What's in the financial mix?

From a financial point of view there are four key parts in the mix, and they are all closely linked - what happens with one influences the others.

How much we're proposing to rate

We expect our overall rates to increase around 20% on average during the next 3 years, and under 10% for years 6-10 of the Long Term Plan. We have a self-imposed limit not to increase overall rates by more than 25% per annum for the first 3 years of the Long Term Plan and 10% for the remaining 7 years.

However, there is a lot of uncertainty and factors that are outside of our control. We’re proposing to be flexible and adaptive, part of this approach will involve reviewing overall rates when we update our financials on an annual basis and look at our mix to ensure we keep our overall rates within our limits.

Revenue we're expecting

‘How much we are expecting to receive’ includes financial assistance
towards transportation from Waka Kotahi NZTA, fees and user charges for Council services, rental on Council-owned properties, and returns on our investments. For more information about our investments see below.

We have made an assumption regarding the amount of funding that will be provided by NZTA in the next 10 years. Our roading programme with need to be adjusted if this funding is different from our assumption.

How much we're expecting to receive from investments

Council maintains investments to:

• Use some of the income to help reduce rates.
• Help fund the development and growth outcomes of the district, i.e. supporting our community’s wellbeing through the priorities in our Living & Working in Clutha Strategy and Our Place Community Plans.
• Ensure we have money set aside to cover our share of replacing any assets destroyed or damaged in a natural disaster.
• Invest amounts held in restricted and Council-created reserve funds, including amounts held for future expenditure (depreciation reserves).

Overall, we want to maximise investment returns while preserving ratepayer funds. We’re targeted to earn an average of 5.25% for returns on our investment portfolio during the next ten years through to 2034.

We’re proposing to use some of it ($9.5M) to reduce rates. We’re forecasting the value of the fund will grow from $30.2M to $39.1M over the 10 year period. However, what we receive is dictated by many factors that are outside of our control. If we receive better returns, we will decide the best way to use them, in keeping with the reasons Council maintains investments.

If we receive less returns than budgeted, Council is prepared to use equity to meet our annual commitments.

How much we're proposing to borrow

We’re planning to borrow to help fund our extensive asset build programme of $431M during the ten years from 2024 to 2034.

More on borrowing

Our approach to debt has been changing in recent years. Instead of having no debt and using our reserves to fund our capital programme (internally borrowing from ourselves), we have been using the reserves to build our investment portfolio which earns us more in returns.

We use part of these returns to keep rates down. We’re proposing to keep our investment portfolio intact, and to borrow to fund our proposed extensive asset build programme. Our loans on infrastructure assets are typically taken out for 25 years.

We feel this is the best use of our investments. We also feel the approach is fairer, as it means that future ratepayers also pay their share for assets and services created today (known as intergenerational equity). Our asset build programme should also cost us less in the longer term as interest rates will be lower through our lender, the Local Government Funding Agency.

We need to borrow more because:

• The cost of providing three waters services and building three waters infrastructure has significantly increased.
• The three waters activity also has to fund two years of deficits for the unbudgeted higher costs of operations. The cost of transitioning to providing the services in-house has significantly increased our capital works program, and we have achieved much higher percentages of project completion, with consequential higher demands on cash flow.
• Significant escalations in the cost of investing in our infrastructure and providing our services.
• The aggregate of the consequences of decisions taken to keep rates within Council’s 4% rates cap (such as reducing depreciation, paying interest only on loans, using Council’s reserves rather than hand them over to a Water Entity).
• For numerous reasons Year 1 of the Long Term Plan had an unsustainable rates increase, so much so that Council has decided to borrow more to spread the impact of the rates rises over a number of years.

However, it is important to get the balance right and we need to have clear limits. We are expecting to receive a credit rating that will allow us to borrow up to 280% of how much we are expecting to receive.