HuttCity_TeAwaKairangi_BLACK_AGENDA_COVER

 

 

Long Term Plan/Annual Plan Subcommittee

 

 

11 March 2020

 

 

 

Order Paper for the meeting to be held in the

Council Chambers, 2nd Floor, 30 Laings Road, Lower Hutt,

on:

 

 

 

 

 

Wednesday 18 March 2020 commencing at 2.00pm

 

 

 

 

Membership

 

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

 

 

 

For the dates and times of Council Meetings please visit www.huttcity.govt.nz

 

Have your say

You can speak under public comment to items on the agenda to the Mayor and Councillors at this meeting. Please let us know by noon the working day before the meeting. You can do this by emailing DemocraticServicesTeam@huttcity.govt.nz or calling the Democratic Services Team on 04 570 6666 | 0800 HUTT CITY


HuttCity_TeAwaKairangi_SCREEN_MEDRES

 

PURPOSE

To carry out all necessary considerations and hearings, precedent to the Council’s final adoption of Long Term Plans (LTP) and Annual Plans (AP) which give effect to the strategic direction and outcomes set by the Policy, Finance and Strategy Committee through setting levels of service, funding priorities, the performance framework and budgets.

 

Determine:

       Development of a framework and timetable for the LTP and AP processes.

       The nature and scope of engagement and public consultation required.

       Statements to the media.

       Such other matters as the Subcommittee considers appropriate and which fall within its Terms of Reference.

       Informal engagement with the community, and the hearing of any formal public submissions.

       Consideration of submissions on Hutt City Council’s Assessment of Water and Sanitary Services.

 

Consider and make recommendations to Council:

     Levels of service, funding priorities, performance framework, budgets, rating levels and policies required as part of the LTP or AP, excluding any policies recommended to Council by the Policy, Finance and Strategy Committee.

     Consultation Documents.

     Council’s proposed and final LTP.

     Council’s proposed and final AP.

     Final content and wording, and adoption of the final Hutt City Council Assessment of Water and Sanitary Services.

Note:

Extract from the Controller and Auditor General’s October 2010 Good Practice Guide: Guidance for members of local authorities about the Local Authorities (Members’ Interests) Act 1968

 

Appointment as the local authority’s representative on another organisation

5.47         You may have been appointed as the authority’s representative on the governing body of a council-controlled organisation or another body (for example, a community-based trust).

5.48         That role will not usually prevent you from participating in authority matters concerning the other organisation – especially if the role gives you specialised knowledge that it would be valuable to contribute.

5.49         However, you could create legal risks to the decision if your participation in that decision raises a conflict between your duty as a member of the local authority and any duty to act in the interests of the other organisation. These situations are not clear cut and will often require careful consideration and specific legal advice.

5.50         Similarly, if your involvement with the other organisation raises a risk of predetermination, the legal risks to the decision of the authority as a result of your participation may be higher, for example, if the other organisation has made a formal submission to the authority as part of a public submissions process.

 

    


HUTT CITY COUNCIL

 

Long Term Plan/Annual Plan Subcommittee

 

Meeting to be held in the Council Chambers, 2nd Floor, 30 Laings Road, Lower Hutt on

 Wednesday 18 March 2020 commencing at 2.00pm.

 

ORDER PAPER

 

Public Business

 

1.       OPENING FORMALITIES - Karakia Timatanga 

Kia hora te marino

Kia whakapapa pounamu te moana

He huarahi mā tātou i te rangi nei

Aroha atu, aroha mai

Tātou i a tātou katoa

Hui e Tāiki e!

May peace be wide spread

May the sea be like greenstone

A pathway for us all this day

Let us show respect for each other

For one another

Bind us together!

 

2.       APOLOGIES 

Deputy Mayor Lewis and Cr Shaw

3.       PUBLIC COMMENT

Generally up to 30 minutes is set aside for public comment (three minutes per speaker on items appearing on the agenda). Speakers may be asked questions on the matters they raise.       

4.       CONFLICT OF INTEREST DECLARATIONS

Members are reminded of the need to be vigilant to stand aside from decision making when a conflict arises between their role as a member and any private or other external interest they might have      

5.       Recommendations to Council - 18 March 2020

i)       Draft Annual Plan 2020-21 and Long Term Plan 2018-2028 Amendment (20/160)

Report No. LTPAP2020/2/75 by the Budgeting and Reporting Manager 7

Chair’s Recommendation:

“That the recommendations contained within the report be endorsed.”

 

 

 

ii)      Recommendation from the Community and Environment Committee - Cycleway Projects Updates and Budgets (20/195)

Report No. LTPAP2020/2/31 by the Committee Advisor                      411

Chair’s Recommendation:

“That the Subcommittee:

(i)       recommends that Council approves the allocation of an additional $19.1M to complete all the projects in the original Cycleways programme (this includes the provisional placeholder of $15M currently in the Draft Annual Plan 2020/21);

(ii)     notes that, due to the timing of the new information regarding the cost of the Cycleways programme and the external audit process of the Consultation Document (CD) for the Amendment to the Long Term Plan 2018-2028 (LTP), the additional $4.1M has not been included in the base budgets or financial information presented in the CD or other LTP documentation to be consulted on;

(iii)   notes that the CD includes commentary regarding the additional cost of $4.1M to complete all the projects in the original Cycleways programme; and

(iv)   notes that, following the consultation process and ahead of finalising the Annual Plan 2020/21, the budgets will be updated to reflect the decisions of Council.”

    

6.       Information Item

RiverLink Project (20/216)

Memorandum dated 2 March 2020 by the Head of Strategy and Planning    428      

Chair’s Recommendation:

“That the information be received.”

7.       QUESTIONS

With reference to section 32 of Standing Orders, before putting a question a member shall endeavour to obtain the information. Questions shall be concise and in writing and handed to the Chair prior to the commencement of the meeting.   

 

 

 

Donna Male

COMMITTEE ADVISOR

          


                                                                                       8                                                          18 March 2020

Long Term Plan/Annual Plan Subcommittee

25 February 2020

 

 

 

File: (20/160)

 

 

 

 

Report no: LTPAP2020/2/75

 

Draft Annual Plan 2020-21 and Long Term Plan 2018-2028 Amendment

 

Purpose of Report

1.    The purpose of this report is to seek approval of the Consultation Document for an Amendment to the Long Term Plan 2018-2028, adoption of the information that underlies the document and adoption of the proposed Amendment to the Long Term Plan 2018-2028.

Recommendations

That the Subcommittee recommends that Council:

(i)    receives the information;

(ii)   notes that the Consultation Document on the Amendment to the Long Term Plan 2018-2028 is going through its final audit with Audit New Zealand and any necessary changes will be reflected in an updated version that will be circulated prior to the meeting;

(iii)  agrees to adopt the underlying information for the Draft Annual Plan 2020-21 and the Long Term Plan 2018-2028 Amendment, attached as Appendix 9 to 19 to the report;

(iv) agrees to adopt the proposed Amendment to the Long Term Plan 2018-2028, attached as Appendix 8 to the report;

(v)  agrees to adopt the Consultation Document attached as Appendix 1 to the report for public consultation between 6 April and 7 May 2020;

(vi) receives the Audit opinion from Audit New Zealand following the adoption of the Consultation Document; and

(vii)     notes the additional content for the LTP Amendment Feedback Form and Annual Plan Flyer, which includes reference to the Hutt Valley Tennis funding matter, refer to Appendix 20 and 21 attached to the report.  

 

Acronyms:

DAP – Draft Annual Plan 2020/21

FAP – Final Annual Plan 2020/21

LTP – Long Term Plan 2018-2028

 


 

Executive Summary

2.    The proposed capital programme is $814M over the 10 year period 2020/21 to 2029/30 which is $185M (29%) higher than planned in the LTP.

This is largely due to new information about projects that were planned for in the LTP (eg, RiverLink, Cross Valley Connection, Cycleways programme)  together with additional funding set aside for Three Waters $47M, Naenae Pool and fitness centre development $43M and other priority areas such as seismic strengthening of Council properties.

3.    Operational expenditure over the ten year period has increased by $136M largely due to increased costs related to the capital investment (includes depreciation $46M) together with increased costs of Three Waters $17M, the Development Stimulus Package $17M and increased District Plan legislative costs, IT costs and a range of other priority initiatives (such as Homelessness Strategy, Climate change, community engagement etc,).  

4.    Rating impact for the average residential property:

Average capital value July 2019

$476,000

Average capital value July 2020

$627,000

% change in value

32%

2019/20 rates charges

$2,477

2020/21 rates charges

$2,689

Change per week

$4.08

The overall rates revenue increase included in the draft Annual Plan is 7.9% after assumed growth in the rating base of 1%. 

5.    The rating impact on individual properties will vary depending on the changes to property values in the 2019 property revaluation. Residential properties increased in value on average by 31.8% whilst commercial properties increased on average by 16.9%. The average rating impact for residential properties by suburb shows a range of between $1.18 per week to $6.61 per week.

A proposed change to the Rating Differential Policy for 2020/21 will keep the allocation of general rates at the same percentage splits between property rating groups as in 2019/20. This change results in an increase in rates for the average residential property being avoided of $51 per annum. A full review of the Rating Differentials Policy is planned as part of the LTP 2021-2031.  

6.    Key topics included in the proposed LTP amendment include:

-      Our capital investment programme

o   Naenae Pool and fitness centre

o   Three waters, Roading and Cycleways

-      How we finance our work programme

o   Includes changes to financial strategy for rates revenue increase and debt limits

-      How rates are spread between different property categories (rating differentials)

-      Proposed changes to recycling and rubbish collection from 1 July 2021.

Refer Appendix 1: Consultation Document on the LTP Amendment.

Refer Appendix 8: Proposed amendment to the LTP 2018-2028 (detailed).  

7.    The next LTP 2021-2031 will include a full review of the Infrastructure Strategy, Financial Strategy and key policies such as the Revenue and Financing Policy and Development Contributions Policy. This full review will be undertaken in 2020/21. A high level plan and approach will be reported to the Long Term Plan/Annual Plan Subcommittee.

 


 

Section A - Background and high-level plan

8.    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 a LTP year the first year of the plan becomes the Annual Plan and no separate document is required. Council prepared an Annual Plan in 2019/20 and is again required to prepare an Annual Plan for 2020/21. Following this a LTP will be prepared for the period 2021-2031.

9.    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). At the Council meeting held on 11 February 2020 a number of decisions were made and these have been incorporated into the Consultation Document (refer Appendix 1), the LTP Amendment document and the Draft Annual Plan 2020/21.

10.  The meeting on 11 February 2020 also included the appointment of a working group, comprising Mayor Barry, Deputy Mayor Lewis and Councillors Edwards and Hislop, to provide ongoing guidance on the Consultation Document.

11.  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

Complete

External audit of Consultation Document and LTP Amendment 

February to  March 2020

In progress

Council meets to approve final Consultation Document and adopts underlying information

18 March 2020

Today

Public consultation

6 April – 7 May

 

 

Not started

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

 

Section B - Background on financial aspects, including budget changes

12.  At the Council meeting held on 10 December 2019, detailed information was presented on the budget assumptions and parameters to be applied in the preparation of the 2020/21 budgets, together with information on significant budget matters. Council progressed decisions and guidance to enable officers to develop the draft budgets. 

13.  At the Long Term Plan/Annual Plan Subcommittee meeting held on 11 February 2020, an initial draft of the Draft Annual Plan 2020/21 content was presented for consideration. Included were the guiding principles which were reviewed and approved (refer Appendix 3). Further Council decisions were progressed on a number of matters ahead of finalising the DAP for consultation. Table 2 provides a summary of the budget related decisions. 

Table 2: Summary of budget related decisions at 11 February 2020 meeting

 

Brief description

Financial impact

1.

Three Waters - wastewater

Increased operational funding of $250k pa. to be included in DAP, related to infiltration issues with the wastewater network.

2.

Seaview Wastewater Plant seismic upgrade

Increased capital funding of $1.2M for 2020/21 was agreed for the seismic upgrade of the pumping station and milliscreen treatment building at the Seaview Wastewater Treatment Plant.

3.

Three Waters

Increased operational expenditure of $500k for 2020/21, which includes:

-           $200k to fix water supply leaks in the network

-           $50k planning for Three Waters infrastructure to service population growth

-           $50k for consenting works related to major intakes and retention dams

-           $200k for critical asset condition assessment.

Increased capital renewals expenditure of $2M for 2020/21, to enable fast tracking constructions of key renewals for water supply and wastewater pipes which are in poor condition, as well as renewing a number of critical wastewater pumps. 

4.

Hutt Valley Tennis (HVT) pavilion

Operational grant funding of $500k to be included in the DAP (being carry forward of budget from 2019/20). It was agreed that feedback would be sought about proposed additional funding of $850k (total proposed funding $1,350k).

5.

Hutt Valley Gym Sports facility (HVG)

Operational grant funding of $0.5M to be included in DAP (being carry forward of budget from 2019/20) in support of a new option of a redeveloped facility at Fraser Park. Proposal included Council providing loan guarantee of $0.5M to HVG. 

6.

Fraser Park grandstand demolition

Increased operational funding of $0.3M was approved which is a requirement of the Gym Sports proposal and also in line with public safety considerations.

7.

Wainuiomata Hub

The 2028/29 capital budget was reduced to $4.3M from $8M and additional maintenance operational funding included in the base budget.

8.

Living Wage

It was agreed that the Living Wage for Council contractors will be implemented as agreements come up for renewal and in addition, work will be undertaken for Council to become a Living Wage employer. The funding source for this will be from within existing baseline budgets.

9.

Emergency Response Team facility

Increased capital funding of $250k approved for 2020/21 which includes an emergency co-ordination centre and area for equipment and trailer storage. 

10.

Fraser Park Sportsville operations

Current funding of $100k pa. was proposed to be increased by $300k in 2020/21, and similarly increased in later years. Council did not approve this and is awaiting a full detailed report to be presented.

11.

Digital transformation

Increased investment of $10.8M over four years was approved to be included in the budgets. 

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; and controlling the growth in our core opex. As part of the LTP 2021-2031 process a full base budget review will be completed including reviewing priorities.

13.

International co-operating cities

Reduced operational project budget from $45k pa. to $5k pa. for all years of the plan.

14.

Regional Amenities Fund

Reduced budget in 2020/21 from $200k to zero.

15.

Suburban Shopping Centre Fund

Reduced the two-yearly capital budget from $300k to $200k.

16.

Biodiversity assistance for landowners

Reduced funding from $265k pa. to $200k pa.

17.

Community funding

Reduced community operational funding by $100k as a one-off for unused funding.

 

14.  Subsequent to the meeting on 11 February 2020, these budget changes have been updated in the DAP. The latest forecast information for 2019/20 has also been updated in the budgets as well as other minor updates and corrections. These changes include carry over of budgets from 2019/20 to later years where there are delays for a range of reasons; the details of these were reported to the Policy, Finance and Strategy Committee meeting held on 3 March 2020.

15.  Table 3 provides a summary view of DAP statement of financial performance, with a comparison to 2018/19 and 2019/20. Refer Appendix 12 for the detailed financial statements. The DAP includes an overall rates revenue increase of 7.9% and an assumed 1% for growth in the rating base.

Whilst the net deficit projected for 2020/21 is $6.5M, if the rates revenue was adjusted down to the inflation level (Local Government Cost Index or LGCI) then the deficit would be $12M.

Note the deficit of $6.5M is after including the favourable impact of capital contribution income of $10.3M; this includes New Zealand Transport Agency (NZTA) capital subsidies $6.7M ($2.9M of which is “ring fenced” funding towards capital improvements), development and financial contribution income $2.8M and vested assets $0.8M. The net deficit result excluding the capital contributions of $10.3M income is a $16.8M deficit; after adjusting for NZTA capital contributions for capital renewals work the revised deficit is $13.2M.

16.  In the DAP 2020/21 there is no capital grant funding budgeted for the Hutt City Community Facilities Trust (CFT). In prior years there were budgets set aside which would be applied to create assets owned within the Group (2018/19 actual $2.7M, 2019/20 budget $2.9M).

17.  In the LTP 2018-2028 the Development Stimulus Package was budgeted as capital expenditure, however the corrected accounting treatment is now reflected as operational expenditure. In 2020/21 the projected operational costs of the Development Stimulus are $4.2M (2018/19 actual $2.8M, 2019/20 budget $6.3M).

18.  Table 3: Summary financial results (refer Appendix 12 for details)

$Millions

Actual 2018/19

Annual Plan 2019/20 (A)

DAP 2020/21 (B)

Variance (B – A)

Operating revenue

53.0

54.8

53.1

(1.7)

(3.1%)

Operating expenditure

179.0

186.8

187.6

(0.8)3

(0.4%)

Net operating deficit before rates income

(126.0)

(132.0)

(134.5)

(2.5)

(1.9%)

Rates income

105.3

108.1

117.72

9.6

8.9%

Net operating deficit

(20.7)

(23.9)

(16.8)

7.1

29.7%

Capital contributions

11.1

10.6

10.3

(0.3)

 

Net deficit before adjustments

(9.6)

(13.3)

(6.5)

6.8

 

Other non-operating adjustments

(17.7)1

-

-

-

 

Net deficit

(27.3)

(13.3)

(6.5)2

6.8

 

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: Includes additional rates revenue of $5.5M (5.1%) being the extra rates revenue of 1% for Naenae pool and 4.1% to partially address balanced budget funding shortfall. Excluding this additional rates revenue would result in a deficit of $12M. 

Note 3: This is mainly due to increase in depreciation $3.9M, transfer of budgets between capex and opex offset by reduced Community facilities development grants $2.9M and Development Stimulus Package costs $2.1M. 


 

Section C - Comparison of Draft Annual Plan budgets to the LTP 2018-2028

19.  The cumulative impact of all the new information and decisions in relation to budget changes since the LTP 2018-2028 are significant and hence the need to progress an  LTP amendment.

20.  Capital expenditure has increased by $185M over the 10 year period from 2020/21 to 2029/2030 (from $629M to $814M):

-    Includes RiverLink $22M, Naenae Pool $43M, Roading network improvements $68M (includes Cross Valley Connection ), Three Waters $47M, IT Projects $8M and seismic strengthening $2.5M .

-    Refer detailed analysis in Appendix 4 (includes comparison per activity, per year and per large project).

21.  Operational expenditure has increased by $136M over the 10 year period from 2020/21 to 2029/2030:

-    Includes $15M for employee costs, mainly extra resourcing, such as regulatory functions.

-    Depreciation $46M, mainly related to increased capital programme and asset revaluations.

-    $89M for operating costs, mainly due to Development Stimulus Package $17M, Three Waters operating costs $16.6M (which includes $14.2M for bulk water), $20M for increase in IT costs (includes treatment of “Software As A Service” changes, increased costs for range of projects including Homelessness Strategy, Bio-diversity, Community Resilience, Climate Change, District Plan legislative requirements, Community engagement.

-    Reduced interest costs $14M (due to lower borrowing cost assumptions).

-    Refer Appendix 5 for detailed analysis.

22.  Revenue has increased by $162M over the 10 year period from 2020/21 to 2029/2030:

-    Includes $126M for rates revenue (this includes the higher rates increases proposed which exceed the inflation only basis applied before).

-    Capital subsidies $41M (mainly assumed NZTA funding linked to capital programme).

23.  Further detailed content attached to this report (Appendices 9 to 19) comprises the various parts of the Draft Annual Plan 2020/21. This includes a financial summary and detailed financial statements (Appendix 12), funding impact statements (Appendix 13), activity statements (Appendix 14), project lists (Appendix 15), notes to the financial statements (Appendix 16) and proposed fees and charges (Appendix 19).  


 

Section D - Rating revenue increase and rates information updates

24.  The rating impact on individual properties will vary depending on the changes to property values in the 2019 property revaluation. Residential properties increased in value on average by 31.8% whilst commercial properties increased on average by 16.9%. A proposed change to the rating differential policy for 2020/21 (part of the LTP amendment) will keep the allocation of general rates at the same percentage splits between property rating groups as in 2019/20. This change results in an increase in rates for the average residential property being avoided of $51 per annum.

A full review of the rating differentials policy is planned as part of the LTP 2021-2031.  

25.  At the Long Term Plan/Annual Plan Subcommittee meeting held on 11 February 2020, further information was presented about the balanced budget and financial prudence legislative requirements. The following resolution was agreed by Council at the meeting held on 11 February 2020:

“That the Council 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.”

26.  Following on from this rating decision and the budget changes approved by Council (refer Section B), rates modelling analysis has been completed. 

27.  The increase in funding for Three Waters has resulted in a minor change to targeted rates for Water Supply and Wastewater, compared to what was reported 11 February 2020. The updated targeted rates are detailed in Table 4. These charges are a “fixed” component of the rates charges and impact on the average residential property rates.


 

Table 4: DAP targeted rates for 2020/21

Differential

2019/20

DAP 2020/21

$ Change and %

Wastewater – per rating unit or SUIP

$478.50

$520.00

$41.50    8.7%

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

$239.25

$260.00

$20.75   8.7%

Water supply rate – per rating unit

$448.50

$490.50

$42.00    9.3%

Residential recycling charge

$40.00

$40.001

$0.00    0%

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

28.  Due to the three yearly property 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. Additional indicative rating impact details are available in Appendix 6 - this includes information for average residential property changes in each suburb, together with further information for other property categories, including business suburban and utilities. Both the rates increases at 7.9% and the 2.8% (inflation/LGCI) are shown in order to help understand the impact of the three yearly property revaluation process.

29.  Impact of rates changes on the average residential property

The overall rates revenue increase of 7.9% equates to an indicative average increase of approximately $212 per annum or $4.08 per week on average for existing ratepayers. The analysis by suburb shows a range of average changes between the lowest of $1.18 per week in Petone to the highest in Wainuiomata $6.61per week which is largely driven from the impact of the revaluation changes.


 

Table 5: Average residential property comparison   

 

City-wide

Alicetown

Wainuiomata

Average capital value July 2019

$476,000

$529,000

$297,000

2019/20 rates charges

$2,477

$2,645

$1,909

Average capital value July 2020

$627,000

$660,000

$460,000

% change in property value

32%

25%

55%

Indicative 2020/21 rates charges

$2,689

$2,775

$2,252

Change amount per annum

$212

$130

$344

Change amount per week

$4.08

$2.51

$6.61

Note Hutt City Council (HCC) rates charges include GST. The Greater Wellington Regional Council rates changes are not included in the table above.

30.  Planning is progressing to enable a “rates calculator” tool to be available as part of the LTP amendment consultation process. This will enable property owners to look up individual properties and see the indicative changes to rates charges. It is expected this will help individual property owners also understand the impact of the rating revaluations on changes to property rates.

31.  The LTP amendment includes consultation on changes to the rates differential policy. The projected rates shown in this Section D assume the preferred option is applied ie, keeping the rates allocation by property rating categories at the same percentage allocations as in 2019/20. As part of the LTP 2021-2031 a full review of the Revenue and Financing Policy is planned and this will include a review of the rating differentials. 

32.  Further detailed Draft Annual Plan 2020/21 content in relation to rates is available in Appendix 18 (Funding impact statement including rates for 2020/21) as well as the Revenue and Financing Policy (Appendix 10).

33.  The longer term rates increases included in the draft Annual Plan 2020/21 are summarised in table 6. This excludes assumed growth in the city which is about 1% each year.

34.  Table 6: Projected rates increases in the longer term   

 

2020/21

2021/22

2022/23

2023/24

2024/25

2025-2030

Inflation(LGCI)

2.8%

2.2%

2.2%

2.3%

2.3%

2.47%

To reduce deficit over time

4.1%

1.6%

1.6%

-

-

-

Naenae Pool

1.0%

-

0.5%

-

0.5%

-

Total rates increase incl. Naenae pool

7.9%

3.8%

4.3%

-

2.8%

2.47%

 

Note that these rates increases would be reviewed as part of the LTP 2021-2031.


 

Section E - Thinking ahead to decisions required of Council in June 2020

35.  It is important to understand the final decisions that Council will be required to make on 30 June 2020 before setting the rates for 2020/21. Ahead of adopting the Annual Plan 2020/21 and amendments to the Long Term Plan 2018-2028, Council will be required to pass a resolution that it is financially prudent to have an unbalanced budget in 2020/21.

36.  As a comparative, Council decisions for the 2019/20 Annual Plan approval and rates setting were made at the Council meeting held on 27 June 2019, and can be referenced across the two reports:

-    “Adoption of Annual Plan 2019/20”

-    “Setting rates for the year ending 30 June 2020”.

37.  Below is an extract from the agenda papers for adoption of the Annual Plan 2019/20 on 27 June 2019 (page 6):

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”.

The Annual Plan shows operating deficits in 2019-2020 of $13.3M and in 2020-2021 of $5.5M, and thereafter surpluses. In the context of the longer term surpluses projected, it is considered financially prudent for Council to set a budget in the Annual Plan 2019-2020 which is not a balanced budget. As part of the next Annual Plan/LTP process, the balanced budget requirement and the related Revenue and Financing Policy and Financial Strategy of Council will be further reviewed.

[End of extract from June 2019].


 

38.  Graph 1 that follows assumes this same methodology used for the LTP and provides the latest projected net surplus/deficit for the Draft Annual Plan 2020/21. The orange line assumes a rates increase as per the LTP 2018-2028 of inflation (LGCI) and growth in rates basis, whilst the green line projects results based on an proposed DAP rates increases (including 7.9% rates increase for 2020/21).

39.  Note: The LTP methodology presented the net surplus/deficit from the financial statements and excluded any gains/losses on asset revaluations and derivatives.

40.  It is clear from this comparison in graph 1 that the orange line (inflation basis) has deficits until 2026/27. The last few years from 2027/28 look very favourable, however the assumed NZTA funding for capital improvements (eg, Cross Valley Connection project) has been included here. This NZTA funding is “ring fenced” specifically for capital improvements and should not be applied to fund operating expenditure. The NZTA funding for capital improvement works is significant at a total of $96M over the 10 years, peaking in the last three years of the plan at $27.3M in 2027/28, $29.2M 2028/29 and $20.5M in 2029/30. Given the significant quantum of this NZTA funding for Council, it is important to consider the implications from a balanced budget/financial prudence perspective. 

Graph 1: Projected net surplus/deficit using the LTP 2018-2028 methodology for presenting net surplus/deficit

41.  In the previous papers presented to Council at meetings held on the 10 December 2019 and 11 February 2020 there has been advice in relation to assessing financial prudence and the balanced budget legislative requirements. Appendix 7 provides further detailed information on this as well as analysis about proposed changes to the financial strategy as part of the LTP amendment. Included here is a revised methodology for Council to consider the “net surplus or deficit” as part of the financial strategy or balanced budget test which will better inform Council and support financial sustainability goals.

NB: There are no proposed changes to the way Council completes “Prudence reporting” which will continue to be reported in line with the Local Government Financial Reporting and Prudence regulations 2014.

42.  Graph 2 that follows uses the HCC Balanced Budget definition which is the Local Government (Financial Reporting and Prudence) Regulations 2014 definition for the balanced budget benchmark (Clause 19) [Council Revenue excluding development contributions, vested assets, gains on derivatives and revaluations of property, plant and equipment…and  operating expenses excluding losses on derivatives and revaluations of property, plant and equipment” modified to exclude the NZTA “ring fenced” capital subsidies for capital improvement works from revenue. The reason for adjusting the definition is due to the significant impact for HCC of this NZTA funding at $96M.

43.  Graph 2 shows the projected results with rates revenue increases kept at the LTP level of inflation(LGCI) (orange line) and also after adjusting for a higher rates increase as per DAP (green line). Whilst the balanced budget target is only achieved in 2029/30 when rates increases are kept to inflation, the balanced budget target is achieved in 2023/24 when the higher rates increases are applied.

Graph 2: Projected balanced budget target result with rates increase as per DAP and LGCI/inflation assumption  

44.  The key reason behind the projected deficits is due to Council not fully funding depreciation. Depreciation spreads the capital cost of assets over their useful life, so that each generation of ratepayers pays for their share of the use of the asset. By not fully funding for depreciation, it places a burden on future ratepayers, who have to pay for the asset replacement. Funding depreciation supports the intergenerational equity principle whereby everyone who benefits from use of the asset pays for their share over the assets’ useful life. By funding depreciation, we are providing cash to fund the capital renewal programme.

45.  The proposed higher rates increases will enable Council to work towards achieving a balanced budget by 2023/24. Setting rate levels to immediately achieve this would increase the rates burden for ratepayers. Adopting some smoothing of the impact over a few years will result in an improved fiscal and sustainable outcome.    

46.  In light of the balanced budget projections (graph 2), Council is requested to consider the legislative requirements about financial prudence and a “balanced budget”, and the decisions that will be required by Council on 30 June 2020. The higher rates increases (Graph 2 green line) clearly indicate a more financially prudent approach. 

47.  This projected financial position also needs to be considered alongside the increased capital expenditure plans and projected borrowings. Detailed reporting was included in the 11 February 2020 report, including the proposed revised debt to revenue limit of 180%. The capital works programme of $814M from 2020/21 to 2029/30 is $185M higher than that included in the LTP. As a result the projected net debt will increase up to a peak of $321M (LTP had debt peaking at $228M). If rates revenue levels were to be reduced back down to the LTP assumption of inflation only, then the capital works programme would need to be significantly reduced to avoid projected debt increasing to around $441M in 2030/31.   

Graph 3: Projected net debt (includes rates revenue increase of 7.9% in 2020/21 before growth)


 

Graph 4: Projected debt to revenue ratio (includes rates revenue increase of 7.9% in 2020/21 before growth)

48.  The Draft Annual Plan 2020/21 content which is also relevant here includes the Revenue and Financing Policy (Appendix 10), the Financial Strategy (Appendix 11), the DAP Financial Summary and detailed financial statements (Appendix 12) and the Prudence Reporting (Appendix 17).  

49.  Next LTP 2021-2031

A full review of the Infrastructure Strategy and Financial Strategy, and key policies such as the Revenue and Financing Policy and Development Contributions Policy will be progressed as part of the LTP 2021-2031. This will be completed during 2020/2021.    

Section F – Non-financial content of Draft Annual Plan 2020/21

50.  The Draft Annual Plan 2020/21 non-financial content is included in Appendix 9, Statements of Service Performance. These include performance metrics for each of the groups of activities delivered by Council. The content here aligns with the LTP 2018-2028.

51.  As part of the LTP 2021-2031 a full review will be undertaken of these performance metrics.   


 

Section G - Audit Process

52.  Audit New Zealand has reviewed the underlying information for the Amendment to the LTP 2018-2028, and the Consultation Document. Officers have reflected any necessary changes in each document.

53.  The Consultation Document is going through its final audit with Audit New Zealand. Any changes required to the document as a result of the audit will be made in an updated version of the Consultation Document to be circulated prior to the meeting with any significant changes highlighted.

54.  No further material alterations can be made following completion of the audit but any issues can be noted for discussion in the final decision making processes in May/June 2020.

55.  The signed Audit Opinion will be released once the Consultation Document has been adopted by Council.

Section H - Consultation

56.  The text of the Consultation Document for the amendment to the LTP 2018-2028 is attached as Appendix 1. The consultation process has already been publicised via the Hutt at Heart publication and a flyer is being sent with the rates notices. The consultation will be publicised further via dedicated digital channels, the Hutt News and social media. Copies of the Consultation Document and the accompanying Feedback Form and Annual Plan flyer  will be made available in hard copy as inserts to the Consultation Document and will be available at all Lower Hutt libraries, community hubs and at Council’s Administration Building. Note the LTP Feedback Form and Annual Plan Flyer are attached as Appendices 20 and 21 – the latter includes reference to the Hutt Valley Tennis feedback sought.  

57.  The detailed information attached to this report that supports the Annual Plan and LTP Amendment, including financial information, project lists, performance measures and targets, proposed fees and charges and other detailed information being consulted on as part of the Annual Plan and proposed LTP Amendment, will be made available on the Council website and via the dedicated digital channel ‘Bang the Table’ consultation tool prior to the start of the consultation period.

58.  Public consultation will be undertaken from 6 April to 7 May 2020.

Legal Considerations

59.  The documents referenced in this report have been prepared to meet the requirements of the Local Government Act 2002.

Financial Considerations

60.  Financial considerations associated with adoption of the Draft Annual Plan 2020/21, Proposed Amendment to the Long Term Plan 2018-2028 and Consultation Document for an Amendment to the Long Term Plan 2018-2028 have been addressed in previous reports to the Subcommittee and Council, and in the current report.

Appendices

No.

Title

Page

1

Appendix 1 Consultation Document to amend the LTP 2018-2028

29

2

Appendix 2 Audit NZ Engagement Letter

71

3

Appendix 3 Guiding principles to support the Council's financial strategy

82

4

Appendix 4 Comparison of LTP 2018-2028 versus Draft Annual Plan 2020/21 Capital expenditure

83

5

Appendix 5 Comparison of LTP 2018-2028 and Draft Annual Plan 2020/21 budgets - operational budgets (revenue and expenditure)

87

6

Appendix 6 Detailed analysis of rating options, includes Section A with rates increase of 2.8% for comparative purposes and Section B with rates increase at proposed 7.9%

91

7

Appendix 7 Further information on the proposed changes to the financial strategy in the LTP amendment

106

8

Appendix 8 Proposed Amendment to the LTP 2018-2028 (detailed document)

117

9

Appendix 9 DAP Vision for the city and Statements of Service Performance

189

10

Appendix 10 DAP Revenue and Financing Policy

220

11

Appendix 11 DAP Financial Strategy

242

12

Appendix 12 DAP Financial Summary and Forecast Financial Statements

257

13

Appendix 13 DAP Funding Impact Statements

271

14

Appendix 14 DAP Activity Statements

282

15

Appendix 15 DAP Project Lists

296

16

Appendix 16 DAP Notes to Financial Statements

302

17

Appendix 17 DAP Prudence Reporting

327

18

Appendix 18 DAP Funding Impact Statement including Rates for 2020/21

332

19

Appendix 19 DAP Proposed Fees and Charges for 2020/21

343

20

Appendix 20 LTP Amendment Feedback Form

395

21

Appendix 21 Draft Annual Plan Flyer including Hutt Valley Tennis content

408

    

 

 

 

Author: Philip Benseman

Budgeting and Reporting Manager

 

 

Author: Jenny Livschitz

Chief Financial Officer

 

 

Author: Wendy Moore

Head of Strategy and Planning

 

 

 

 

Approved By: Jo Miller

Chief Executive

 


Attachment 1

Appendix 1 Consultation Document to amend the LTP 2018-2028

 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


Attachment 2

Appendix 2 Audit NZ Engagement Letter

 


 


 


 


 


 


 


 


 


 


 


 


Attachment 3

Appendix 3 Guiding principles to support the Council's financial strategy

 

Guiding principles to support the Council’s financial strategy

       

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.

 


Attachment 4

Appendix 4 Comparison of LTP 2018-2028 versus Draft Annual Plan 2020/21 Capital expenditure

 


 


 


 


Attachment 5

Appendix 5 Comparison of LTP 2018-2028 and Draft Annual Plan 2020/21 budgets - operational budgets (revenue and expenditure)

 


 


 


 


Attachment 6

Appendix 6 Detailed analysis of rating options, includes Section A with rates increase of 2.8% for comparative purposes and Section B with rates increase at proposed 7.9%

 

Detailed rating impact information on options

 

Section A- Rates increase of 2.8% plus assumed 1% growth in rating base (for comparison purposes to 7.9%)

Table A: By Property category, Option 1, Keep same percentages by property categories, 2.8% rates increase plus assumed 1% growth in rating base

 

 

Table B: By property category - Option 2: Freeze differential, 2.8% rates increase plus assumed 1% growth in rating base

 

 

 

 


 

Table C: By property category - Option 3: Status Quo, 2.8% rates increase plus assumed 1% growth in rating base

 

 


 

Table D: Option 1; Keep same percentages by property categories, Average residential property by suburb, 2.8% rates increase plus assumed 1% growth in rating base

 

Table E:  Option 2; Freeze differential, Average residential property by suburb, 2.8% rates increase plus assumed 1% growth in rating base

 


Table F: Option 3; Status Quo, Average residential property by suburb, 2.8% rates increase plus assumed 1% growth in rating base

 

 

 

 

 

Section B - Rates increase of 7.9% and assumed 1% growth in rating base

Table G: Impact of no change to rating policy on allocation of general rates, Assumes 7.9% overall rates increase plus assumed 1% growth in rating base


 

Table H: Indicative impact of options on the average residential property, Assumes 7.9% overall rates increase plus assumed 1% growth in rating base

Option

Rates 2019/20

Rates 2020/21

% Change

Amount per annum

Amount per week

Compare to option 3

Option 1: Keep the allocation of general rates at the same levels of % between property rating groups as 2019/20

$2,477

$2,689

8.5%

Higher

$212

 

$4.07

$51 p.a. Lower

Option 2 : Freeze the transition for one year

$2,477

$2,717

9.7%

Higher

$240

$4.62

$23 p.a.

Lower

Option 3: Status Quo

$2,477

$2,740

10.6%

Higher

$263

$5.06

 

The above amounts are inclusive of the wastewater, water supply, and recycling targeted rates.  $83.50 of the 2020/21 increase is attributable to these targeted rates.


 

Table I: Indicative impact of options on the average business central rates, assumes 7.9% overall rates increase plus assumed 1% growth in rating base

Option

Rates 2019/20

Rates 2020/21

% Change

Amount per annum

Amount per week

Compare to option 3

Option 1: Keep the allocation of general rates at the same levels of % between all property rating groups as 2019/20

$13,074

$14,433

10%

Higher

$1,359

$26.13

$1,410 Higher

Option 2 : Freeze the transition for one year

$13,074

$13,494

3%

Higher

$420

$8.08

$471

Higher

Option 3: Status Quo

$13,074

$13,023

(.4%)

Lower

($51)

($0.98)

 

 

 

 

 


 

Table J: By Property category, Option 1: Keep same percentages by property categories, 7.9% rates increase plus assumed 1% growth in rating base


 

Table K: By property category, Option 2: Freeze differential, 7.9% rates increase plus assumed 1% growth in rating base


Table L: By property category, Option 3: Status Quo, 7.9% rates increase plus assumed 1% growth in rating base


 

Table M: Suburbs, Option 1: Keep same percentages by property categories, Average residential property by suburb, 7.9% rates increase plus assumed 1% growth in rating base

 

 

Table N: Suburbs Option 2: Freeze differential, Average residential property by suburb, 7.9% rates increase plus assumed 1% growth in rating base

 

Table O:  Suburbs, Option 3: Status Quo, Average residential property by suburb, 7.9% rates increase plus assumed 1% growth in rating base


Attachment 7

Appendix 7 Further information on the proposed changes to the financial strategy in the LTP amendment

 

Further explanation on the proposed changes to the financial strategy in the LTP amendment

1.    The Local Government Act 2020 (LGA) requires Council to budget each year for operating revenue at a level sufficient to meeting the operating expenses budgeted for that year. This is known as the “balanced budget” requirement. The LGA does allow Council to budget for a deficit, if it resolves that it is financially prudent to do so.

In assessing a financially prudent decision, consideration is to be given to:

-      the estimated expenses of achieving and maintaining the predicted levels of service provision set out in the Long-term plan, including the estimated expenses associated with maintaining the service capacity and integrity of assets throughout their useful life

-      the projected revenue available to fund the estimated expenses associated with maintaining the service capacity and integrity of assets throughout their useful life

-      the equitable allocation of responsibility of funding the provision and maintenance of assets and facilities throughout their useful life

-      the funding and financial policies adopted under section 102.

2.    In 2014, Government introduced a number of amendments to the LGA, including the Local Government 2014 Financial Regulations, which established eight benchmarks against which all councils must report. One of these benchmarks is the balanced budget which is defined as “Council Revenue excluding development contributions, vested assets, gains on derivatives and revaluations of property, plant and equipment as a proportion of operating expenses (excluding losses on derivatives and revaluations of property, plant and equipment” for the year . This definition includes NZTA capital subsidies as revenue and assumes councils fully rate for depreciation.

3.    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 A 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), operating funding of the Development Stimulus Package costs (budgeted originally in the LTP as capital expenditure) and not fully funding depreciation.


 

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

4.    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.

5.    Hutt City Council’s rate increases have been the second lowest in New Zealand in the period 2000 to 2018. This is evidenced in Graph B which is an extract from the Productivity Commission’s report from the recent Funding and Financing Inquiry 2019 showing the average yearly growth in rates per person across New Zealand. 


 

Graph B: Average yearly growth in rates per person across territorial authorities, 2000 to 2018

Hutt City Council is at the very lowest end – one up from Napier

Reference: New Zealand Productivity Commission. (2019). Local government funding and financing: Final report. Available from www.productivity.govt.nz

 

6.    Council’s 2018 Financial Strategy

The LTP 2018-2028 included a financial strategy that “promotes the sustainable funding of services“(Refer page 100).  The strategy included three key limits across operating results, revenue and borrowings. These are summarised in Table A below.

Table A : Key components of the Financial Strategy 2018

Limits

Measure

Target

Why is it important?

Overall operating result

Surplus each year

Budgeted surplus

Supports ensuring Council has sufficient revenue to meet the day-to-day operational costs. Surplus funds can also be applied to reducing borrowings levels. 

Limits on revenue

Increase in rates revenue

Maximum annual rates income increase % and dollars, with increase to be no more than LGCI after allowing for estimated average growth of 1%

Supports rates affordability and restricts growth in service delivery and investment.

Limits on borrowings

Net interest to revenue

Below 10%

Supports affordability of costs of borrowings.

Net debt maxima

Year 1-3 <150% to revenue,

Years 4-6 < 130% to revenue,

Years 7 -12 < than

110%

Years 13+ < than 90% of total revenue

Supports intergenerational equity principle and affordability of borrowings linked to revenue levels

 

7.    LTP amendment changes being progressed for consultation this year: The LTP amendment is proposing changes to the following elements of the 2018 Financial Strategy:

-     Surplus each year:  Improve the methodology/definition applied in assessing the “overall operating result” to ensure that sufficient revenue is generated to meet operational costs.

-     Increase in rates revenue: Removal of limit of rates increase to LGCI to enable higher rates increase which support achieving intergenerational equity principle whilst also considering affordability.

-     Limiting borrowing – change to net debt maxima to 180% to enable increased capital investment, such as Naenae Pool and fitness suite, Three Waters, Roading and Cycleways programme. 


 

Section A: Financial strategy limit on “Overall operating result”

8.    Changes are proposed to the methodology used to assess the “overall operating result” which is a key component of the financial strategy.

NB: There are no proposed changes to the way Council completes “Prudence reporting” which will continue to be reported in line with the Local Government Financial Reporting and Prudence regulations 2014.

9.    Below is an extract of the financial strategy in the LTP 2018-2028 where the “net surplus/deficit” was considered.

10.  The methodology or definition used above in the financial strategy section  of the LTP 2018-2028 for “net surplus/deficit” was the International Public Sector Accounting Standards (IPSAS) financial statement results from the ‘Statement of Comprehensive Revenue and Expenses’ which were then adjusted to exclude the accounting impact for asset revaluations and gains/losses for financial instruments. Graph C presents the financial accounting results in line with IPSAS before making these adjustments. The three yearly asset revaluation accounting adjustments impact significantly and provide favourable results however these surpluses are not a funding source for operating costs.  

 

Graph C: projected financial statement results from IPSAS Statement of Comprehensive Revenue and Expenses (Note includes asset revaluations)  

11.  Graph D that follows assumes the same definition used in the LTP 2018-2028 of “operating results” and provides the latest projected net surplus/deficit(per Draft Annual Plan 2020/21).  The orange line assumes a rates increase as per LTP 2018-2028 of inflation (Local Government Cost Index) and growth in rates basis whilst the green line projects results based on the higher rates increases per Draft Annual Plan 2020/21 (7.9% in 2020/21). It is clear from this comparison that the orange line has deficits until 2026/27. The last few years from 2027/28 look very favourable, however the assumed NZTA capital funding of projects is included here, such as Cross Valley Connection capital project. The NZTA funding for capital improvement works is significant at a total of $96M over the 10 years, peaking in the last three years of the plan at $27.3M in 2027/28, $29.2M in 2028/29 and $20.5M in 2029/30. This funding is “ring fenced” specifically for the capital improvements projects and is not available to meet the day to day operational costs.

 

12.  Graph D: LTP 2018-2028 definition for presenting projected net surplus/deficit

 

 

13.  In the previous reports presented to Council in December and February there has been advice in relation to assessing financial prudence and the balanced budget legislative requirements. The outcome of this is a revised methodology for HCC to progress to a   balanced budget position in the medium term which will better support financial sustainability goals.

Comparison of the methodology/definitions applied for assessing financial strategy component of “overall operating result”:

LTP 2018-2028 definition: Financial statement per IPSAS net surplus/deficit which is then adjusted to exclude asset revaluations and gains/losses on derivatives.

Revised definition  for the LTP amendment a proposed change to the definition for assessing financial strategy “overall operating result” as follows:

Replaced by: HCC Balanced budget target definition: Local Government (Financial Reporting and Prudence) Regulations 2014 definition for the balanced budget benchmark applied (Clause 19) modified to exclude the NZTA capital improvement subsidies from revenue (due to the significant impact of these “ring-fenced” funds for HCC which should not be applied as a funding source for operational expenditure).  Clause 19 provides the following definition: Council Revenue excluding development contributions, vested assets, gains on derivatives and revaluations of property, plant and equipment as a proportion of operating expenses (excluding losses on derivatives and revaluations of property, plant and equipment” for the year.


 

Adjustment description

LTP 2018-2028 definition for assessing “overall operating result” in financial strategy

LTP amendment  -  revised definition for assessing financial strategy “overall operating result” – apply revised HCC balanced budget definition

Asset revaluations - Accounting adjustment to represent fair value of property, plant and equipment. Assumed three yearly cycle but dependent on market movements. Non-cash impact.

Yes removed from calculation

Yes removed from calculation

Gains/losses on derivatives/financial instruments - Accounting adjustment to represent fair value. Non- cash impact.

Yes removed from calculation

Yes removed from calculation

Development and financial Contributions- Fees charged towards the capital cost of providing growth related infrastructure such as roading, Three Waters assets.

No not removed from calculation

Yes removed from calculation

Vested assets – are created by external parties and vested to Council. Non-cash. 

No not removed from calculation

Yes removed from calculation

NZTA capital subsidies - Funding “ring fenced” to fund specific capital projects for improvement works

No not removed from calculation

Yes removed from calculation

NZTA capital subsidies - Funding “ring fenced” to fund specific capital projects for capital renewals works

No not removed from calculation

No not removed from calculation

NZTA operating subsidies - funding provided by NZTA and “ring fenced” to fund specific operating costs

No not removed from calculation

No not removed from calculation

14.  Graph E that follows applies this HCC Balanced budget definition to assess “overall operating result” as part of the balanced budget/financial prudence test.  The graph shows the HCC balanced budget projected result with a comparison of rates increases kept at LTP level of inflation (LGCI) and after adjusting for higher rates increase per DAP(7.9% in 2020/21).

With rates assumed at inflation increase levels only, shows that the HCC balanced budget target is only achieved in 2029/30 - Clearly a lengthy delay in achieving a balanced budget and a financially prudent position.

When rates is assumed at approved higher levels (7.9% in 2020/21) the HCC balanced budget target is achieved in 2023/24 - A more financially prudent approach.

Graph E: HCC Balanced budget target projection with rates increase at per DAP and inflation(LGCI)  

15.  The key reason behind the projected deficits is due to Council not fully funding depreciation. Depreciation spreads the capital cost of assets over their useful lives, so that each generation of ratepayers pays for their share of the use of the asset. By not fully funding for depreciation, it places a burden on future ratepayers, who have to pay for the asset replacement. Funding for depreciation supports the intergenerational equity principle whereby everyone who benefits from use of the asset pays for their share over the assets’ useful life. By funding depreciation, we are providing cash to fund the capital renewal programme.

16.  The proposed higher rates increases in the DAP will enable Council to work towards achieving a balanced budget by 2023/24. Setting rate levels to immediately achieve this would increase the rates burden for ratepayers. Adopting some smoothing of the impact over a few years results in an improved fiscal and sustainable outcome.    

 


 

Section B: Financial strategy limits on revenue

17.  The LTP 2018-2028 provided for limited rates revenue increases to a maximum of no more than LGCI (inflation) after allowing for estimated average growth of 1%. Whilst lower rates increases are welcomed by ratepayers and considered more affordable, there are significant financial sustainability issues with this approach of limiting rates increases particularly in a growing city with significant investment plans.

-    The LGCI assumes a constant volume impact and only represents the “price” increase over time for the same level of activity. As Council is constantly faced with increased volume of assets it has to manage, the impact on rates will always be greater than the BERL increases.

-    The projections provided in Graph E, which is based in LGCI increase only, clearly show that Council will have difficulty in meeting the legislative requirement around the balanced budget test and financial prudence as there are projected deficits until 2029/30. There are further financial risks with the recent advice from Wellington Water in regards to the ageing Three Waters infrastructure and the need to significantly increase renewals investment through the next LTP 2021-2031.

Section C: Financial strategy limits on borrowings

18.   The LTP 2018-2028 limit in relation to debt to revenue ratio is proposed to be changed to a higher level of 180%. This is driven off the higher capital investment programme proposed compared to the LTP. The capital programme has increased by $185M (29%) compared to LTP 2018-2028 to a total of $814M. The increased costs relate largely to key projects of Riverlink, Cross Valley connection roading project, Naenae pool and fitness centre development, Three Waters and IT investment. Lower projected costs of funding have resulted in borrowing becoming more affordable.

19.  The balanced budget/financial prudence position needs to be considered alongside the increased capital expenditure plans and projected borrowings. As a result of the increased capital expenditure plans the projected net debt will increase up to a peak of $321M (LTP 2018-2028 had debt peaking at $228M). If rates revenue levels were to be reduced back down to the LTP assumption of inflation only, then the projected debt would increase to a peak of about $441M in 2030/31. To avoid debt levels increasing to this level, Council could need to consider reviewing the capital expenditure programme and considering projects which would be stopped, delayed or reduced in scale.  


 

Graph F: Projected capital programme of $814M

Graph G : Projected Debt compared financial strategy debt limit

Graph H: Projection of debt to revenue ratio compared to financial strategy limit

Section D: Next LTP 2021-2031

20.  A full review of the Infrastructure Strategy and Financial Strategy will be progressed in 2020/21 as part of the development of the LTP 2021-2031.


Attachment 8

Appendix 8 Proposed Amendment to the LTP 2018-2028 (detailed document)

 

 

Contents

Welcome to Hutt City Council’s Amendment to the Long Term Plan 2018-2028. 2

Long Term Plan Amendment. 3

Setting the Scene. 5

1.      Our Capital Investment Programme. 7

1.1         Naenae Pool and fitness centre. 8

1.2         Three Waters, Roading, and Cycleways. 18

2.      Financial Strategy Changes: including changes to rates revenue and borrowing levels. 20

3.      Rates Split. 40

4.      Recycling and rubbish collection. 56

 

 

 


 

Welcome to Hutt City Council’s Amendment to the Long Term Plan 2018-2028

Every 3 years we talk to you about your ideas for Lower Hutt. We then produce a Long Term Plan (LTP) which outlines plans to achieve our shared vision for our city.

In the years between producing an LTP, we ask you for your thoughts on the projects we have planned in the next 12 months – and we produce an Annual Plan. An Annual Plan is simply an update to the LTP that helps us to allocate the money we need to achieve what we’ve set out for the next 10 years.

But this year, it’s different. Since our last LTP lots of things have changed. We have a new council, a new mayor, new information and a new directive – getting the basics right (insert Te Reo).

So we’re looking at things like rubbish and recycling, transport and Naenae Pool.

We’re also facing some challenges that just can’t wait – our water infrastructure needs investment and our financial strategy needs to change so we can run the city sustainably. So we’re proposing to change our LTP.

A big part of our job is having a view to the future – identifying the challenges we face, and setting out what we need to do to address them. We need to make sure that we are prioritising the things that are important to you, and to do that, we need to know what you think.

There are lots of different ways to get involved:

§ Go online

§ Talk to our friendly staff

§ Complete a feedback form

Consultation opens on Monday 6 April and closes on Thursday 7 May. To have your say or find out more see our website at haveyoursay.huttcity.govt.nz


 

Long Term Plan Amendment

In 2018, Council produced its 2018-2028 Long Term Plan (LTP).  The next LTP 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 that can’t wait. That’s why we’re proposing an amendment to the current LTP as these issues affect the whole city. Our Significance and Engagement Policy (which can be viewed here http://iportal.huttcity.govt.nz/Record/ReadOnly?Query=container:[uri:3677911]&Tab=31&Uri=3677410&Page=3) considers a range of factors in determining the significance of our proposals. The proposed amendment to the LTP has been assessed as meeting the requirements of the Policy and requires formal consultation as per the Local Government Act 2002. The key issues for consultation are:

 

1.         Our Capital Investment Programme:

Over the next ten years we are proposing to spend $814 million on capital investment to maintain and improve existing assets and create some new assets. This proposed capital plan is $184 million higher than what was included in the LTP 2018-2028.

1.1          Naenae Pool and fitness centre

In April 2019, seismic issues forced the closure of Naenae Pool. We are now consulting on a new pool and fitness centre for Naenae.

1.2          Three Waters, Roading and Cycleways

Since the last LTP we have received new reports and information on what’s needed to maintain and improve our Three Waters infrastructure and our transport network. Investment in our water network is required to ensure a properly functioning water supply, waste and stormwater system. Our local roading, walking and cycling networks also need investment to accommodate a growing population and provide more options for people moving around our city.

2.         Financial strategy changes

Our financial strategy needs to consider current and future needs and ensure expenditure is spread across both present and future ratepayers. If we want to fund all our plans we need to make changes to our financial strategy. The changes proposed would allow for greater rates revenue rises and an increased borrowing limit. We are proposing a 7.9% rates revenue increase for 2020/21, a change to limits on borrowing and to work towards having a balanced budget by 2023/24.

3.         Rates split

The way rates are spread between different property categories and ratepayers needs to be reviewed. 

4.         Recycling and rubbish collection

Environmentally this is one of our biggest issues. We have to get better at collecting rubbish, minimising what is sent to our landfill and how we recycle.  For any effective change to recycling and rubbish we need to take a system-wide approach that aligns with our wider waste minimisation objectives which include reducing litter, reducing waste going to landfill and less contamination in our recycling.

 

The next few pages examine these issues in more depth, provide options on how we could address these, outline the effect on rates, debt and levels of service, and invite your views on what we’re proposing. Go to haveyoursay.huttcity.govt.nz for more information on our proposals and to give us your feedback.

 

Our next LTP 2021 – 2031

 

Next year we will be required to do a full review and update of our LTP for the period 2021 to 2031. As part of this process we will review our infrastructure strategy, our financial strategy, and complete a comprehensive review of priorities, plans and budgets. In the interim we are progressing a Long Term Plan 2018-2028 amendment to address the immediate decisions required and to ensure we get feedback from the community on the changes proposed. This will be helpful in deciding on our priorities and plans for 2020/21 and will also provide early feedback into our Long Term Plan 2021-2031. 


 

Setting the Scene 

To be a thriving city we need good basic services provided where and when needed, and investment in our assets for current and future generations to enjoy. We need to nurture our natural environment, to work with our communities to be the best we can be, and focus our attention on building a sustainable future. We need to harness the power of our businesses, research institutes and tertiary providers to drive innovation and to become a zero carbon technology-driven hub for the region.

To meet all of our aspirations, we need a financial strategy that allows us to invest in key areas that will get our city moving and meet the requirements of a growing population. This includes things like Melling Interchange, RiverLink, the Cross Valley Transport Connection and cycleways. Since our LTP was published in 2018, we’ve received new information that means our current financial strategy does not allow us to do all the things we had planned to do. 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. It’s important that we refocus and reprioritise on getting the basics right and meet community expectations by consulting on replacement of the Naenae Pool.

Over the past decade we have made relatively small increases to rates charges (1.7% to 3.7%) compared to other councils across the region. This resulted in Lower Hutt having the second lowest average rates growth per capita in the country over an almost twenty-year period.

Our focus was on building some new 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 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.

This has impacted on maintenance and improvements to other assets and investment in other key areas.  Expectations from our community have also changed over time. Our community expects to have resilient water infrastructure, clean drinking water and effective ways of managing waste water.  Seismic standards have changed significantly in recent years and we need to ensure our community facilities like our pools and libraries are safe for everyone to enjoy. We also need a modern rubbish and recycling system that can be accessed by more people to stop litter entering the environment and ending up in our waterways and beaches. This means we are now facing some big financial challenges as we reprioritise, including significant deficits for most of the years out to 2030.

We need to strengthen our financial position by achieving a balanced budget over time and this means changing our current financial strategy. We want to sustainably fund services based on rates affordability, effective and efficient delivery of services, spreading costs of large capital projects between present and future ratepayers, and maintain debt levels that we can afford to service. 

The financial strategy in our Long Term Plan 2018-2028 restricts rates revenue increases to inflation and growth in the city only. To enable investment in infrastructure and the other things we are consulting on we are proposing a change to our financial strategy which would mean an overall rates revenue increase of 7.9% in 2020/21.  These investments would also result in the debt limits in our financial strategy being exceeded. We are proposing to change the limits on borrowing, including a revised 180% debt to revenue limit.

 


 

1.    Our Capital Investment Programme

Over the next ten years we are proposing to spend $814 million on capital investment to maintain and improve existing assets and create some new assets. Almost $272 million of this is for investment in wastewater, stormwater and water supply. Around $290 million is for roading, and $53.5 million for Naenae Pool refurbishment.

This proposed capital plan is $184 million higher than what was included in the LTP 2018-2028. This is largely due to the inclusion of Naenae Pool at $53.5 million together with increased costs for a number of projects which were included in the LTP, including Melling Interchange and RiverLink, Cross Valley Connection and cycleways.  

Graph 1: Projected capital expenditure including all projects [1]

 


 


1.1  Naenae Pool and fitness centre

Our pools

We operate three indoor swimming pools year-round, as well as three outdoor summer pools, which contribute to the health and wellbeing of our community. They provide opportunities for recreation, fitness and learning to swim, are accessible to all ages and abilities, and some also offer specialist facilities for persons with disabilities. As well as supporting physical wellbeing, they also provide important social connections for many regular users.

As with all of our sport and recreation facilities, our pools also have an important role to play as part of a regional network of facilities for aquatic sports, in particular Naenae Pool. When it was opened in 1956 it was built to the then Olympic Swimming Pool Standards and so also hosted many national and international events. Over time criteria has changed and while it no longer meets international requirements for aquatic sports, it was still used as a back-up venue for regional and national events.

Closure of Naenae Pool and fitness centre

In April 2019, Naenae Pool was closed due to earthquake safety concerns. This has had a significant impact on a number of parts of the community.

For the Naenae community, the pool was a focal point, and a place for the community to gather, particularly tamariki and rangatahi. It also provided local access to many programmes and services, including learn to swim, water safety, recreational swimming, school holiday programmes and gym services.

Two thirds of pool users come from the wider Hutt Valley community and also the wider Wellington region. They lost a venue for a number of aquatic sports and activities, predominantly competitive swimming, water polo and canoe polo. These were relocated to other Council facilities where possible, but generally in less convenient circumstances. For local retailers, the closure of the pool has led to a significant reduction in foot traffic in the area and they report a downturn in business.

We are committed to returning the pool, and while there was urgency to get that underway, there was also a desire to look at the bigger picture when considering such a significant capital investment. In particular we were keen to hear views on the role of both the pool and town centre in supporting the wellbeing of the wider Naenae community and contributing to a stronger Lower Hutt economy. Naenae residents make up about 8-9% of the population of Lower Hutt, with around 8,700 residents in the latest census, so a highly functioning Naenae is a long term investment for the city.


 

Community engagement

A three month community engagement project was launched seeking the views of Naenae residents, pool users from around the region and Lower Hutt ratepayers. Planning was already underway, and funding had been committed, for a community hub in Naenae, and this was paused in the interim.

Community engagement included around 150 interviews with Naenae residents, community open days and workshops, a regional survey which received 2,876 responses, and a Have Your Say digital site that received 1,800 visits.

 

 

 

 

 

 

 

 

 

 

 


There were two main phases of engagement. The first was gathering views to help develop options that could be put to Council, which resulted in two reports:

·        Naenae community’s voice and vision for the pool and town centre (a joint project between Council staff and research designers Empathy to capture of the voice of the Naenae community) (link to website in the digital version or available at haveyoursay.huttcity.govt.nz/naenae.

·        The Voice of the Community (summary report, additionally including views of the Naenae community, residents of wider Lower Hutt and pool users from around the region) (link to website in the digital version or available at haveyoursay.huttcity.govt.nz/naenae)

 In summary these found:

i.       a desire for the pool to be returned quickly, and a preference for a new pool, as a refurbished pool is unlikely to meet the community’s needs and unlikely to support the vision for a more ‘connected’ town centre.

ii.      a desire to develop a lively, functional town centre, through multiple spaces, places and facilities that are separate, but feel connected.

These reports were then used to develop options through internal Council workshops which considered things like town planning and facility development best practice, along with economic development potential, sustainability and affordability.

The three options were:

·        a new combined pool and community facility (with Naenae Library staying where it is)

·        a new stand-alone pool, with a separate community facility including Naenae library elsewhere in the town centre

·        a new stand-alone pool, with other community needs met through multiple spaces in the town centre

Several other options were considered but not progressed, including:

·        an option to ‘refurbish the pool only’, which was the lowest cost at $30 million. This was not progressed for a number of reasons including that given the age of the pool, repairing it would not be good value for money in terms of the lifetime of the facility. 

·        an option of completing a spatial plan[2] for the town centre before reinstating a pool. This was not progressed because the predominant view in community engagement was that the pool should be returned as quickly as possible, and Council supported this. 

 

In the second phase, the three options were tested with the community and support for each was gauged, so that this could be taken into account when the decision was made.  Feedback in this phase favoured the two options featuring a stand-alone pool and other facilities elsewhere in the town centre.

While it was decided to move detailed discussion on choices for funding Naenae Pool to the formal LTP process, value for money was part of the conversation during the community engagement phase. Affordability and sustainability of the proposed options were workshopped by Council and this formed part of the formal decision making process.

Proposal

After considering community feedback we are proposing to replace Naenae Pool and fitness centre with a new facility.

We will also retain the $9 million already budgeted for a community hub in Naenae to invest in other facilities in the town centre, as determined by a spatial plan, in a way that maximises the benefits to both the Naenae community and the wider city.

Funding Naenae Pool and fitness centre

Whilst the costs of the Naenae spatial plan will be funded from existing budgets held by Council, the costs of the proposed redevelopment will require additional funding.

The estimated capital investment cost of $53.5 million would be funded by additional borrowing of $44.5 million. This will ensure that the intergenerational equity principle is applied and the costs of this long term asset are met by ratepayers over the life of the asset. $9 million of funding for Naenae Pool and fitness centre is currently included in the 2018-2028 LTP.  This increase in borrowings has implications for our financial strategy[3] - see section 2 of this document.

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

Funding of higher operational costs, including interest costs of borrowings, would be covered by estimated further rates increases of 0.5% in 2022/23 and 2024/25.    

Impact on levels of service

 

The new pool will have the same functionality as the previous facility in terms of meeting the needs of aquatic sports, the local community and other pool users. This includes returning a 50 metre pool, a gym, spaces for gathering, a zoomtube and fun zones. There will be improvements in some areas including the changing rooms, entranceway and the indoor/outdoor flow of the facility. In designing and building the facility we will be looking at how it can improve the flow of the town centre and how it works with activities around it. There should also be improvements to the energy efficiency and general sustainability of the facility, which will contribute to our zero carbon target.

 

When the new pool is operational:

 

·        we expect resident satisfaction with pools to return to previous levels, and potentially increase

·        we expect the number of pool visits to return to our previous numbers

·        we expect to achieve POOLSAFE accreditation. 

 

See comparison below with current forecasts and expected impacts while the pool is closed.

 

Levels of service KPIs

 

Measure

Target

Forecast

Expected impact while pool is closed

Expected impact when new pool is operational

Resident Satisfaction with Pools

92%

<92%

Expect increased dissatisfaction due to closure of a major facility and inability to cater for all displaced users of Naenae Pool.

We expect this to return to previous levels, and potentially higher given we will have an improved facility.

Number of Pool visits per year

900,000

750,000

Naenae Pool previously attracted over 400,000 visitors which we have not been able to fully cater for at other facilities.

We expect this to return to previous number.

POOLSAFE accreditation for all pools

achieved

achieved

No impact.

No impact.

 

Other option

If the proposal to replace Naenae Pool and fitness centre with a new, similar facility is not supported, the alternative is to demolish the building, and go ahead with the spatial plan to determine the future use of the pool site, for example, it could be returned to reserve. The spatial plan costs would be funded from within existing budgets, as this is planned for either option. There would be additional costs of about $1.8 million that includes demolition of the facility, asbestos removal and remediation of the land for future use. There would be no need for the extra 1% rates increase in 2020/21 and 0.5% increases in 2022/23 and 2024/25 but rather any cost changes would impact on 2021/22 and would be resolved through the LTP process.  The current allocation of $9 million for Naenae Pool in the LTP would be re-appropriated through the LTP process.

How will the proposed Naenae pool and fitness centre redevelopment affect your rates?

Cost per year (including GST)

 

2020/21

2021/22

2022/23

2023/24

2024/25 onwards

Impact on average residential property rates [4]

$25

$25

$37

$37

$50

 

How will the proposed Naenae pool and fitness centre redevelopment affect Council’s finances?

Net changes to budgets per year (in addition to the LTP 2020/21)

 

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

*Note figures include inflation but exclude GST

How does this proposed increase in borrowing impact our long term financial strategy?

The increase in debt does have implications for our financial strategy - please refer to the content in section 2 of this document, which explains the proposed changes to the financial strategy.

Financial information

The section which follows explains the financial implications of the proposed redevelopment of Naenae Pool, together with details on how the 2018-2028 LTP financial content would change as a result of the proposal.

Impact on Financial Statements

1)    Changes to the major projects included in the 2018-2028 LTP 

Delete the Naenae Pool Major Refurbishment project of $9 million (uninflated) included on page 16 of the LTP, as shown below.

Major projects planned: Integrated Community Services

 

Forecast

2020-21

$000

Capital to improve the level of service

Naenae Pool Major Refurbishment

9,000

Note: Amounts for all years are shown in today’s dollars; no adjustment has been made for inflation.

Replace with the following new project as shown. The total estimated uninflated capital cost of the project is $50.6 million; whilst the equivalent estimated inflated cost is $53.5 million.

Major projects planned: Integrated Community Services

 

Forecast

2020-21

$000

Forecast

2021-22

$000

Forecast

2022-23

$000

Forecast

2023-24

$000

Forecast 2024-25 onwards

Capital to improve the level of service

Naenae Pool and Fitness Centre redevelopment

173

23,037

23,050

4,372

-

Note: Amounts for all years are shown in today’s dollars; no adjustment has been made for inflation.

2)  Changes to the prospective financial statements

The prospective income statement for the Integrated Community Service activity would change as a result of the proposed change to the Naenae major project – refer to page 21 of the 2018-2028 LTP. The table that follows is an extract showing where there are changes to the values as a result of the proposed amendment.

 

In summary the key changes are:

-      Loss of revenue during closure of the pool and construction period

-      Redeployment of resources during the closure of the pool, including a pop up pool at Naenae Primary School, Hillary Court temporary gym, extending opening hours for Stokes Valley Pool, extending season and opening hours at McKenzie Summer Pool and activation of Naenae town centre

-      The $9 million capital project to refurbish the pool is replaced with a $53.5 million project for the redevelopment of the Naenae Pool and fitness centre

-      Increased loan funding resulting in increased interest expenditure

-      Increased depreciation costs.  




 

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

 

Forecast

2020/21

$000

Forecast

2021/22

$000

Forecast

2022/23

$000

Forecast 2023/24

$000

Forecast

2024/25

$000

Forecast

2025/26

$000

Forecast

2026/27

$000

Forecast

2027/28

$000

Revenue

User charges

(1,110)

(1,135)

(1,159)

(386)

(114)

(60)

(62)

(65)

Expenditure

Employee costs

892

917

942

(181)

(183)

(188)

(191)

(198)

Operating costs

(1,708)

(400)

33

172

205

235

263

282

Interest expenditure

(2)

(251)

(890)

(1,365)

(1,424)

(1,407)

(1,271)

(1,183)

Depreciation

446

875

854

(45)

(233)

(253)

(292)

(310)

Total expenditure

(371)

1,141

939

(1,420)

(1,636)

(1,613)

(1,490)

(1,410)

Surplus/(Deficit) before tax

(1,481)

6

(221)

(1,806)

(1,750)

(1,673)

(1,552)

(1,475)

Total capital expenditure

(9,205)

24,062

24,629

4,779

 

 

 

 

Prospective funding requirement

Rates funding requirement

Surplus/(deficit)

(1,481)

6

(221)

(1,806)

(1,750)

(1,673)

(1,552)

(1,475)

Total rates funding requirement

(1,481)

6

(221)

(1,806)

(1,750)

(1,673)

(1,552)

(1,475)

Loan funding requirement

Capital to improve level of service

9,205

(24,062)

(24,629)

(4,779)

 

 

 

 

Less depreciation

(446)

(875)

(854)

45

233

253

292

310

Total loan (funding)/repayment

9,651

(23,187)

(23,776)

(4,824)

233

253

292

310

Total funding requirement

8,169

(23,181)

(23,996)

(6,630)

(1,983)

(1,926)

(1,844)

(1,785)

*Note figures include inflation but exclude GST

These same changes would also flow through into the consolidated financial statements, including:

-      Page 166 prospective financial statements

-      Page 196 reconciliation of financial statements to funding impact statements.

 

3)    Proposed increased rates revenue

The proposed redevelopment results in significant increased financial costs for Council. The capital investment costs are proposed to be funded by debt to ensure that the costs of this long term asset are met by ratepayers over the life of the asset.  The increased operational costs are required to be funded from ratepayers in the period in which they are incurred; this includes in particular the increased interest expenditure from the increased debt. In 2020/21 there are proposed increased operational costs to fund community engagement to finalise the design together with funding the demolition and asbestos removal costs of the existing pool and fitness centre facility.   

Page 100 of the 2018-2028 LTP (Financial Strategy) limits increases to rates revenue to a maximum annual rates income increase of no more than the Local Government Cost index (LGCI).  The increase for LGCI is being applied in the Annual Plan 2020/21 to fund increased inflationary costs of service delivery and there is no surplus available to fund the proposed Naenae redevelopment of the pool and fitness centre.  Additional rates revenue is proposed in order to fund the additional costs of the Naenae Pool redevelopment. The table that follows provides a summary of the proposed changes to revenue, together with the estimated impact on the average residential property rates charges.  

 

Forecast

2020/21

Forecast

2021/22

Forecast

2022/23

Forecast

2023/24

Forecast

2024/25

Proposed additional rates revenue increase

1%

-

0.5%

-

0.5%

Increased general rates revenue

$1.1M

-

$0.5M

-

$0.5M

Cumulative increased general rates revenue

$1.1M

$1.1M

$1.6M

$1.6M

$2.1M

Estimated impact on average residential property rates – increased cost per annum

$25

$25

$37

$37

$50

 

Further information about the impact of these proposed rates revenue changes on our overall financial strategy are detailed in section 2 of this document.


 

1.2  Three Waters, Roading, and Cycleways

There are some significant projects to be funded that will mean our financial strategy needs to change. Our capital investment plans have increased with the proposed redevelopment of Naenae Pool and fitness centre (outlined in section 1.1), together with increased costs for projects we had in our LTP. These are detailed below.

Three Waters - Water supply and effective wastewater and stormwater systems ensure urban environments function properly. In addition, the Three Waters deliver public health, economic and quality of life benefits for communities. Managing them well has environmental benefits, provides for city growth, ensures there is enough water to go around, and that reservoirs, pipes and pump stations can cope with demand. Included in our budget is $272 million over the next ten years for Three Waters capital investment. Early advice received from Wellington Water indicates that through the next LTP process this investment will need to be potentially doubled to fix ageing infrastructure and meet community expectations for better functioning water infrastructure.  In the meantime we have added the following amounts over the next ten years into the budget:

·          $10.7 million Water Supply investment for reservoirs to support growth and seismic strengthening

·          $23 million for Wastewater investment to Petone Collector Main and Outfall pipeline overflow mitigation

·          $2 million for additional asset renewals works across the network.

Roading - Since our major roads were built, our needs have changed – our population has grown, we’re having more extreme weather events and more traffic congestion, which makes it harder for you to get to where you need to be. It’s crucial that we invest, in partnership with NZTA, on key projects like the Melling Interchange, the Cross Valley Connection and our major Cycleway projects, as well as doing regular maintenance, so we can keep our city moving.

The Melling Interchange and RiverLink projects will deliver a more resilient, accessible and liveable city. RiverLink will connect the city to the river and create opportunities for new businesses, apartments and recreational activities.

Additional funding of $22.5 million has been added following the government’s announcement that the Melling Interchange will go ahead, as the $51.7 million already budgeted for our share of the project costs is not expected to be sufficient. The additional funds will be used for property purchases and other costs associated with the local road system, walking and cycling.

The Cross Valley Transport Connection, a road linking Wainuiomata, Eastbourne and Seaview with State Highway 2, is needed to support the growth of our city. A more up to date costing has been prepared and an extra $55 million added to the budget to bring it to a total estimated cost of $120 million. This project is in the early stages of planning and there is uncertainty around what the final costs will be and how costs will be shared between NZTA and us, so the budgets are likely to be refined further as we progress. 

Active Transport Cycleways Programme - Lower Hutt has a great natural environment for walking and cycling. Most homes are within a short distance to shops, schools, public transport and entertainment, and great natural environment.  We are working to encourage more people to cycle more often and further, by creating a network that’s safe, easy and enjoyable, whether it’s for leisure, for health benefits or for transport. NZTA provides 51% of the funding required for these projects, although no commitment has been made to the full cycleways programme.

An additional $15 million has been included in the draft budget for estimated extra costs for the cycleways programme. This includes funding for the Beltway Northern and Central sections and the Eastern Bays Cycleway. Our current procurement process indicates that an additional $4.1 million will be required to complete all the projects in the cycleways programme, however this has not been finalised and has not yet been included in our budgets or in any financial information presented in this document or other LTP documentation that we are consulting on. We would fund our share of cycleways through borrowing. There is a lengthy process still to go in terms of working through consenting and NZTA funding considerations.

Funding of all planned projects in our LTP requires a change to our financial strategy including rates rises and an increase in borrowing. We are seeking your views on these priorities, and also on the changes that need to be made to our financial strategy.

Other options

If the proposal to increase our capital investment programme to include the major items outlined above is not supported, the capital programme would not be able to be completed. The alternative is to review our programme and consider whether any projects could be stopped, delayed or reduced in scale. Some examples of initiatives that would be unlikely to proceed would be the Naenae Pool redevelopment, RiverLink, Cross Valley Connection and the cycleways programme. We would also need to review the services we provide and work out what we could do with the revenue available. Depending on which projects were changed, this could reduce the levels of service we had planned to provide through our LTP.

See section 2 of this document outlining the changes proposed to our financial strategy. This outlines the financial impacts that would result if we proceed, or alternatively do not proceed, with our capital investment programme.


 

2. Financial Strategy Changes: including changes to rates revenue and borrowing levels

Good financial management and long term sustainability is critical and must underpin our plans.

Our financial strategy is based on the following key principles:

·    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.

These principles provide the foundation to drive towards a balanced budget[5] in the medium term and move towards a more sustainable base. To achieve this we need to increase our rates revenue and borrowings. These matters are outlined in more detail below.

Balanced budget

The Local Government Act 2002 (LGA) requires councils to budget each year for operating revenue at a level sufficient to meet the operating expenses budgeted for that year. This is known as the “balanced budget” requirements. The LGA does allow councils to budget for a deficit, if they decide that it’s financially prudent to do so.

As such, we must be financially prudent. That’s something we must do for ratepayers who trust us to deliver services, maintain assets and invest for the future.  Recent reports into the level of investment required for things like the Three Waters indicate we have fallen behind on future proofing our core infrastructure. This means we are now facing some big financial challenges. The Local Government (Financial Reporting and Prudence) Regulations 2014 definition for the “Balanced budget benchmark” has been applied in this assessment. We have modified this to exclude the “ring-fenced” NZTA capital subsidies for capital improvements works which are significant and this funding should not be used to fund operating expenditure.[6]

Over the past decade there have been relatively small increases in rates charges compared to other councils; this has resulted in Lower Hutt having the second lowest average rates growth per capita in the country.

The graph that follows shows that, if we maintain rates increases at the inflation level only as per the LTP, then we will not achieve our balanced budget target until 2029/30, while with the higher proposed rates increase our balanced budget is projected to be achieved in 2023/24.

Graph 2 : HCC balanced budget target defined as Local Government (Financial Reporting and Prudence) Regulations 2014 definition modified to exclude NZTA’s capital improvement subsidies from the calculation of revenue

For more information see the financial strategy executive summary from page xxx.

Rates revenue

While the 2018-2028 LTP had rates revenue increasing for inflation and for growth in the city, we need to increase our rates revenue to a higher level than originally planned. Our latest financial forecasts are not as favourable as originally anticipated. Drivers of this include a range of unanticipated cost pressures such as Three Waters infrastructure, Naenae Pool and fitness centre and seismic strengthening of community facilities; all items to be addressed through our capital programme which have ongoing impacts for our operational costs. Further operational cost pressures to be funded include the District Plan review, digital investment, insurance costs and the Development Stimulus Package.

In 2020/21 we are proposing an overall rates revenue increase of 7.9%. The LTP restricted rates revenue increases to inflation and growth only.  The 7.9% includes an increase of 1% to start work on demolishing the existing Naenae Pool, with further rates increases amounting to an additional 0.5% in 2022/23 and 2024/25 assisting in funding the cost of borrowing for the build and operating expenses. Further details of rates increases in the longer term are available in Table X on page xxx. The increased rates revenue will allow for the levels of service provided for in the LTP to continue.

 

What my rates are spent on now?

Borrowing

Our capital investment plans exceed the debt limits set in the financial strategy included in our LTP 2018-2028.

To maintain debt at a sustainable level we set limits on borrowing in our financial strategy. Our net debt was $172 million at 30 June 2019, while the value of assets was $1.5 billion. This debt level is prudent in comparison to our income at a 103% 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% of our annual income over ten years, and within the maximum level set of 150%. We propose to change the debt to revenue limit to a higher level of 180%. The proposed new limit is well within the limit of 250% set by the Local Government Funding Agency from which we receive most of our debt funding. It is considered financially prudent and affordable, particularly given the proposed increase to rates revenue to fund the ongoing costs of the debt. 

Interest rates are at historic lows and our forecasts are projecting borrowing costs ranging on average between 3% and 3.5% over the next ten years. Not only does it make sense to review debt to revenue limits because of this; fairness to current and future ratepayers and intergenerational equity principles require it.

Graph 3:Projected debt to revenue ratio compared to financial strategy debt limit  Graph4 : Projected debt compared to financial strategy debt limit


 

Graph 5 : Projected Interest Expense to Revenue Ratio compared to the financial strategy limits

Changes to financial strategy

As a result of all the infrastructure we want to invest in we are seeking feedback on possible changes to our financial strategy. Through the next LTP we will complete a full review of the strategy, and our priorities, plans and budgets.

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. The LTP restricts rates revenue increases to a lower level of inflation and growth only. 

 

The indicative rates increase means residential ratepayers could pay on average $212 per annum or $4.08 per week based on an average property value[7]. The rates increase could range on average between $1.18 and $6.61 more per week, due to movement in property values as a result of the recent property revaluation.

 

The annual increase of $212 includes $84 for Three Waters and $25 for Naenae Pool.

Increase debt limits largely to enable funding of Naenae Pool and fitness centre 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 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 6: Indicative impact of rates changes on average residential property

 

Table X Projected rates increases in the longer term

 

2020/21

2021/22

2022/23

2023/24

2024/25

2025-2030

Rates increase for inflation as per LTP 2018 to 2028 (rates increases based on BERL Local Government Cost Index)

2.8%

2.2%

2.2%

2.3%

2.3%

2.47%

Rates increase to reduce Council’s deficit over time

4.1%

1.6%

1.6%

-

-

-

Rates increase for proposed Naenae Pool and fitness centre redevelopment

1.0%

-

0.5%

-

0.5%

-

Total rates increase including Naenae Pool

7.9%

3.8%

4.3%

2.3%

2.8%

2.47%

This excludes assumed growth in the city which is about 1% each year reflecting census figures and more consents being processed for new developments leading to an increase in the number of rateable properties over time.

Through the LTP 2021-2031 the rates increases will be reviewed. 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 for 2021/22 does not reflect an adjustment for the potential rates impact for further increases for Three Waters as it is currently uncertain.

The rates increase equivalent for proposed changes to rubbish and rubbish collection targeted rates (preferred option 1) would be an increase of about 5%[8] in 2021/22 (not reflected in table above).Homeowners would no longer need to purchase rubbish bags or pay for a private rubbish collection service.

While we are seeking your feedback on a rates increase we will continue to focus on delivering our services in the most efficient manner and to ensure we get the best value from every dollar we collect. Operational savings of at least $1 million, which would have equated to an additional 1% rates increase, will be made in 2020/21 and there will be a line by line review of our budget for the long term plan process next year. 

Ongoing efficiency initiatives include:

·      improved business processes

·      better use of technology

·      better procurement and tendering processes

·      controlling the growth in our core operating expenditure.

What happens if changes to our financial strategy aren’t made? 

As a result of our proposed increases to capital investment outlined in the consultation document, together with the need to work towards a “balanced budget”, feedback is being sought on the proposed changes to the financial strategy in the LTP 2018-2028. This includes increasing rates revenue above inflation as well as increasing the limit on the debt to revenue ratio. The changes proposed aim to ensure we are meeting our legislative requirement to set budgets which are financially prudent and also ensure that the funding of expenditure is equitable across both present and future ratepayers.

If this proposed change to the financial strategy is not supported, the alternative is to return to the rates and debt limits set in the LTP. If rates levels were held at the levels set in our financial strategy, i.e. inflation only, then our capital investment programme would need to be significantly reduced to avoid projected debt increases. While lower rates increases may be welcomed by ratepayers, it would mean that we would need to make some very difficult decisions about key projects and services which would need to be stopped and/or severely cut back i.e. the levels of service planned in the LTP would be decreased. Some examples of initiatives that would be unlikely to proceed would be the Naenae Pool redevelopment, RiverLink, Cross Valley Connection and the cycleways programme. We would also need to review the services we provide and work out what we could do with the revenue available.

Go to haveyoursay.huttcity.govt.nz for more information on our proposals and to give us your feedback.


 

Further details about the changes proposed for the LTP 2018-2028

The section which follows provides the content changes to be made in the LTP 2018-2028.

Pages 100 to 102 are replaced with new financial strategy content as detailed below.

Financial Strategy

Executive Summary

Our total assets are worth $1.6 billion and include infrastructure assets, land and buildings; whilst total liabilities are lower at $0.3 billion and include borrowings and payables to suppliers. Annual income in 2020/21 of $1814 million is largely applied to fund operating costs for services we deliver and to maintain assets.

Council’s financial strategy promotes the sustainable funding of services and based upon the key principles of:

·      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 our financial position.

These principles provide the foundation to driving towards a balanced budget in the medium term and moving towards a more sustainable base. We will work through the financial adjustments needed to achieve the balanced budget, recognising that until it is achieved rates will be higher than we would like.

Our financial position is sound and we have a strong balance sheet – as supported by our Standard & Poor’s AA credit rating. This financial strategy focuses on strong fiscal management whilst addressing growing demands for increased capital expenditure in core infrastructure assets such as the stormwater, wastewater and water supply networks and roading networks.  

Over the first ten years we propose to spend $814 million on capital, 33% of which is in the wastewater, stormwater and water supply area, and 36% on roading. This significant capital investment will be funded by debt and from rating for depreciation.

With the significant capital expenditure plans we will need to increase our debt to fund what is not provided for by way of depreciation and capital subsidies. This will see us increasing our debt to a peak level of $321 million in 2024/25. Debt will then decline to $299 million in 2027/28.

Rating levels are reflective of the level of service that we provide and the increased capital spend. Rating levels are also reflective of the progressive increase in rating for depreciation along with the need to achieve a balanced budget (living within our means by 2023/24).  Rate levels are forecast to change annually and changes between years can be significant as the impacts of assets and expenses vary annually. We have determined that we will adopt some smoothing of rates to provide more certainty and consistent rate levels. Until we achieve a balanced budget in 2023/24, we are looking to have higher rates increases.

We face some significant challenges to keep rates at affordable levels:

·      we have a high dependence on rates as the principle revenue source ,

·      residents want us to provide all our services and we are reluctant to reduce these without clear and strong direction from the community.  

Our high dependency on rates means that we have very few options available to absorb cost increases. We will continue to drive internal efficiencies and revenue opportunities before looking to either increase rates or lower levels of service.

Balancing the budget

We need to move towards a sustainable position, balancing the budget over the medium term.  

The Local Government Act 2020 (LGA) requires councils to budget each year for operating revenue at a level sufficient to meeting the operating expenses budgeted for that year. This is known as the “balanced budget” requirement. The LGA does allow councils to budget for a deficit, if they resolve that it is financially prudent to do so.

In assessing a financially prudent decision, consideration is to be given to:

·      the estimated expenses of achieving and maintaining the predicted levels of service provision set out in the LTP, including the estimated expenses associated with maintaining the service capacity and integrity of assets throughout their useful life

·      the projected revenue available to fund the estimated expenses associated with maintaining the service capacity and integrity of assets throughout their useful life

·      the equitable allocation of responsibility of funding the provision and maintenance of assets and facilities throughout their useful life

·      the funding and financial policies adopted under section 102.

We acknowledge that we run deficits from a balanced budget perspective mainly due to revenues not covering the full cost if depreciation. The following fiscal levers will be used to move progressively towards achieving a balanced budget in the medium term:

a)     fees and charges

b)    rating for depreciation

c)     development and financial contributions

d)    efficiencies

e)    debt repayment

f)     rates setting.

In 2014, Government introduced a number of amendments to the LGA, including the Local Government 2014 Financial Regulations, which established eight benchmarks against which all councils must report. One of these benchmarks is the balanced budget which is defined as “Council Revenue excluding development contributions, vested assets, gains on derivatives and revaluations of property, plant and equipment as a proportion of operating expenses – excluding losses on derivatives and revaluations”. This definition includes NZTA capital subsidies as revenue and assumes councils fully rate for depreciation.

Depreciation spreads the capital cost of assets over their useful lives, so that each generation of ratepayers pays for their share of the use of the asset. By not fully funding for depreciation, it places a burden on future ratepayers, who have to pay for the asset replacement. Funding depreciation supports the intergenerational equity principle whereby everyone who benefits from use of the asset pays for their share over the assets’ useful life. By rating for depreciation, we are providing cash to fund the capital renewal programme.

For our roading assets, it is not necessary to fully fund depreciation as we receive a NZTA capital funding subsidy. We need to provide funding for “our share” of the expenditure. The Council has some significant capital improvement projects, such as the Cross Valley Connection and Cycleways Programme, which have been assumed to be funded by NZTA in the financial projections. The NZTA funding of the capital improvements work is significant at $96M.   In assessing our balanced budget target we have applied the Local Government (Financial Reporting and Prudence) Regulations 2014 definition modified to exclude the NZTA capital improvement subsidies from the calculations of revenue. The reason for this NZTA adjustment is that the funding is not available to meet our day-to-day operational costs.


 

Hutt City Council balanced budget target defined as Local Government (Financial Reporting and Prudence) Regulations 2014 definition modified to exclude NZTA’s capital improvement subsidies from the calculation of revenue

We acknowledge that we will not achieve our balanced budget target for a number of years and that we will work to achieve this by 2023/24. Setting rate levels to immediately achieve this would increase the rates burden for ratepayers. Adopting some smoothing of the impact over a few years will result in the best fiscal and sustainable outcome.    


 

Operating surplus/ (deficit)

The graph that follows shows the projected accounting results (orange line) which includes non-cash items such as “income” from vested assets and the impacts of revaluations of assets. These accounting operating results reflect the accounting position as meeting all the Public Benefit Entity- International Public Sector Accounting Standards (PBE-IPSAS) reporting standards. The large spikes in favourable results are a result of the accounting requirement to revalue assets.

Although we have a projected accounting operating deficit in 2020/21 followed by projected surpluses for the next nine year (orange line), there is a balanced budget deficit (green line) projected until 2023/24. Part of the income we receive is from NZTA in the form of a subsidy for expenditure on our roading network. The subsidy is to cover both operating and capital expenditure. The capital component needs to be spent on capital items and is not available to meet our day-to-day operational costs. This is why we exclude these capital subsidies in our calculation of our balanced budget target. 

Projected financial results


 

Debt

Debt is a key component of recognising intergenerational equity. It is important that the amount of borrowings is prudently managed, whilst enabling continued investment in infrastructure and community assets to continue.

The financial strategy includes limits on borrowings as detailed in table that follows, and the graphs that follow show that we are projecting to be within these limits.

Measure

Limit

Net interest  to revenue

Below 10%

Net debt to total revenue

Below 180%

Net debt can be increased to a maximum of 200% of total revenue at any time, provided that this is due to a significant natural disaster.

 

The increase in our debt is the result of funding major infrastructure improvement and renewals works. The timing of the capital programme and the associated borrowing requirements have been carefully considered to ensure that this best meets the needs of current and future generations.

Projected debt compared to financial strategy debt limit


 

Projection of debt to revenue ratio compared to financial strategy limit

Projection of interest to revenue ratio compared to financial strategy limit


 

Rates revenue

The LGA requires councils to quantify limits on rates and rates increases.

We believe that the Local Government Cost Index (LGCI) is the most appropriate index to reflect the cost increases we are subject to. The LGCI index is independently determined each year by BERL and is widely used by councils throughout New Zealand. BERL index numbers do assume a constant volume impact and only represent the “price” increase over time for the same level of activity. As we are constantly faced with increased volumes of assets we have to manage, the impact on rates will always be greater than the BERL increases.

It is important to distinguish between the increases in rate revenue from year to year and the average rate increase. Our revenue increases reflect not only the impact of rates increases to the average ratepayer, but it also includes rate revenue received from the growth in new rateable properties each year – currently running around 1% per annum.

We will progressively move to achieving a balanced budget in the medium term, as reflected earlier in the financial strategy. While changes in the rate levels actually vary each year, this can lead to significant movements between years. Some level of smoothing of rate changes can provide more certainty to residents. Once our balanced budget target is achieved, the annual rate increases are expected to be lower.    

Measure

2020/21

2021/22

2022/23

2023/24

2024/25

2025/26

2026/27

2027/28

2028/29

2029/30

Maximum rates income1 ($ millions)1

$117.7

$123.5

$130.2

$134.8

$140.2

$145.2

$150.5

$155.9

161.7

167.6

Average rate increase2

7.9%

3.8%

4.3%

2.3%

2.8

2.4%

2.4%

2.4%

2.5%

2.5%

LGCI benchmark

2.8%

2.2%

2.2%

2.3%

2.3%

2.4%

2.4%

2.4%

2.5%

2.5%

Note:

1)        These figures include inflation but exclude GST.

2)        These figures do not take into account additional income from new properties in the city each year. Property growth is assumed to be one per cent annually.

3)        Note that this rates information does not take into account proposed changes the refuse and recycling services in 2021/22. If these changes do go ahead the estimated increase in costs would be the equivalent of about a 5% rates increase. Homeowners would have offsetting cost savings as they would no longer need to purchase rubbish bags or pay for private rubbish collection service. 

Next Long Term Plan 2021-2031

Through the next Long Term Plan process a thorough review will be undertaken of the Infrastructure Strategy and the Financial Strategy.  This will be undertaken in 2020/21.

Further changes to content in the LTP 2018-2028

Pages 103 to 105 would remain unchanged except for a statement on page 103 which would be unchanged except for one sentence on page 103 which would be updated as follows:

“We plan to spend approximately $814 million over the next ten years to maintain and improve existing assets and create some new assets. Capital expenditure to 2040 rises to approximately $1,388 million due to inflation and some large projects, including significant roading networks improvements and upgrading the main wastewater pipeline to Pencarrow.”

Page 161 and 162 updated to reflect the latest financial forecasts.

 

 


 

 

Where does Council income come from?

 

 

 

 

 

Where does Council spend money?

 

Page 163 section “Balanced budget” removed as it is replaced by content above in the financial strategy section.

 

 


 

3.    Rates Split

This section of the consultation document deals with the split of rates between different property groups like businesses, residents and utilities.

Background 

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

Over the years we have been working towards making sure the share of rates paid by residents, businesses, utilities and people living in rural areas pay is spread more equitably.

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

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 years Lower Hutt residential property values increased substantially more than commercial and utility values – triggering a larger proportional increase in residential property rates than for commercial properties and utilities.

How does the capital value rating system work?

At a very basic level, there are three steps:

1.    We work out how much income is needed from rates in order to run the city.

2.    Some rates are for specific things such as water supply. These are called “targeted rates” and are charged only to the properties that use these services. The cost of the service is shared among those properties.

3.    The ‘general rate’ rate money is collected to fund things that benefit the general good of the city, like roads and parks maintenance. The general rate amount is then spread across the city in amounts proportional to each property’s capital value compared to the total value of the city.

For example, if there were two properties in the city each worth $500,000, then each house would pay 50% of the general rates required to run the city. This is because each house makes up half of the total value of the city.

 

 

If, when they are revalued, house 1 is still worth $500,000 but house 2 is not worth $750,000, then they would no longer pay the same amount of rates. House 1 would pay less than 50%, and house 2 would pay more, because each pay a share of the rates in proportion to the value of their house compared to the value of the city as a whole. In this case 40% and 60%.

 

We are proposing to change the way we set the general rate

Why?

The recent property rating revaluation resulted in some big changes to rates across our city. Residential property values increased a lot, but rates for businesses and other groups did not increase by the same proportion. The changes in revaluations has meant that council’s policy on the rates paid by businesses and residents would result in residents picking up a greater share of the general rates bill at a far higher level than was planned.

In fact 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. We are concerned that, as a result, these changes would be inequitable across the different categories of ratepayers so we are proposing a change to the way we set the general rate.

Next year we will undertake a full review of our revenue including rates as part of the development of the 2021-2031 LTP.

Why have property values increased?

Each year in our annual and long term plans we set the rates we need to invest in our city and facilities. The amount you pay towards this amount is partly based on the capital value of your home (the building and the land).

In late 2019 Quotable Value set a new valuation for all residential properties in Lower Hutt. It showed that residential property has experienced significant growth in value over the last three years, particularly Taita (43%), Stokes Valley (40%) and Wainuiomata (53%).

If the capital value of your property has gone up by more than the average of the city (31.8%), then your proportion of the general rate will go up. If your property’s value has increased by less than the average, then your proportion will go down.

If you think of our rates income as a pie, the size of the pie does not get any bigger as a result of the revaluation. However, a ratepayer’s slice of pie might get bigger or smaller depending on how their property value has changed in relation to the city’s average valuation changes.

Business rates compared to residential rates – the rates differential

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

That’s when we began adjusting the share of general rates paid by commercial, residential and rural ratepayers. This adjustment is called the rates differential, and our 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 shows 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% of general rates in 2010/11 to a 63% share in 2019/20

·      commercial property has moved from 44% of general rates in 2010/11 to 31% in 2019/20.

 

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 2020/21, which goes far beyond the intent of the original policy.

Graph X: This graph shows the change over the last ten years in the allocation of rates charges between property rating categories

What are differential rates?

In simple terms, differential rates mean that there is a different rate for different property categories, e.g. residential, rural property owners, commercial, and utilities. Currently we use a differential rate and our property categories pay different percentages of their capital value for the general rate.

The table below sets out the property groups and the differential rates that were used in the rates for the 2019/20 year and the proposed changes that would reduce the differentials by 2022/23.

Differential

2019/20

2020/21

2021/22

2022/23

Residential

1

1

1

1

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

Rural

0.75

0.76

0.77

0.80

 

Residential properties have consistently increased over the last three revaluations or nine years at a greater rate than commercial properties. When compared with the city average, residential properties have increased by 9.13% greater than average while business properties have decreased 29.16% less than the average.

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%

 

 

The graph below demonstrates the percentages paid by each property group.  The change over time is caused by the change in rateable values, and our current policy of reducing the differential for commercial properties.  The graph includes an indicative 2020/21 projection which shows that if no changes to the policy are made then the residential share of the general rates will continue to receive a higher proportion in 2020/21 of 65%, a further increase of 2% from 2019/20.

Using indicative modelling from 2011/12 to understand the differential policy, it is clear that a target of about 60% share of the general rates by residential ratepayers was intended when the policy was implemented.

After the 2019 property revaluations, we want to ensure the amount of rates paid by our various ratepayer groups reflects an equitable share.

Full Review of Revenue and Financing Policy

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

 


 

We identified the following possible options that could be implemented for the 2020/21 rating year.

Option 1 (Council’s preferred option): Hold 2019/20 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. This would keep the percentage amounts paid towards general rates at the same level as the 2019/20 rating year, that is, not continuing with the direction of reducing the proportion of rates paid by businesses. While individual properties may still see an increase in the rates levels payable, this approach will generally see most property groups having an increase of a similar percentage. This is holding the existing allocations until a full review can be completed as part of the 2021-2031 LTP. The impact on the average residential property would be around $51 per annum lower rates when compared to option 3.

The table below demonstrates the impact on the average properties for each category.

 

New rating differentials would be set for the 2020/21 year.

Differential

2019/20

Indicative 2020/21

Residential

1.00

1.00

Business accommodation

2.51

2.64

Business central

2.72

2.98

Business Queensgate

2.72

3.73

Business suburban

2.63

2.60

Utility Networks

2.36

2.80

Rural

0.75

0.75


Option 2 - Freeze the differentials to be the same as 2019/20

Freeze the differential transition for a year, that is, use the 2019/20 differentials rather than those planned for 2020/21. The current situation is directly comparable to 2017/18 when the decision was made to freeze the differential transition for a year. The rates differential adjustment would mean the share of general rates paid by different rating groups would change but less significantly than provided for in the current policy (option 3). This is holding the existing differential transitions until a full review can be completed as part of the 2021-2031 LTP. The impact on homeowners would be around $23 per annum lower rates when compared to option 3.

The table below demonstrates the impact on the average properties for each category.

 

Option 3 - Status quo – Continue with differential adjustment

Continue with the differential transition adjustment to the share of general rates paid by commercial, residential and rural ratepayers. Homeowners would pay an increased percentage of the general rates. When this policy of adjustment was adopted, it was not intended to have the impact it is having now, that is, the residential share of the general rates is over 60%.

The table below demonstrates the impact on the average properties for each property category.

 


 

Note: the total income from rates would be the same regardless of which of these options was chosen.

How each option could affect average residential property rates

Option

Rates 2019/20

Expected Future Rates 2020/21

% Change

Change in amount per annum

Change in amount per week

Impact on rates

Option 1: Holding position based on percentage splits

$2,477

$2,689

8.5% higher

$212

$4.07

$51 per annum lower than option 3

Option 2: Freeze the differentials

$2,477

$2,717

9.7% higher

$240

$4.62

$23 per annum lower than option 3

Option 3: Do nothing

$2,477

$2,740

10.6% higher

$263

 

$5.06

$263 per annum higher than 2019/20

 

How each option could affect average central business rates

Option

Rates 2019/20

Expected Future Rates 2020/21

% Change

Change in amount per annum

Change in amount per week

Impact on rates

Option 1: Holding position based on percentage splits

$13,074

$14,433

10% higher

$1,359

$26.13

$1,410 per annum higher than option 3

Option 2: Freeze the differential

$13,074

$13,494

3% higher

$420

$8.08

$471 per annum higher than option 3

Option 3: Do nothing

$13,074

$13,023

(0.39)% lower

($51)

($0.98)

$51 less than 2019/20

 


 

PROPOSED AMENDMENT TO THE REVENUE & FINANCING POLICY

Step two (extract from page 106 of the LTP 2018-2028 page 106)

The second step in the process is for Council to apply its judgement to the overall impact on the community.  In exercising this judgement Council particularly considered the following;

·    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.

·    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.

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

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

·    The change in relative rateable values between types of properties.

As the General rate is a general taxing mechanism, shifting the “differential factor” for each sector’s share of the city’s overall capital value is the principal means that Council has used to achieve the desired overall rates impact on the wider community. 

DIFFERENTIAL FACTOR (content that follows replaces LTP 2018-2028 content on page 108)

The general rate payable on each category of property is expressed as a rate in the dollar of capital value.

The different rates in the dollar for different categories of property are determined as a result of the review described above. These different rates in the dollar for different property categories are known as “differential factors” and are agreed following the completion of step two of the process (which is designed to allow Council to apply its judgement on the overall impact on the community).

Following a Revenue and Financing Policy review undertaken by Council in 2012, it determined the following differential factors for each category of property:

·    Residential: 1.0

·    Business: 2.3

·    Business Central: 2.3

·    Utility Networks: 2.3

·    Rural: 0.8

·    Community Facilities 1: 1.0

·    Community Facilities 2: 0.5

·    Community Facilities 3: 2.3.

In 2012 we commenced a 10 year shift in the differential to achieve these ratios.

The underlying objectives of the transition were to:

•             Lower the allocation of rates to the rural sector to a level where the rural differential is equal to 0.8. This change has been made on the basis that rural properties often experience a lower level of service because of the longer distances between rural properties and our facilities.

•             Provide two special categories of community facilities and rate them at a lower differential to recognise the community benefits provided by such facilities. The two categories are Community Facilities 1 and Community Facilities 2 and are defined in the Funding Impact Statement, along with the differential to apply to each. A third category of Community Facilities is also defined but no adjustment has been made to the differential to be levied on this category.

•             Standardise the differential for all other non-residential properties so that such properties are rated on the same basis.

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

The differential policy was reviewed by Councillors during the preparation of the 2018-28 LTP. It was 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 rate based on the current policy would place an increased burden on residential properties.  Based on status quo the average residential property would have an increase of $263 per annum (10.6%), while the average business central property would see a decrease of $51 per annum (0%). Therefore we are 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.  The proposed General rate differentials based on capital values are:

·    Residential                                          1.00

·    Business Accommodation            2.64

·    Business Central                               2.98

·    Business Queensgate                    3.73

·    Business Suburban                          2.60

·    Community Facilities 1                   1.00

·    Community Facilities 2                   0.52

·    Community Facilities 3                   2.40

·    Rural                                                      0.75

·    Utility                                                    2.80

 

REVENUE AND FINANCING POLICY REVIEW

The overall Revenue and Financing Policy (including the differential factors) will be reviewed from a first principles approach in 2021 and is reconsidered every three years as part of the LTP.


 

4.    Recycling and rubbish collection

Background

Every year, on average each 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. To help address this over the past twelve months we have run a ‘Let’s Sort Out Waste’ campaign to showcase to the community the benefits of recycling.

Over the last 18 months a strategic review of our recycling and rubbish collection system was completed. We are proposing significant changes to how kerbside collection operates in our city. For rubbish, households can currently choose to use our official rubbish bags or pay a private company. For recycling, as well as the weekly collection service, there are five community recycling stations across Lower Hutt.

We need a modern approach, that is environmentally-friendly and that is easier for more people to use.

The key reasons for the changes are:

a.         recycling crates don’t hold recyclables well especially on windy days. Plastic and paper  enters the stormwater system ending up in Wellington Harbour, leading to ocean and beach pollution;

b.         the crates are not a full cost service, i.e. people are expected to pay for their own crates which means uptake is uneven and there are fewer people recycling. Some residents use their own containers like cardboard boxes which makes handling difficult for the people picking up the bins and increases the health and safety risks. The use of flexinets to minimise wind-blown litter is also voluntary and people are also expected to pay for their own nets and usage appears to be low;

c.         recycling crates are not big enough which discourages people from recycling when their crate is full and leads to increased litter entering the environment;

d.         the community recycling stations are used by people who have large amounts of glass or cardboard to recycle. There is significant and frequent contamination and illegal dumping issues at these stations, which are open 24/7 and unstaffed. A lot of dumping tends to involve “unofficial” rubbish bags of general household refuse;

e.         our rubbish bag collection service poses higher health and safety risks to the people picking up the bags due to the need to exit the vehicle to complete the collection, manual handling of bags, and exposure to sharps. Bags are also not effective in containing rubbish as they are prone to damage from animals; and

f.          while Council does not have data available to show the exact causes of illegal dumping behaviour, it is possible that at least some of the frequent illegal dumping that is occurring at various locations, including recycling stations, may be due to residents’ lack of willingness, or inability, to pay for refuse disposal (such as via user-pays rubbish bags).


 

We would like to see:

A system-wide change to rubbish and recycling to align with our wider waste minimisation objectives which include reducing litter, reducing waste going to landfill and less contamination in our recycling. Our preferred approach to rubbish and recycling is to change to an alternate weekly collection system. This means rubbish is picked up one week and recycling the next. As part of any new service bins would be fitted with latches to prevent rubbish and recycling ending up as litter. These services would be funded by targeted rates i.e. a cost per property, and would start in July 2021.

In any new rubbish and recycling system we want to provide services that customers want, can easily use and can afford. We must consider the environment and how we’re going to reduce harmful greenhouse gases and carbon emissions.

In every option we are proposing a change to recycling. Households would receive a  240-litre wheelie bin for mixed recycling, and a 45-litre crate for glass - both collected fortnightly. This new approach would assist in addressing the problems with the current crate where it is not large enough to contain recycling which then ends up as litter in the environment. This would mean an increase in the current $40 per annum targeted rate of an estimated $29 bringing the total to $69 per property from 1 July 2021. These would apply to all households. Under all options, the current community recycling stations would be removed. This does not include the recycling station at Seaview which is run by a private company.

We are proposing a new wheelie bin for rubbish which would be rates funded. There will be some flexibility to choose a different size bin with a targeted rate reflecting the size of the bin. It’s likely a service fee for this would be charged separately and the details for this will be worked out in the coming year. Rubbish bags would be phased out completely for all of the options. As well as council’s preferred option of an alternate weekly collection service there are three other options to choose from in this year’s consultation.

Impact on levels of service

Rubbish and recycling services that we provide are expected to improve with greater customer satisfaction and less litter entering the environment over time as a result of the proposed change. For example this would be achieved by moving from a bag to a wheelie bin for rubbish. Measures of performance will be developed in 2020/21 for implementation in the following year when the system is operational.


 

We’ve worked with experts and come up with the following options as a way forward for rubbish collection:

 

Option 1

(Council’s preferred option): Council provides a fortnightly rubbish bin collection service

Option 2

 Council provides a weekly rubbish bin collection service

Option 3

 Council no longer offers a rubbish collection service

Option 4

Council provides a pay-as-you-throw rubbish collection service

Rubbish

Households would receive:

-       a 240-litre wheelie bin collected fortnightly (default size)

 

Households would receive:

-       a 120-litre wheelie bin collected weekly (default size)

 

Instead of Council providing a rubbish collection service, households would pay a private rubbish bin service provider

Households would be offered:

-       a pay-as-you-throw wheelie bin collection service, using a 120-litre bin

NOTE: There will be some flexibility to choose a different size bin with a targeted rate reflecting the size of the bin. It’s likely a service fee would be charged for this separately and the details for this will be worked out in the coming year.

NOTE: There will be some flexibility to choose a different size bin with a targeted rate reflecting the size of the bin. It’s likely a service fee would be charged for this separately and the details for this will be worked out in the coming year.

 

NOTE: Households would only pay when the bin contents were collected.

Actual costs to households would depend on how frequently the bin was emptied and sufficient numbers of households taking up this option.

An 80-litre or 120-litre bin could be selected but this would have to be by 31 March each year because of the way rates are set. The cost of this would be determined through a tender.

An 80-litre or 240-litre bin could be selected but this would have to be by 31 March each year because of the way rates are set. The cost of this would be determined through a tender.

 

 

Estimated Cost

Total cost for rubbish collection implemented through a targeted rate - $115 per property indicative per annum cost for period starting 1 July 2021 for a 240-litre bin.

For a 80-litre bin the indicative per annum cost for period starting 1 July 2021 would be $80

For a 120-litre bin the indicative per annum cost for period starting 1 July 2021 would be $90

Total cost for rubbish collection implemented through a targeted rate - $144 per property indicative per annum cost for period starting 1 July 2021 for a 120-litre bin.

For a 80-litre bin the indicative per annum cost for period starting 1 July 2021 would be $114

For a 240-litre bin the indicative per annum cost for period starting 1 July 2021 would be $288

Total cost for rubbish collection based on user fees - $285 per property indicative per annum cost for period starting 1 July 2021 for a 120-litre bin (if bin emptied weekly)*

*Business case provided an indicative cost. As at February 2020 the price range for this service was $245 to $325 per annum. We’ve used a figure midway through the range for the purposes of this estimate.

Total cost for rubbish collection based on user fees - $234 per property indicative per annum cost for period starting 1 July 2021 (if bin emptied weekly)

 

Optional add-on: Council provides an opt-in 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 by 31 March each year. The green waste bin would only be available for garden waste, it would not be able to be used for any food waste.

Estimated Cost

Estimated $129[9] per household/year – optional cost added on to annual rates for that property.

 


 

How do the rubbish collection options compare?

ü = positive impact

X   = negative impact

Addressing issues with the current services

Option 1

Option 2

Option 3

Option 4

Worker health and safety risks with current rubbish bag collection addressed

ü

ü

ü

ü

‘Animal strike’ issues with current rubbish bag collection addressed

ü

ü

ü

ü

Reduces the number of rubbish trucks on the roads and reduces associated greenhouse gas emissions

ü

ü

No impact

No impact

Risk of odour concerns with fortnightly bin collection

X

No impact

No impact

No impact

Fortnightly bin collection may not suit the needs of larger households

X

N/A

N/A

N/A

More choice for households to purchase a rubbish collection service that meets their household needs

No impact

No impact

ü

ü

We are concerned over the possibility that user pays options could lead to more household rubbish being illegally dumped or contaminating the recycling bins as a way of avoiding paying for a rubbish service

ü

ü

X

X

 

Costs

The costs quoted per household for services in each option are detailed estimates, but actual costs may differ once contracts are confirmed. All costs are GST inclusive.  These costs are estimates only and may change through our procurement process.

Multi-unit apartments and rural properties

Multi-units, apartments and properties on rural roads may not be suitable for receiving the services using 80-240-litre bins. For options 1, 2 and 4, alternative services would be made available, at an average household cost, using an alternative method, such as via a dedicated drop-off point using 660-litre bins.

Recycling stations

Under all options, our recycling stations would be phased out due to the ongoing concerns with illegal rubbish dumping at these facilities, and because the new bins would significantly increase capacity for households to recycle.

Disabilities and older people

Wheelie bins can be challenging for older people and those with disabilities. For options 1, 2 and 4, a ‘wheel-in-and-wheel-out’ service would be offered at an average household cost. This would be subject to qualifying criteria.

Rental properties

The provision of a rates-funded refuse collection service as per option 1 and 2 would be paid for by the landlord as part of the property’s rates. The choice of rubbish bin size would rest with the landlord, not the tenant.

Food waste

While a green (garden) waste option is included, none of the rubbish and recycling options includes the collection of food waste. This is because the system to support processing of food waste at this large scale doesn’t yet exist in our region, and further analysis and market development is required.

Miscellaneous

Under all options, if feasible and cost-effective, the 45-litre crate for glass collection may be substituted with a wheelie bin for glass only. This will be dealt with through any procurement process.

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.

Impact on levels of service

Rubbish and recycling services are expected to improve with greater customer satisfaction and less litter entering the environment over time as a result of the proposed change. Measures of performance will be developed in 2020/21 for implementation in the following year, when the system is operational. These will cover:

1.    Tonnes of recycling collected per annum increases compared to previous years;

2.    Fewer complaints from residents as evidenced by information held by the contact centre;

3.    Increased resident satisfaction as reported in our surveys on litter control and recycling. We will extend this to include our rubbish service;

4.    Less recyclables entering the environment due to inadequate containers. Measuring the amount of material that could have been recycled entering the environment is challenging as there may be many sources of litter particularly when we share a harbour with another council. We can look at information provided through current stormwater trials, but this will be an area for future research and surveys;

5.    Fewer serious worker health and safety injuries reported as a result of the new rubbish and recycling collection service.

 

Financial implications

The section which follows explains the financial implications of the proposed recycling and rubbish changes, together with details on how the 2018-2028 LTP financial content would change as a result of the proposal.

Impact on Financial Statements

Changes to the targeted rates included in the 2018-2028 LTP 

·    Increase targeted rate for recycling from $40 to $69 per residential property from 1 July 2021.

·    Depending on option chosen (1 or 2), introduce new targeted rate for all households for rubbish collection, estimated at an average of $115 per residential property (option 1) or $144 (Option 2), from 1 July 2021. Households that currently pay for rubbish bags or a private rubbish collection service would no longer have to pay for this under these options. There would be no new targeted rate in the case of options 3 or 4. The costs for option 4 would be recovered through user fees.

·    If Council approves a green waste service that households want to use, then this would require a new targeted rate for green waste, estimated at $129 per participating property, from 1 July 2021.

Changes to the prospective financial statements

The prospective financial statement for the City Environment activity would change as a result of the proposed recycling and rubbish changes – refer to page 40 of the 2018-28 LTP. The tables that follow provide first a summary financial impact followed by detailed financial impact of the changes to the prospective financial statements as a result of the proposed LTP amendment, depending on the option chosen.

In summary the key changes are:

-      increased targeted rates revenue required to pay for the delivery of the new recycling service model

-      increased targeted rates revenue required to pay for the delivery of the new rubbish service model (only for option 1 or 2)

-      increased fees for services provided to pay for the delivery of the pay-as-you-throw rubbish service model (option 4)

-      capital cost for purchase of bins (only for options 1, 2 and 4) with associated loan funding resulting in increased interest expenditure and increased depreciation costs.

Net changes to budgets per year  - Option 1

Forecast Rubbish (Option 1)

2020/21

2021/22

2022/23

2023/24

2024/25 onwards

Estimated impact on average residential targeted property rates  – increased cost per annum (inc. GST)

Cost for ratepayers currently depends on individual choices for bag or bins etc.

$115

$118

$120

$123

Targeted recycling rates charge currently is $40 per residential property. The service charge would increase.

 

$29

$29

$30

$31

Capital Expenditure funded from Debt

-

$4.5M

-

-

-

Net increased operational expenditure funded from rates (ex GST)

$0.3M

$5.2M

$5.3M

$5.4M

$5.5M

 

Net changes to budgets per year – Option 2

Forecast Rubbish (Option 2)

2020/21

2021/22

2022/23

2023/24

2024/25 onwards

Estimated impact on average residential targeted property rates  – increased cost per annum (inc. GST)

Cost for ratepayers currently depends on individual choices for bag or bins etc.

$144

$147

$151

$154

Targeted recycling rates charge currently is $40 per residential property. The service charge would increase.

-

$29

$29

$30

$31

Capital Expenditure funded from Debt

-

$4.5M

-

-

-

Net increased operational expenditure funded from rates (ex GST)

$0.3M

$6.2M

$6.3M

$6.5M

$6.6M

 

Net changes to budgets per year - Option 3

Forecast Rubbish (Option 3)

2020/21

2021/22

2022/23

2023/24

2024/25 onwards

Estimated impact on average residential targeted property rates  – increased cost per annum (inc GST)

Cost for ratepayers currently depends on individual choices for bag or bins etc.

$0

$0

$0

$0

Targeted recycling rates charge currently is $40 per residential property. The service charge would increase.

-

$29

$29

$30

$31

Capital Expenditure funded from Debt

-

$2.8M

-

-

-

Net increased operational expenditure funded from rates (ex GST)

$0.3M

$1.3M

$1.3M

$1.3M

$1.3M

 


 

Net changes to budgets per year  - Option 4

Forecast Rubbish (Option 4)

2020/21

2021/22

2022/23

2023/24

2024/25 onwards

Estimated impact on average residential property  – increased cost per annum (inc GST), fee charge based on usage

Cost for ratepayers currently depends on individual choices for bag or bins etc.

$234

$239

$245

$251

Targeted recycling rates charge currently is $40 per residential property. The service charge would increase.

-

$29

$29

$30

$31

Capital Expenditure funded from Debt

-

$4.3M

-

-

-

Net increased operational expenditure funded from fees (ex GST)

$0.3M

$5.3M

$5.4M

$5.5M

$5.7M

 

Green waste

Cost per year (including GST)

Forecast Green Waste

2020/21

2021/22

2022/23

2023/24

2024/25 onwards

Impact on average residential property rates (for participating households only).

-

$123

$126

$129

$132

 

Net changes to budgets per year

Forecast Green Waste

2020/21

2021/22

2022/23

2023/24

2024/25 onwards

Capital expenditure funded from debt

-

$1.1M

-

-

-

 

Increase

Increased operational expenditure to be funded from targeted rate

-

$2.1M

$2.2M

$2.2M

$2.3M

 

Detailed prospective financial statements for the year ending 30 June, for each of the options and the additional green-waste option:

Disclosure in detailed LTP amendment version (Option 1 – Council’s preferred option – Alternate weekly collection – recycling one week and rubbish the next

 

 

 

 

 

 

 

 

 

 

 

 

 

2020/2021

2021/2022

2022/2023

2023/2024

2024/2025

2025/2026

2026/2027

2027/2028

 

$000

$000

$000

$000

$000

$000

$000

$000

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

User charges

(0.262)

(1.048)

(1.071)

(1.094)

(1.119)

(1.146)

(1.175)

(1.205)

Expenditure

-

-

-

-

-

-

-

-

Employee costs

-

-

-

-

-

-

-

-

Operating costs

(0.005)

(3.719)

(3.815)

(3.913)

(4.019)

(4.130)

(4.244)

(4.363)

Support costs/internal charges

-

-

-

-

-

-

-

-

Interest expenditure

-

(0.138)

(0.132)

(0.124)

(0.115)

(0.106)

(0.088)

(0.075)

Depreciation

-

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

Total expenditure

(0.005)

(4.155)

(4.245)

(4.335)

(4.432)

(4.533)

(4.630)

(4.736)

Surplus/ (Deficit) before tax

(0.267)

(5.203)

(5.316)

(5.429)

(5.551)

(5.680)

(5.805)

(5.942)

Total capital expenditure

-

(4.474)

-

-

-

-

-

-

Prospective funding requirement

-

-

-

-

-

-

-

-

Rates funding requirement

-

-

-

-

-

-

-

-

Surplus/(deficit)

(0.267)

(5.203)

(5.316)

(5.429)

(5.551)

(5.680)

(5.805)

(5.942)

Total rates funding requirement

(0.267)

(5.203)

(5.316)

(5.429)

(5.551)

(5.680)

(5.805)

(5.942)

Loan funding requirement

-

-

-

-

-

-

-

-

Capital to improve level of service

-

4.474

-

-

-

-

-

-

Less depreciation

-

0.298

0.298

0.298

0.298

0.298

0.298

0.298

Total loan (funding)/repayment

-

4.176

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

Total funding requirement

(0.267)

(1.027)

(5.614)

(5.727)

(5.850)

(5.978)

(6.103)

(6.240)

 

 

 

 

 

 

 

 

 

Notes: Please note that a negative indicates additional funding required over and above current LTP.

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclosure in detailed LTP amendment version (Option 2 Weekly Refuse & Fortnightly Recycling- not the preferred Council option)

 

 

 

 

 

 

 

 

 

 

 

 

 

2020/2021

2021/2022

2022/2023

2023/2024

2024/2025

2025/2026

2026/2027

2027/2028

 

$000

$000

$000

$000

$000

$000

$000

$000

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

User charges

(0.267)

(1.048)

(1.071)

(1.094)

(1.119)

(1.146)

(1.175)

(1.205)

Expenditure

-

-

-

-

-

-

-

-

Employee costs

-

-

-

-

-

-

-

-

Operating costs

(0.005)

(4.720)

(4.839)

(4.960)

(5.092)

(5.228)

(5.369)

(5.516)

Support costs/internal charges

-

-

-

-

-

-

-

-

Interest expenditure

-

(0.138)

(0.132)

(0.124)

(0.115)

(0.106)

(0.088)

(0.075)

Depreciation

-

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

Total expenditure

(0.005)

(5.156)

(5.269)

(5.382)

(5.505)

(5.632)

(5.755)

(5.889)

Surplus/ (Deficit) before tax

(0.272)

(6.204)

(6.340)

(6.476)

(6.624)

(6.778)

(6.930)

(7.094)

Total capital expenditure

-

(4.474)

-

-

-

-

-

-

Prospective funding requirement

-

-

-

-

-

-

-

-

Rates funding requirement

-

-

-

-

-

-

-

-

Surplus/(deficit)

(0.272)

(6.204)

(6.340)

(6.476)

(6.624)

(6.778)

(6.930)

(7.094)

Total rates funding requirement

(0.272)

(6.204)

(6.340)

(6.476)

(6.624)

(6.778)

(6.930)

(7.094)

Loan funding requirement

-

-

-

-

-

-

-

-

Capital to improve level of service

-

4.474

-

-

-

-

-

-

Less depreciation

-

0.298

0.298

0.298

0.298

0.298

0.298

0.298

Total loan (funding)/repayment

-

4.176

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

(0.298)

Total funding requirement

(0.272)

(2.028)

(6.638)

(6.775)

(6.922)

(7.076)

(7.228)

(7.393)

 

 

 

 

 

 

 

 

 

Notes: Please note that a negative indicates additional funding required over and above current LTP.

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclosure in detailed LTP amendment version (Option 3 No Refuse & Fortnightly Recycling)