase for 2020/21;

(vi) approves consultation on the proposed change to Council’s financial strategy limits on borrowings as detailed in table 8, which includes a revised 180% debt to revenue limit;

(vii) approves consultation on the proposed changes to refuse and recycling services and the related targeted rates for these services as detailed in Section I and notes that these will be effective from 1 July 2021 (ie, not 2020/21);

(viii) considers the budget matters as detailed in table 10 and provides direction to officers in the preparation of the Draft Annual Plan 2020/21;

(ix) notes the targeted savings programme of $1M to be led by the Chief Executive and notes the planned full base budget review as part of the LTP;

(x) considers the project information detailed in Appendix 6 attached to the report and any items to be stopped, paused or delayed to future years;

(xi) approves for consultation the proposed change to the overall rates revenue increase for 2020/21 of 7.9% comprising:

Inflationary cost increase	2.8%
Naenae pool and fitness centre refurbishment	1.0%
Partially addressing balanced budget and financial prudence funding requirements, including: -Three Waters core infrastructure, - Seismic strengthening work - Legislative requirements related to the District Plan	4.1%
Total	7.9%

and notes the assumed 1% growth in the rating base for 2020/21;

(xii) notes that the estimated impact on the average residential property is an increase in rates charges of $207 per annum or $3.98 per week for existing ratepayers (this includes GST but excludes Greater Wellington Regional Council rates changes); and

(xiii) considers any further direction and guidance to be provided to officers ahead of the finalisation of the Draft Annual Plan 2020/21 and LTP amendments being progressed.

Acronyms:

DAP – Draft Annual Plan 2020/21

FAP – Final Annual Plan 2020/21

LTP – Long Term Plan 2018-2028

Background - high-level plan

2. Council is legislatively required to prepare a LTP every three years and an Annual Plan each year. The most recent LTP was adopted in June 2018 and covers the period 2018 to 2028. In an LTP year the first year of the plan becomes the Annual Plan and no separate document is required. Council is required to prepare an Annual Plan for 2020/21. Following this an LTP will be prepared for period 2021/22 to 2030/31.

3. Council has approved the high-level plan and approach to the Annual Plan 2020/21 and LTP amendment (refer Table 1 for a summary of the plan). The next stages include the finalisation of the DAP and LTP amendments for public consultation, following clearance from external audit. The purpose of this report is to further progress Council decisions to enable the next stages to progress successfully.

4. There are two related reports included in this agenda being:

(a) Consultation plans and related information

(b) Impact of the general revaluation 2019 and rating options for consideration.

5. Table 1: High-level plan

Activity	Date	Status
Council adopts key assumptions and risks for budgets and high-level consultation approach for Annual Plan and LTP amendment	10 December 2019	Complete
Council agrees engagement plan, consultation process and key decisions	11 February 2020	Today
External audit of consultation document and LTP amendment	February 2020	Not started
Council meets to approve final consultation document and adopts underlying information	18 March 2020
Public consultation	6 April – 3 May
Council meets to make final decisions for Annual Plan 2020/21 and LTP amendment	10 June 2020
Council adopts Annual Plan and LTP amendment, and sets the rates for 2020/21	30 June 2020

Executive summary

	Impact to rates in 2020/21	Impact to debt and financial strategy	Extra info.
Summary NB: Full review in 2021-2031 LTP	Proposed overall rates revenue increase for 2020/21 of 7.9% and a 1% assumed increase from growth in rating base. Indicative average increase for residential property: $207 per annum or $3.98 per week for existing ratepayers. Includes $71 for Three Waters and $25 for Naenae pool.	Increased debt levels and rates revenue. Proposed change in debt to revenue ratio limit to 180%. Balanced budget shortfall/financial prudence issue partially addressed with rates increase higher than budgeted inflation-only level included in LTP.
Key components: 1) Base budget review	2.8% rates increase assumed for inflation	Higher capital and operational costs than planned due to range of cost pressures resulting in increased debt, including budgets transferred from capital to operational expenditure.	Section B
2) Balanced budget/financial prudence legislative requirement	Extra 4.1% rates increase to partially address projected net operating deficit of $21.5M in 2020/21. Includes funding for Three Waters infrastructure, legislative requirements re. District Plan, seismic building issues, historical budget issues (eg, budgets transferred from capital to operational) etc.	Increase to rates revenue to partially address balanced budget deficits/financial prudence. Assumes $1M operational savings target.	Section C
3) Proposed Naenae pool and fitness suite redevelopment	Extra 1% rates increase	Increased debt. Proposed change of debt to revenue limits to 180% (flat line)	Section H
4) Proposed changes to rating policy differentials as a result of general revaluation of properties	Proposed change to redistribute rating impact between property categories. For average residential property an increase in rates of $54 per annum is avoided.	None	Separate report

6. Graph 1: Summary of overall increase in rates revenue proposed

7. Graph 2: Indicative impact on average residential property (assumes option 3 of rating policy change, refer separate report)

Section A - Strategic financial context

8. Council’s total assets are worth $1.5B and include infrastructure assets, land and buildings; whilst total liabilities are lower at $0.3B and include borrowings and payables to suppliers. Annual income of $174M is largely applied to fund operating costs for services delivered by Council and to maintain assets.

9. Council’s Financial Strategy promotes the sustainable funding of services and is a key component of the LTP. The key elements underpinning the strategy include:

- affordability of rates

- delivering services effectively and efficiently

- achieving intergenerational equity by spreading the costs between both present and future ratepayers

- maintaining prudent debt levels

- strengthening Council’s financial position.

10. Future capital investment plans over the next ten years in the current LTP total about $0.6B and are funded largely by debt together with income received for capital projects (eg, New Zealand Transport Agency (NZTA)) subsidies, development contributions) and depreciation.

11. Council’s Financial Strategy includes a range of measures to ensure the amount of borrowings is prudently managed, whilst enabling continued investment in infrastructure and community assets to continue. Council is required to deliver sound operating results, whilst also ensuring that borrowing is restricted to self-imposed limits (such as debt to revenue and interest costs to operating expenses ratios) to ensure that it is affordable.

Initial draft - Guiding principles

12. Whilst the LTP 2018-2028 does not explicitly include guiding principles to support the Financial Strategy, officers recommend that Council consider developing guiding principles. These will assist in decision making and should be included in the next LTP. Draft principles can be developed through the Annual Plan 2020/21 process, and further refined through the LTP 2021-2031 process. Draft principles are provided for feedback:

1. The financial strategy enables Council’s contribution to the vision for Lower Hutt.

2. Fairness and equity

The funding of expenditure is equitable across both present and future ratepayers.

a) Intergenerational equity – the cost of long term assets should be met by ratepayers over the life of that asset. This is reflected by debt funding new assets and funding the replacement or renewal of assets from rates.

b) Balanced Budget – projected operating revenues over the lifetime of the LTP is set at a level sufficient to meet projected operating expenses, ensuring that current ratepayers are contributing an appropriate amount towards the costs of the services they receive or are able to access i.e. ‘everyday costs are paid for from everyday income’.

3. Prudent sustainable financial management – budgets are managed prudently and in the best interests of the city in the long term. Debt must be maintained at prudent levels and be affordable.

4. Ability to pay (affordability) - affordability is an important consideration as it ensures that the ability of our diverse community to pay rates is transparently considered as part of the decision making process. Consideration will be given at both the macro level (i.e. generally affordable to most) and also at the micro level (i.e. for a specific individual where rates rebates, remissions or postponement policies may be required).

5. Value for Money – any proposals must contribute to the strategic outcomes agreed with the community and the total cost must be reasonable. The cost effectiveness of the funding mechanism must be considered.

6. Prioritisation of investment choices – careful consideration is given to investment choices and options, with priority given to core infrastructure investment and ‘invest to save’ options.

7. Good financial governance and stewardship

Good stewardship of the Council’s assets and finances require Council to ensure that its actions now do not compromise the ability of future councils to fund future community needs. Under this principle:

a) Assets must be maintained at least at current service levels to avoid placing a financial burden on future generations.

b) Debt must not be used to fund operating expenditure other than in specific exceptional circumstances.

c) The level of debt is regularly reviewed to ensure that it is at a level that will not restrict a future council’s ability to fund new assets through debt.

d) The consequential operational expenditure implications of capital expenditure decisions are considered.

Section B – Background and progress to-date on Draft Annual Plan

13. The first stage of the Annual Plan process includes a review and update of base budget assumptions and parameters. At the Council meeting held on 10 December 2019, detailed information was presented on both expenditure and revenue budget assumptions together with information on significant budget matters with an aim to ensure Council is supportive of the proposed approaches in each area.

Part 1 – Operating and capital expenditure budget process and assumptions

14. There are a range of cost pressures facing Council for both existing services and assets (such as contractual cost escalations), as well as for new funding and investment needs. Some examples of cost pressures include funding for Naenae Pool, seismic strengthening of community facilities, digital investment, insurance and the Urban Growth Development Stimulus Package (the Development Stimulus Package). At the 10 December 2019 Council meeting the budgeting assumptions for expenditure were reviewed and Council provided early guidance to officers on the handling of significant budget matters. Subsequently officers have undertaken a detailed budget review.

15. There is no general inflation allowance for 2020/21 but rather a starting point of 2019/20 uninflated budgets, which have been adjusted for specific circumstances as follows:

- Unavoidable increases (such as known rent reviews, contractual cost escalations and reviews, salary increases).

- Known decreases (such as one-off items, items no longer required, known savings such as contract rate reductions).

- Cost implications of approved service level changes.

- Other justifiable changes approved (such as budget corrections to transfer expenditure to correct classification from capital to operational).

For future years beyond 2020/21 the BERL inflation indicators are applied.

16. Employee cost budgets: these have been reset to reflect latest 2019 costs, including budgeted costs for all vacant approved employee positions. An assumption of 2.5% increase for employee costs in 2020/21 has been applied to enable Council to meet the current market movement increases and to continue to pay the living wage.

17. Officers requested early guidance and direction from Council at the 10 December 2019 meeting on a number of significant budget matters. Appendix 1 provides a summary and update on these matters. It is important to note that a number of cost pressures have been included in the DAP as known changes which are unavoidable and were not included in previous budgets set by Council. This includes:

- Water Supply $10.7M investment over 10 years for reservoirs to support growth and seismic strengthening.

- Wastewater $23M investment over ten years to support the Petone Collector Main and Outfall pipeline overflow mitigation.

- District Plan funding of $2.9M over four years to meet legislative requirements.

- Seismic strengthening funding for Council properties of $2.5M.

- Increased projected costs for the Melling interchange and RiverLink project of $23M.

- Cross Valley Transport Connections project increased projected costs of $55M (assumed partially offset by NZTA funding).

- Cycleways project increased projected costs of $15M (assumed partially offset by NZTA funding).

Further to this there have been budget corrections to categorise expenditure correctly from capital expenditure to operating expenditure - in particular the Development Stimulus Package which has an estimated cost of $4.2M in 2020/21.

18. Council asked officers to provide further information or work through alternative solutions for a number of matters which are detailed in table 10 of this report. Also included in this table are other matters for Council consideration resulting from the internal budget review process.

Part 2 – Revenue budget process and assumptions

19. The key components of Council income are rates funding $112M (63%) and user charges (e.g. building consent fees) $43M (24%), together with other revenue and capital contributions (eg, NZTA funding).

20. Rates revenue budgets

At the Council meeting held on 10 December 2019, the base assumptions for the rates increase were approved - refer table 2. This comprises two elements being inflation and growth. Inflation is based on the published BERL Local Government Cost Index for New Zealand (LGCI). The ‘growth’ element is the estimated growth in the rating base (ie, rateable properties). This element reduces the impact of the rates increase for existing ratepayers.

21. Table 2: Base assumptions for DAP annual increase in total rates income

	2020/21	2021/22	2022/23	2023/24	2024/25	2025-2030
Rates increase for inflation (LGCI)	2.8%	2.2%	2.2%	2.3%	2.3%	2.47%
Growth in rating base	1.0%	1.1%	1.2%	1.2%	1.2%	1.2%
Total	3.8%	3.3%	3.4%	3.5%	3.5%	3.67%

22. Other revenue budgets

For the DAP the revenue budgets for 2019/20 are used as a starting point and adjusted for known price and volume changes (for example in resource consents and building consents).

23. Council did not formally consult on the Annual Plan 2019/20 and as a result there were no changes to a range of fees and charges. The DAP consultation will include an update of fees and charges where relevant. Appendix 2 provides further information on proposed fee changes to be consulted on. The key elements here include the regulatory functions.

Section C - Balanced budget requirement

24. Whilst Council’s Financial Strategy does set self-imposed limits, there is an overriding legislative requirement to have a balanced budget and be financially prudent. Section 100 (1) of the Local Government Act 2002 requires a local authority to “ensure that each year’s projected operating revenues are set at a level sufficient to meet that year’s projected operating expenses.” Section 100 (2) provides that “despite subsection (1), a local authority may set projected operating revenues at a different level from that required by that subsection if the local authority resolves that it is financially prudent to do so”.

25. As part of the budget setting process for 2020/21, this is a critical consideration. There are a number of cost pressures which were not anticipated in the LTP (such as Naenae Pool, seismic strengthening of community facilities, digital investment, insurance, the Development Stimulus Package).

26. All Councils are required to report on the “Balanced Budget benchmark” as part of the LTP and Annual Report. In simple terms this benchmark is an indicator as to whether Council’s projected operating revenues are set at a level to meet projected operating expenditure levels. Graph 3 shows the average result over the last five years. Hutt City Council results are below the target level and are comparatively low compared to peers. The key reasons for this are the limited revenue growth to match increasing operating expenditure together with operating grants paid to the Hutt City Community Facilities Trust (CFT) to fund capital projects (a required accounting treatment) and operating funding of the Development Stimulus Package costs (budgeted originally in the LTP as capital expenditure).

27. Graph 3: Comparison of peer Councils Balanced budget benchmark results – from published Annual reports, Average over last five years

28. Over the past decade there have been relatively small increases in rates charges compared to other councils across the region, with Hutt City Council approving rates revenue increases ranging between 1.7% to 3.7%. These figures included additional income from rates resulting from a growing city so the actual increase for ratepayers was lower. This has resulted in Lower Hutt’s rate increases being the lowest in the region and second lowest in the country (refer Appendix 11 which is an extract from the Productivity Commission’s report from the recent Funding and Financing Inquiry showing the average yearly growth in rates per person across New Zealand).

29. Depending on Council final decisions related to additional capital and operational expenditure to be included in the plan, the average rates increase for 2020/21 needs to be revised to reflect changes agreed to and to ensure compliance with the balanced budget and financial prudence legislative requirement.

30. Graph 4 provides an initial view of the DAP projected balanced budget or net operating results with rates revenue held at the inflation and growth only increase (ie, as per table 2). Three comparatives are provided:

- Orange line: The net operating result per projected financial statements shown excluding asset revaluations.

- Blue line: The Local Government Act balanced budget benchmark definition being revenue excluding income from development and financial contributions, revaluations and vested assets less operating expenses (excludes fair value movements on financial derivatives).

- Purple line: Being definition per blue line and adjusted to exclude NZTA funding received for capital expenditure on new/improvement works such as Cross Valley Transport Connections project (Note that NZTA funding for ongoing renewals and maintenance works has been retained in the calculation as part of the operating result).

Note this excludes any additional budget adjustments for Naenae pool.

31. Graph 4: DAP Projected net operating and balanced budget results

32. The projections in graph 4 show significant net operating deficits for most years of the plans except for the last few years. The rates increase being held as per table 2 (ie, inflation and growth in rating base) clearly does not achieve the balanced budget requirement. Whilst the LTP projected increasing revenue and net surpluses, the latest financial forecasts are not as favourable as originally anticipated in the LTP. There are a range of drivers for this including increased cost pressures as previously reported, together with costs previously budgeted as capital expenditure which have now been corrected to be operational expenditure. Whilst the last few years of the projections look better, the risk is that there will be more unknowns not identified.

33. The projections in Graph 5 show a more favourable result after adjusting for increased rates revenue - the green line here assumes an additional 4.1% rates increase for 2020/21 and thereafter an additional 1.6% rates increase for two years (refer table 3). The higher rates revenue results in an improved balanced budget result, with surpluses being generated from 2024/25.

Table 3: Revised assumptions for DAP annual increase in total rates income

	2020/21	2021/22	2022/23	2023/24	2024/25	2025-2030
Rates increase for inflation (LGCI)	2.8%	2.2%	2.2%	2.3%	2.3%	2.47%
Rates increase to resolve balanced budget shortfall	4.1%	1.6%	1.6%	0%	0%	0%
Revised total rates increase (note 1)	6.9%	3.8%	3.8%	2.3%	2.3%	2.47%

Note 1- refer Table 2 for information on growth assumptions.

34. Graph 5: Comparison of projected net operating result depending on rates increase level, refer additional rates as per table 3

35. There are further potential options that Council could consider to address this balanced budget requirement. For example, reducing service levels, increases to fees and charges for services, reducing debt levels by deferring capital expenditure or selling non-strategic assets, or changes to phasing of the additional rates revenue increase.

36. Council is requested to consider the resolution of the balanced budget/financial prudence requirement and the potential solutions to address this. As part of the development of the 2021-2031 LTP there will be an opportunity for Council to consider advice on a wide range of options. Given the limited timeframes ahead of the DAP consultation processes, it is expected that only relatively minor changes could be progressed for this DAP.

37. Impact of rates changes on average residential property: A rates revenue increase of 6.9% in 2020/21 and an assumed 1% for growth in the rating base would equate to approximately an increase of $186 per annum or $3.58 per week for existing ratepayers. This assumes that Council approve option 3 of the proposed changes to the rating policy (refer separate report). Note that the projected dollar impact on residential properties includes GST but excludes Greater Wellington Regional Council rates.

38. The key drivers for the change in rates include the following:

- Decisions by the previous Council (eg, Development Stimulus Package),

- Historical under funding and budget gaps in maintaining our assets and infrastructure (mainly due to escalating asset replacement costs),

- Legislative unavoidable costs (District Plan Review)

- Decisions by Council to fund improved community engagement and climate change initiatives.

Section D - Detailed financial analysis of DAP budgets

Operating performance

39. The table that follows provides further detail comparative information about the operating performance results. This assumes in the DAP an overall 2.8 rates revenue increase for inflation and an assumed 1% increase for growth in the rating base.

40. Table 4: Operating performance

$Millions	Actual 2018/19	Forecast 2019/20 (A)	DAP 2020/21 (B)	Variance (B – A)
Operating revenue	53.0	54.1	53.4	(0.7)	(1.3%)
Operating expenditure	179.0	181.6	187.1	(5.5)³	(3.0%)
Net operating deficit before rates income	(126.0)	(127.5)	(133.7)	(6.2)	(4.9%)
Rates income	105.3	108.1	112.2	4.1	3.8%
Net operating deficit	(20.7)	(19.4)	(21.5)	(2.1)	(10.8%)
Capital contributions	11.1	10.8	12.7	1.9
Net deficit before adjustments	(9.6)	(8.6)	(8.8)	(0.2)
Other non-operating adjustments	(17.7)¹	71.7²	-	(71.7)
Net Surplus/(Deficit)	(27.3)	63.1	(8.8)	(71.9)

Note 1: This includes impairment losses on assets (incl. Naenae Pool) $9.4M and loss on the fair value of derivatives $11.6M.

Note 2: Estimated gain on asset revaluations.

Note 3: This is mainly due to net increase in costs for employees $1.3M (largely driven by growth in city requiring additional regulatory service staff, together with budgeted staff salaries), increased depreciation $3.9M and increased net funding for Community facilities development $1M (includes Gymsports).

41. Further detailed Draft Annual Plan 2020/21 activity statements, funding impact statements, and financial statements are included as Appendices 7, 8 and 9.

42. The table that follows provides further detail comparative information about the operating performance results. This assumes a 2.8% rates revenue increase for DAP and a 1% assumed growth in the rating base.

Table 5: Revised operating results after adjusting for CFT, Development Stimulus Package and NZTA funding

$Millions	Actual 2018/19	Forecast 2019/20 (A)	DAP 2020/21 (B)	For information only: Equivalent rates increase
Net operating deficit	(20.7)	(19.4)	(21.5)	19.5%
Less: Community Facilities Trust grants for capital projects	2.7	0.6
Net deficit excluding CFT capital grants	(18.0)	(18.8)	(21.5)	19.5%
Add NZTA funding for renewals works, part of capital contributions	2.6	2.7	3.6
Net deficit	(15.4)	(16.1)	(17.9)	16.3%
Less: Development Stimulus package*	2.8	3.9	4.2
Net deficit (excl. Development Stimulus package)	(12.6)	(12.2)	(13.7)	12.5%

*The Development Stimulus Package can be viewed as an investment in growing the city's rating base at a faster rate than it would otherwise have grown. The rapid rise in the number of RMA and Building Act consents is evidence of a significant increase in the rate of growth of capital investment which will generate an increase in the city's rating base in the medium term. It has been adjusted out in table 5 to give a clearer view of the underlying operational performance.

43. With the additional rates revenue increase proposed of 4.1% to partially address the balanced budget shortfall, the DAP 2020/21 net deficit would be reduced from a deficit of $13.7M to a revised deficit of $9.3M. Further details are provided in Table 6.

Table 6: Revised net operating deficit after including additional rates revenue

	Base rates increase of 2.8% (inflation) Not recommended	Rates increase 6.9% (2.8% +4.1%)	Rates increase 7.9% (6.9%+1% for Naenae pool)
Net deficit result for 2020/21 – per Table 5	($13.7M)	($13.7M)	($13.7M)
Additional rates revenue		$4.4M	$5.5M
Additional costs Naenae pool		-	($1.5M)
Revised net deficit	($13.7M)	($9.3M)	($9.7M)
Average residential property rates increase per annum and per week	$101 p.a. $1.94 per week	$186 p.a. $3.58 per week	$207 p.a. $3.98 per week

Section E - Capital investment plans

44. Council has $1.5B of assets, mainly relating to core infrastructure of roads, three waters and solid waste. Council has a significant capital investment programme projected of around $0.77B over ten years (current LTP plus DAP adjustments (but excluding Naenae pool redevelopment)), which includes both renewal/replacement of existing assets together with the new assets to meet the needs of a growing city. Graphs 6 and 7 provide a high-level view of the proposed plans together with the mix of investment by activity.

45. Graph 6: projected capital expenditure plans (excludes Naenae pool redevelopment)

46. Graph 7: Capital expenditure split by type of expenditure

47. Our asset management plans identify the timing for renewals based on the condition of assets. An ongoing programme of condition assessment helps to build a detailed picture of assets. When we look at our planned renewals and our forecast depreciation together, the annual depreciation can be considered a reasonable estimate of annual renewals cost. If over time, renewals expenditure is approximately equal to depreciation, it can be reasonably assumed that the assets and services that they are providing are sustainable. For Council the estimated cost of capital renewals is less than the forecast depreciation however with the ageing assets (particularly Three Waters) it is expected that the annual cost of renewals in the LTP 2021-2031 will be closer to, or probably exceed, the annual depreciation expense.

48. Wellington Water recently presented a briefing to Council on 29 January 2020. Early indications regarding: 2021-2031 Long Term Plan from Wellington Water are that investment in the Three Waters will need to be revised to higher levels than previously budgeted in order to achieve improved outcomes. Initial indicative financial implications estimated at:

- $30M increase in operational expenditure over 10 years to improve maintenance of existing infrastructure and allow for robust planning.

- A further estimated $240M capital investment needed over 10 years for the replacement, renewals and to meet new demands.

NB – these budget revisions are not included in the DAP.

49. Graph 8: Comparison of projected depreciation and capital renewals

50. Including depreciation in our operating expenses each year is a way of ensuring ratepayers pay their fair share, of the assets they use and benefit from – it ensures intergenerational equity.

51. Capital delivery performance: There has been a history over the last few years of significant under delivery of capital expenditure plans, with a large number of projects experiencing delays for a range of reasons. This has flow on financial impacts, such as reduced debt. Whilst there has been some adjustment in the DAP to reflect the latest information about capital delivery performance, there will be further updates as the plan progresses.

52. Given the revised financial position projected in this report, officers recommend that Council look to potentially stop, pause or delay projects where possible, or consider opportunities to review the level of service planned with the proposed programme. Appendix 6 is a full listing of the projects included in the DAP. For example a $10M delay in capital expenditure for one year, results in lower debt and savings in interest costs of about $350k for the year the project is delayed.

Section F – Projected debt and financial strategy compliance

53. An initial view of the DAP after adjusting for all the agreed changes to budgets (per Section B) shows that if rates revenue increases are kept at 2.8% level (inflation) and an assumed 1% for growth in the rating base, the debt to revenue ratio limits as set in the LTP are exceeded as detailed in graphs 9 and 10. The interest expense to revenue limit of 10% is however not exceeded. At a higher rates revenue level of 6.9% increase and the 1% for assumed growth in rating base, the debt limits as set in the LTP are also exceeded but by not as much.

Graph 9: Projected debt with rates revenue increase at 2.8%

Graph 10: Projected debt to revenue ratio with rates revenue at 2.8%

54. Further projections are included in graphs 12, 13 and 14 later in this report which include Naenae pool and a proposed higher rate increase of 7.9%.

Section G - Financial strategy, proposed changes to debt to revenue limit

55. The Local Government Funding Agency (LGFA) has a primary objective of optimising the debt funding terms and conditions for participating local authorities. This includes providing savings in annual interest costs, making longer-term borrowings available and enhancing the certainty of access to debt markets. Council has been a shareholding local authority in the LGFA since May 2012.

56. When councils borrow from LGFA they agree to comply with financial covenants. Table 7 provides a comparison of the LGFA covenants with the Hutt City Council financial strategy limits. It is clear from this that Council’s financial strategy requirements are far more restrictive than the LGFA equivalents.

57. Table 7: Comparison of LGFA and HCC

LGFA Financial covenant for Councils with external credit rating		HCC Financial strategy equivalent limits
Net debt/total revenue	<250%	Net debt/total revenue	<150% in years 1 to 3, <130% in years 4 to 6,<110% in years 7 to 12, <90% in years 13 and beyond
Net interest/total revenue	<20%	Net interest/ revenue	<10%
Net interest/annual rates income	<25%	n/a	n/a
Liquidity	>110%	Liquidity	>110%

58. The Financial Strategies of Councils across New Zealand have a range of different debt to revenue constraints – refer graph 11. Whilst some Councils have set their self-imposed limits at the same level as the LGFA requirement of 250% (eg, Porirua, Tauranga) most of the Councils are at 175% and above level. All the Councils have a flat line approach across all years of the LTP. Hutt City Council is the only Council with staggered levels across different years of the LTP.

59. Graph 11: Comparison of peer Council’s debt to revenue limits

60. Given the current economic environment with low interest rates, it is recommended that Council reviews the debt to revenue limits. It is recommended that a proposed change is included in the DAP for consultation, alongside proposed additional rates revenue. This could be considered an initial review with a further more detailed review completed through the next LTP alongside a review of the full Financial Strategy and Infrastructure Strategy. Table 8 summarises the proposed change to the financial strategy debt to revenue limit. Council is requested to consider whether this proposed change should be consulted on through the LTP amendment process. These proposed changes align with the guiding principles detailed in paragraph 12, in particular the intergenerational equity and prudent financial management principles.

Table 8: Proposed changes to HCC Financial Strategy limits on borrowing

	Current limit	Proposed revised limit
Net debt/total revenue	<150% in years 1 to 3, <130% in years 4 to 6,<110% in years 7 to 12, <90% in years 13 and beyond	<180% for all years
Interest expense to revenue	<10%	No change¹

61. While the current financial strategy allows for debt levels to be 150% of revenue in years 1 to 3 of the plan, the lower debt limits in the outer years of the plan (130%, 110% and 90%), means the 150% limit cannot be utilised in years 1 to 3 unless there is a large planned reduction in the capital programme in the next three year period of the plan. As debt is repaid over the long term and not in short term, the staggered debt limits for Hutt City Council restricts Council’s ability to plan long term and effectively restricts debt down to the lower outer year debt limits.

62. Early indications regarding 2021-2031 Long Term Plan from Wellington Water are that investment in the Three Waters will need to be revised to higher levels than previously budgeted in order to achieve improved outcomes. Urgent work is currently underway to fully understand this and provide advice to Council (refer paragraph 48). There will be implications for projected debt, and the debt to revenue limits. A full consultation process will be undertaken as part of the LTP 2021-2031. Council may consider whether consultation on a higher debt to revenue limit (say 200%) is progressed as part of this Annual Plan 2020/21. Officers advice is that a further higher change to the debt to revenue limit is best progressed through the next LTP as it is important to consider all aspects of the financial strategy in tandem, and in particular ensure that there is sufficient revenue to fund capital investment plans whilst meeting financial prudence requirements.

63. In the event of a “significant natural disaster” the 2018-2018 LTP allows for a revised maximum of 170% debt to revenue limit. It is recommended that a higher limit for a significant natural disaster is retained in Council’s revised financial strategy and that this is 20% higher the proposed limit to be consulted on.

64. Council has a strong AA credit rating from Standard and Poors. Other Councils with the same rating include Wellington City Council, Greater Wellington Regional Council, Dunedin City Council, Kāpiti Coast District Council and Porirua City Council. There are a range of Councils with lower ratings such as Tauranga AA-, Christchurch City Council A+, Hamilton City Council AA- and Rotorua AA-.

65. LGFA has an additional lending margin for Council’s with a credit rating lower than AA (AA- extra charge 0.05%; A+ extra charge 0.10%). This means that at an average debt level of $250M, interest cost would increase by ~$125k pa. for an AA- credit rating and $250k pa. for an A+ credit rating. In the current low interest rate environment, this is a comparatively minor additional cost of funds.

66. The best way to avoid a credit rating drop is to increase revenues alongside debt increases to show rating agencies that steps have been taken to manage financial risks.

The proposed change to Council’s debt to revenue limit is not expected to result in any change to Council‘s credit rating, particularly given that there are proposed increases in rates revenue detailed in this report.

Interest costs of debt are also at a historical low level, which means that debt is more affordable. Council’s projected average cost of debt, including existing fixed interest rates and interest rate swaps, is ranging between 3 to 3.5% pa. currently. In early February 2020 we plan to issue new 10 year debt (part of the Annual Plan 2019/20) and the estimated all up cost of this debt will be about 2.15% per annum.

Section H – Naenae pool and fitness suite redevelopment

67. The Council meeting held on 10 December 2019 included the “Report back on the Voice of the Community options for Naenae Pool and the vision for the town centre”. An LTP amendment is to be progressed and will seek community feedback on a proposal to invest $52M (excluding inflation) in the development of a new Naenae Pool and Fitness Suite. The LTP included $9M set aside for maintenance works at the pool, so the proposed new capital investment will be a significant change to the previous plans.

68. Whilst there are a range of possible funding options to offset the costs of this project (eg, sale of assets, removing or deferring projects currently in the LTP), the most likely funding source for the majority of the project will be debt funding. Additional rates funding will be required to service the operational cost impacts of this project, including the cost of debt and depreciation.

69. Financial modelling has been completed to understand the financial impact of this investment. A rates increase of one percent for 2020/21 is required to fund the initial costs (includes demolition, asbestos removal, project management) with a further rates increase of about 0.5% in 2022/23 and 0.5% in 2024/25 to fund the debt related costs of the construction. Table 9 provides an updated view of the proposed rates increase to resolve both the balanced budget shortfall and the Naenae pool redevelopment.

Table 9: Proposed overall annual percentage increase in rates revenue income

	2020/21	2021/22	2022/23	2023/24	2024/25	2025-2030
Rates increase for inflation (LGCI)	2.8%	2.2%	2.2%	2.3%	2.3%	2.47%
Rates increase to achieve balanced budget	4.1%	1.6%²	1.6%²	-	-	-
Subtotal - revised rates increase	6.9%¹	3.8%¹	3.8%¹	2.3%¹	2.3%¹	2.47%¹
Rates increase for proposed Naenae pool and fitness suite redevelopment	1.0%	-	0.5%	-	0.5%	-
Total rates increase incl. Naenae Pool	7.9%¹	3.8%²	4.3%²	2.3%²	2.8%²	2.47%²

Note 1 - Refer Table 2 for information on growth in the rating base assumptions.

Note 2 – A report released by Wellington Water on 29 January 2020 indicated a significant increase in investment required in the 2021-2031 LTP compared to the current LTP. The rates increase included here does not reflect any adjustment for the potential rates impact as it is currently uncertain.

70. The updated financial projections after including Naenae pool redevelopment and a 7.9% rates increase in 2020/21 is shown in graphs 12, 13 and 14. Within the proposed changes to the limits detailed in Table 8, Council would be fully compliant with these limits. Note that debt peaks just under $350M in 2024/25.

Graph 12: Projected debt with Naenae pool and extra rates

Graph 13: Projected debt to revenue ratio with Naenae pool and extra rates

Graph 14: Projected interest expense to revenue ratio

71. Impact of rates changes on average residential property: An overall rates revenue increase of 7.9% would equate to an indicative average increase of approximately $207 per annum or $3.98 per week for existing ratepayers. This assumes that Council support option 3 of the proposed changes to the rating policy which results in a further increase in the rates of $54 per annum being avoided (ie, increase of $207 would be increase to $261 per annum, refer separate report). Graphs 15 and 16 provide a summary of the key drivers for the change in rates percentage as well as the impact for average residential property.

Graph 15: Summary of rates increase by percentage for DAP 2020/21

Graph 16: Key components of rates increase for average residential property by dollar amount for DAP 2020/21

For further details about the projected impact on rates for various categories of properties and suburbs across the city please refer to report:

Impact of general revaluation 2019 and rating options for consultation

Appendix 3, Detailed rating impact, Section B in particular table 24 and table 27.

Section I – Proposed changes to recycling and refuse targeted rate effective for from 1 July 2021, i.e. 2021/22

72. The proposed LTP amendment will seek community feedback on changes to a new recycling system using bins, and discontinuing with the rubbish bag collection service and instead introducing a city-wide bin service for residential properties.

73. It is proposed that the service changes would be implemented from 1 July 2021. Due to the long planning, procurement and implementation processes involved, Council is consulting on this early. Set up costs incurred in 2020/21 would be funded from general rates.

74. The recycling service changes would result in additional costs of about $0.9M in 2021/22, which are estimated to increase the targeted recycling rate from current $40 per household to $69 per household.

75. The key cost implications for the proposed rubbish bin collection service are indicatively between $3.5M to $4.5M for 2021/22 depending on the frequency of collection. It is proposed that this would be funded via a new targeted rate for refuse of $144 per property per year for a weekly collection service or $115 per property per year for a fortnightly collection. Households would have offsetting savings from their current rubbish collection costs. Other alternative options proposed include consulting on a “pay as you throw” rubbish bin collection service where there would be no targeted rates impact as costs would be paid directly by participating households to the service provider. A proposed “opt-in” green waste collection service would cost an estimated $60 per household per year and would be charged as a targeted rate. A rates remissions policy would be developed alongside any rating changes implemented to assist with resolving issues such as properties choosing to reduce bin size during the year or reduce the services.

76. This proposed change to the level of service provided, together with changes to targeted rates is a significant change to the LTP. An LTP amendment will be prepared and externally audited during February. Ahead of the consultation progressing, the audited version will be presented for Council approval at its meeting to be held on 18 March 2020. A separate report on this agenda provides further information on this matter.

Section J - Other budget matters for consideration by Council

77. At the Council meeting held on 10 December 2019, consideration was given to a number of budget matters whereby officers were requested to provide additional information ahead of decisions. Table 10 and the relevant appendices provide this information. Council is requested to consider each of these budget matters and provide guidance to officers as to the approach to be taken for the Draft Annual Plan 2020/21.

Table 10: Budget matters requiring Council review and decisions

	Brief description	Financial impact	Further information (Appendix 3)
1.	Three Waters - wastewater	Additional funding sought of $250k pa. related to infiltration issues with the wastewater network. Officers have assumed that Council will approve this budget request and the draft budgets presented in this report include this item.	Refer Appendix A.
2.	Flare at Silverstream landfill	Officers have withdrawn this funding request in the interim. As part of the LTP 2021-2031 this project will be assessed and reported back to Council.	N/A
3.	Hutt Valley Tennis (HVT) pavilion	Operational grant funding of $1.35M approved in Annual Plan 2019/20 however placed on hold pending Naenae Pool decision. December 2019 Council meeting resolution: “acknowledges the history of the HVT proposal, and that in part, Squash leaving for Fraser Park Sportsville has led to this position. Council still supports $500k as originally agreed and directs officers to work with HVT on a solution – On the basis that an additional $805k is unlikely to be available in the form of a direct grant, given the budget pressures and priorities we face.” Officers have worked closely with HVT to explore both alternative project options (5) and alternative funding models (5), as outlined in the appendices. HVT remain of the view that only Plan 1 will ensure it can continue to operate successfully in the future. In response to Council’s request for options at the fixed level of $500k, officers believe the most pragmatic solution is Plan 3, which would enable upgrades to the pavilion to eliminate public risk, along with improvements to parking, grounds and access. Officers would also continue to work with HVT on the challenge of increasing operating revenue to remain sustainable. If this was not acceptable to HVT, Council could consider the wider strategic context for the city and investigate Plan 5 – relocation and/or integration of tennis facilities in line with our long-term strategy for sports facilities. This option has been pursued previously by Council unsuccessfully due to lack of buy in from affected sporting bodies.	Refer Appendix H and Appendix 4 and 5.
4.	Hutt Valley Gym Sports facility (HVG)	Capital funding of $2M included in Annual Plan 2019/20 however placed on hold pending Naenae pool decision. December 2019 Council meeting resolution: “Officers work with Hutt Valley Gym Sports on the basis that an additional $2M is unlikely to be available in the form of a direct grant, given the budget pressures and priorities we face”. Officers have been in discussion with HVG to consider alternative options. Officers recommend including $500k to support the new option of a redeveloped facility at Fraser Park.	Refer Appendix B.
5.	Wainuiomata Hub	Wainuiomata Hub – Capital funding of $8M in 2028/29. December 2019 Council meeting resolution: “Officers prepare information for Council to consider what budget amount should be considered for the Wainuiomata town centre in light of the Progressive development plan, on the understanding that the amount will be significantly less than $8M”. Officers recommend a revised budget of $4.3M in 2028/29. Base budgets have been updated to include maintenance works required in the interim.	Refer Appendix C.
6.	Living wage	Council has paid the living wage to all directly employed staff since 1 July 2018. It is proposed that the living wage for council contractors will be implemented as agreements come up for renewal, and that in addition work will be undertaken for Council to become a Living Wage employer. It is recommended that this approach is extended to apply across the Council group ie, that the Living wage be extended to apply to all Council Controlled Organisations. No additional budget is sort as funding would be reprioritised from within existing base budgets.	Refer Appendix D.
7.	Emergency Response Team Facility	Capital funding of $250k is sought in 2020/21 which includes an emergency co-ordination centre and area for equipment and trailer storage. Officers have assumed that Council will approve this budget request and the draft budgets presented in this report include this item.	Refer Appendix E
8.	Fraser Park Sportsville Operations	Current funding of $100k pa is proposed to be increased by $300k in 2020/21, and similarly increased in later years. This is due to problems with the operating model in the first nine months of operation, mainly lack of revenue generation. A full report on this and options for the future operating model will be provided to Council in April 2019. Officers recommend no increase in the base budget until a full detailed report has been considered.	Refer Appendix F
9.	Fraser Park grandstand demolition	Officers recommend including $0.3M. The grandstand will have to be removed at some stage (this is also a requirement of the Gymsports proposal Council is considering) and in the intervening time we are mindful of the need for ongoing public safety.	Refer Appendix G
10.	Digital Transformation	Investment of $10.8M has been included in the budgets following direction from Council at 10 December 2019 meeting. A further more detailed report is provided here to support Council decisions.	Refer Appendix I
11.	Seaview Wastewater Plant Seismic Upgrade	Wellington Water have advised that additional funding of $1.2M for 2020/21 is sought to complete the seismic upgrade of the pumping station and milliscreen treatment building at the Seaview Wastewater Treatment plant (SWTP). This follows a tender process and value engineering. The full upgrade costs are projected to be $5.7M. Officers recommend that this funding is included in the 2020/21 budget.	Refer Appendix J
12.	Operational savings target introduced of $1M	Targeted savings programme led by the Chief Executive with a goal of achieving operational savings of $1M in 2020/21. The focus will be on delivering our services in the most effective and efficient manner to ensure the best value for each dollar we collect. Efficiency initiatives will include : Improved business processes Better use of technology Better procurement and tendering processes Controlling the growth in our core operating expenditure. Officers have assumed that this savings target will be included in the next version of the DAP that is produced. Note also that as part of the LTP process a full base budget review will be completed including reviewing priorities.

Further information

78. Included as Appendix 10 is a breakdown of general rates revenue for 2019/20 split by rating category and suburb.

Next steps

79. There are a number of steps to be completed ahead of the Draft Annual Plan 2020/21 and LTP amendment being finalised for consultation. This includes:

(i) The 2019/20 forecast results from the half year results will be updated into projections for the DAP.

(ii) Detailed LTP amendment content is to further developed and audited by Audit NZ.

(iii) Draft Annual Plan 2020/21 financial information is prepared and signed out by Council on 18 March 2020 ahead of consultation.

Community Engagement and Consultation

80. This is covered in the separate report on this agenda.

Legal Considerations

81. The requirements of the Act will be followed in preparing the 2020/21 Annual Plan and LTP amendment. In particular note the legislative requirement for a “balanced budget”.

Financial Considerations

82. All work required as part of the 2020/21 Annual Plan and LTP amendment will be undertaken within current budgets.

Appendices

No.	Title	Page
1 ⇩	Appendix 1 Summary of significant budget matters progressed from 10 December 2019 Council meeting	157
2 ⇩	Appendix 2 Proposed changes to fees and charges for consultation	160
3 ⇩	Appendix 3 Appendices providing additional budget information (refer summary in Table 10)	213
4 ⇩	Appendix 4 Hutt Valley Submission April 2019	258
5 ⇩	Appendix 5 Hutt Valley Tennis Funding paper January 2020	274
6 ⇩	Appendix 6 Projects List	279
7 ⇩	Appendix 7 Activity Statements	285
8 ⇩	Appendix 8 Funding Impact Statements	299
9 ⇩	Appendix 9 Financial Statements	309
10 ⇩	Appendix 10 2019/20 general rates revenue split by rating category and suburb	313
11 ⇩	Appendix 11 Average yearly growth in rates per person across New Zealand from 2000 to 2018, Extract from Productivity Commission report on Local Government Funding and Financing Inquiry	314

Author: Philip Benseman

Budgeting and Reporting Manager

Author: Jenny Livschitz

Chief Financial Officer

Author: Wendy Moore

Head of Strategy and Planning

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Jo Miller

Chief Executive

Mayor C Barry (Chair) Deputy Mayor T Lewis

Cr D Bassett	Cr J Briggs
Cr K Brown	Cr B Dyer
Cr S Edwards	Cr D Hislop
Cr C Milne	Cr A Mitchell
Cr S Rasheed	Cr N Shaw
Cr L Sutton

Activity	Date
Long Term Plan/Annual Plan Subcommittee/Council meet to approve typeset CD and adopt underlying information	18 March 2020
Public engagement	6 April – 3 May 2020
Hearing of feedback from those who want to address the Subcommittee in person	13-14 May 2020
Long Term Plan and Annual Plan Subcommittee/Council agree final changes to Annual Plan and LTP Amendment	10 June 2020
Council meet to adopt Annual Plan and LTP amendment and set the rates	30 June 2020
Annual Plan and LTP amendment published	July 2020

Options	Yes	No
Option 1: Council provides a recycling collection service, and a weekly rubbish bin collection service. All costs in option 1 would be recovered through targeted rates from 1 July 2021. The total impact on rates charges per year is estimated to be an increase of $29 per property for the recycling and $144 per property per year for rubbish- a total increase of $173 per year.
Option 2: Council provides a recycling collection service, and a fortnightly rubbish bin collection service All costs in option 2 would be recovered through targeted rates from 1 July 2021. The total impact on rates charges per year is estimated to be an increase of $29 per property for recycling and $115 per property per year for rubbish – a total increase of $144 per year.
Option 3: Council provides a recycling collection service only. Council would no longer offer a rubbish collection service. In option 3, only the costs for the recycling service would be recovered through targeted rates from 1 July 2021. The total impact on rates charges per year is estimated to be $29 per property per year. There is no rates impact regarding rubbish collection, as households would pay for their own preferred provider.
Option 4: Council provides a recycling collection service, and a ‘pay-as-you-throw’ rubbish collection service In option 4, only the costs for the recycling service would be recovered through the targeted rate from 1 July 2021. The total impact on rates charges per year is estimated to be $29 per property per year. For the pay-as-you-throw rubbish service, there is no rates impact. Costs would be paid for by participating households via the selected service provider.
Optional add-on: Council provides green (garden) waste collection service Hutt City Council provides households with a 240-litre green waste wheelie bin, collected every four weeks. Households would only pay for this service if they have opted-in. The green waste bin would only be available for garden waste. It would not be able to be used for any food waste. Estimated at $60 per property/year – optional cost added on to annual rates for that property.

	Brief description	Financial impact
1.	Bulk water cost increases from Greater Wellington Regional Council	Opex budget increases: $0.1M 2020/21, $0.4M 2021/22, $0.7M 2022/23 continuing to increase. Over ten year period increase of $7.7M.
2.	Urban Growth Strategy Development Stimulus Package	Overall opex increase of $2.4M over ten years offset by $2M carryover from 2019/20. Development delays have resulted in budget timing changes.
3.	Community facilities – seismic strengthening	Increase in budgets of $2.5M over three years, comprising $2.1M capex and $0.4M opex.
4.	District Plan Review	Increased costs of $2.9M over four years to meet legislative requirements.
5.	Insurance increases	Based on latest market information from specialist insurance advisors, budget increased by $0.4M.
7.	Water Supply and Wastewater	Water Supply: increased capex of $10.7M over ten years largely to support investment required for Reservoirs to support growth and seismic strengthening issues. Wastewater: increased capex of $23M over ten years to support investment in Petone Collector Main and Outfall pipeline overflow mitigation.

	Brief description	Financial impact
1.	Digital transformation	Increased IT funding to address the critical ”stabilise” work programme together with supporting business transformation deliverables. Additional investment of $10.8M over first four years, with further investment ongoing thereafter included in the DAP. Refer Appendix 11 for further information on this matter.
2.	Climate change	Funding of $0.2M pa. included in the DAP to progress climate resilience and carbon reduction works, in line with Council’s carbon target.
3.	Wellington Regional Growth Framework and Investment Plan	Funding of $50k pa. included in the DAP to support work programmes.
4.	Community engagement – centralised approach	Funding of $0.4M pa. included in the DAP to enable an improved approach to engagement and to do more and better engagement.
5.	Melling interchange and RiverLink – financial risks associated with scope changes and uncertainty of cost share splits	The budget of $51.7M is not expected to be sufficient. Additional budget of $22.5M has been included in the DAP to reflect indicative Melling Interchange costs for property purchases and other costs associated with local road system, walking and cycling. Note further contingency cost risks of $27.5M associated with development costs, bus interchange, train station and public facilities are not proposed to be included in budgets at this stage.
6.	Cross Valley Transport Connections project – increased costs and uncertainty of NZTA funding	In the recent development of the programme business case, a revised estimate of $90M to $140M has been costed which is significantly higher than the $65M budgeted. There is also no commitment from NZTA as yet to fund the construction of this project as yet. The budget has been updated in the DAP to reflect a more up to date costing of an extra $55M partially offset by assumed NZTA funding. The timing of the project has been updated to enable consenting to progress followed by construction in about 2025 to 2027.
7.	Active Transport – Cycleways Project	The original budget agreed by Council for this programme was $28M, with Wainuiomata Hill completed at a cost of $12.3M and the Beltway Northern and Central Sections forecast to cost $5.4M and Eastern Bays estimated to cost $25M. There is a potential overall budget shortfall of approximately $15M. There is uncertainty about the resource consenting conditions required for Eastern Bays cycleway together with uncertainty as to whether NZTA will fund this project. The DAP has been updated to include the estimated additional budget of $15M together with assumed NZTA funding, and that the timing of this is deferred for three years to enable the consenting process and NZTA funding uncertainties to be resolved.
8.	Events and promotions	A review of the Events Strategy 2013-2023 to be undertaken, together with consideration to be given for a biennial Highlight Event and a review of the return on investment. No change to funding in the DAP.
9.	Community Boards and Panels	No changes to funding levels. A review to be undertaken of Community Panels.
10.	Community funding	No change to funding levels. A review is undertaken of the Community Funding Strategy which will inform future funding requirements.
11.	Wainuiomata Dog Park	Additional capital funding of $0.28M in 2020/21 combined with $0.22M in 2019/20 included in the DAP. This funding is from dog registration fees and there is no rates funding requirement.
12.	Resource recovery at Silverstream landfill transfer station	Additional capital funding of $0.35M included in 2020/21 to fund improvements.
13.	Wainuiomata Sportsville	DAP includes $2.2M in 2026/27, with funding previously included in 2020/21 of $2.7M removed. Council has resolved that officers work with the Wainuiomata Sportsville Board to look at options for the future.
14.	Te Whiti Park Building extension, Bell Park development $0.25M	Capital funding for Te Whiti Park extension $0.3M and Bell Park development (Ignite Sport) $0.25M projects were included in the Annual plan 2019/20 however they were placed on hold pending decision on Naenae Pool. Council resolved 10 December 2019 to release funding for these and for the projects to proceed.

	2019/2020		2020/2021
		Cost Including Doggone Tag*		Cost Including Doggone Tag*
*Owners can opt to purchase the Doggone Tag
Entire Dog	$135.00	$163.00	$150.00	$183.00
Neutered	$100.00	$128.00	$115.00	$148.00
All dogs not registered by 3 August	$185.00	$213.00	$200.00	$233.00
Classified “Dangerous”	$150.00	$178.00	$165.00	$198.00
Classified “Dangerous” and not registered by 3 August	$225.00	$253.00	$240.00	$273.00
Responsible Dog Owner (RDO) status	$75.00	$103.00	$75.00	$108.00
Disability assist dogs	$0.00		$0.00
Replacement registration tags	$5.00		$5.00
Euthanasia at owner’s request	$35.00		$50.00
Dog disposal/surrender fee (plus sustenance fee below if required)	$35.00		$50.00
Licence fee for keeping more than two dogs	$65.00		$65.00
After hours collection fee	$40.00		$40.00
Requested Dog pick-up/delivery	$65.00		$65.00
RDO property inspection	$65.00		$65.00
Infringement fees set in the Dog Control Act 1996 apply
Micro-chipping fee	$35.00		$35.00
Boarding fee per day	$25.00		$25.00
Impounding and Sustenance Fees (Registered Dogs)
First impounding during year of registration	$100.00		$100.00
Second impounding during year of registration	$160.00		$160.00
Sustenance fee per dog per day	$25.00		$20.00
Seizure fee	$80.00		$80.00
Impounding and Sustenance Fees (Unregistered Dogs)
First impounding during year of registration	$120.00		$120.00
Second impounding during year of registration	$200.00		$200.00
Sustenance fee per dog per day	$25.00		$20.00
Seizure fee	$120.00		$120.00

	2019/2020	2020/2021
There is no charge for inspecting items at the public reading room
Search Fees for information on a topic, individual or property where Archive staff can identify the records by searching the finding aids
First hour of research	Free of charge	Free of charge
Fee per additional half-hour or part thereof	$38.00	$38.00
Research Fees for information on a topic, individual or property where Archive staff need to retrieve and research the records for any relevant information
Fee per half-hour or part thereof	$38.00	$38.00
Photocopy and Scanning Fees for A4 and A3
Please note the following: Researchers can use their own camera. There is a separate charge for postage and for DVD-RW discs. Copying is subject to the physical condition, type of the item and in some cases copyright legislation.
Photocopying and Scanning A4, up to 20 pages	Free of charge	Free of charge
Photocopying A4 - after the first 20 pages	$0.20 per page*	$0.20 per page*
Scanning A4 – after the first 20 pages	$0.10 per page*	$0.10 per page*
Photocopying A3 – Black and White, and Colour	$2.00 per page*	$2.00 per page*
Scanning A3 – Black and White, and Colour	$1.00 per page*	$1.00 per page*
For Scanning and photocopying items larger than A3 staff will inform you of the cost.

	2019/2020	2020/2021
Boat shed	Independent valuation on a square metre basis	Independent valuation on a square metre basis

	2019/2020	2020/2021
Plot Purchase and Maintenance In-perpetuity