- At a glance
- Financial strategy at a glance
- Finances at a glance
- Capital expenditure
- Consolidated Activity Statements – Operating Expenditure
- Consolidated Activity Statements – Capital Expenditure and Loans to Other Organisations
- Consolidated Activity Statements – Borrowing
- Overview By Activity Areas
- Reconciliation of operational funding
At a glance
- $404.2 million operating expenditure
- $152.0 million capital expenditure – this excludes capital expenditure carry-forwards from 2013/14
- 63 percent of operational expenditure is funded by rates
- Total rates forecast 2.49 percent higher than in 2013/14
- Forecast year-end borrowings $404.2 million.
Financial strategy at a glanceTop
The Council implemented its Financial Strategy as part of the 2012–22 Long-term Plan. This guides the decisions we make now and in the future to ensure our investment in the city is financially sustainable. In many ways, our strategy formalised our current practice and complements our existing financial policies. The strategy is founded on the following guiding principles:
- fairness and equity
- willingness to pay
- value for money
- risk management and assessment
- good financial governance and stewardship.
The Council is in a sound financial position as indicated by our AA Standard and Poor’s credit rating. We will continue to manage the financial challenges associated with the costs of earthquake-strengthening our assets and our weathertight homes liabilities.
Setting limits on our rates and borrowings requires prioritisation of spending decisions and ongoing review of existing services. The parameters we set for our rates levels and rates increases as part of the 2012–22 Long-term Plan are:
|Rates increase target (after growth)22||1.60%|
|Rates increase limit (after growth)23||2.50%|
|Rates increase (after growth)||2.49%|
|Rates limit ($’000)24||254,289|
The Annual Plan rates increase is 2.49 percent, which is in line with the rates limit set in our financial strategy. This is an improvement on the the Long-term Plan where the projected rates increase for 2014/15 was 3.17 percent.
The parameters we have set for borrowings and capital expenditure as part of the 2012–22 Long-term Plan are:
|Borrowings limits:||Operating Targets||Prudential Limits||Annual Plan |
|Net borrowing as a percentage of equity||<10%||<10%||6.0%|
|Net borrowing as a percentage of income||<105.0%||<150.0%||100.0%|
|Net interest as a percentage of income||<15.0%||<15.0%||5.1%|
|Net interest as a percentage of annual rates income||<20.0%||<20.0%||9.0%|
|Liquidity (term borrowing committed loan facilities to 12 month peak net borrowing forecast)||>110.0%||>110.0%||>110.0%|
|Borrowings funded capital expenditure target - over legislative Council triennium||$45.0m||$60.0m||$46.1m|
For 2014/15 we are within all of the borrowings limits.
Finances at a glanceTop
Operational expenditure provides for all of our day-to-day operations and services, from waste disposal, water supply and maintaining our roads, to issuing building consents, running our recreational facilities and maintaining our parks and gardens.
The Council plans to spend $404 million on operational expenditure in 2014/15.
The graph below shows this operational expenditure by activity area in 2014/15. This compares with $386 million forecast for 2014/15 in the 2012–22 Long-term Plan.
Sources of operational funding
Some 66 percent of our operational expenditure is funded from a combination of general rates (paid on all properties) and targeted rates. The remainder is funded from user charges, ground and commercial lease income, dividends and other revenue such as grants and government subsidies.
The graph below shows how our operational expenditure will be funded in 2014/15.
Detailed information on all of our rating mechanisms is included on page 84 of the plan.
For 2014/15, total rates are forecast to increase by 2.99 percent before allowing for growth in our ratepayer base. After allowing for expected growth, our total rates are forecast to increase by 2.49 percent.
Average residential property rates are to increase by 2.35 percent. This means that the rates on the average residential property valued at $531,049 will increase to $2,083 (excluding GST) in 2014/15. An average rates increase of around 2.70 percent for commercial properties, including the impact of increases in metered water charges in 2014/15. These increases average to a 2.49 percent rates impact over all ratepayers, after growth in the ratepayer base have been taken into account.
Explaining your rates
Our total rates revenue is split between general rates and targeted rates.
General rates are used to fund activities where the Council is unable to clearly identify a specific group of ratepayers who receive the benefit of that activity, or where is it not possible or suitable for that group to be targeted to pay. General rates are split over two categories: the base sector general rate (residential) and the commercial sector general rate. These are both levied based on a rate per-dollar of capital value. The Council has a general rates differential in place that decides how the general rate is shared between the residents and businesses in each category.
In 2014/15, the commercial sector general rate per dollar of capital value is to remain at 2.8 times higher than the base sector general rate for a residential property of the same value.
Targeted rates are used to fund activities where the Council is able to clearly identify a specific group of ratepayers who receive the benefit of the activity, and where it is proper that this group be targeted to pay. The Council sets targeted rates to fund costs associated with the city’s water, sewerage and stormwater systems. Separate targeted rates are also set for our base (residential) sector, commercial sector, downtown commercial sector, Marsden Village, Tawa driveways and Miramar business improvement district (BID).
Your total rates bill will be made up of the general and targeted rates that apply to your property.
Property valuations and rates distribution
The Council sets the total amount of rates required to fund its spending based on the budgeted costs. For the majority of its rates the Council then uses property valuations as the basis to distribute the total rates requirement proportionally across all properties in Wellington by setting a rate per-dollar of capital value on your property.
The Council is on a 3-yearly valuation cycle and for the 2014/15 rating year the September 2012 valuations will be used to distribute the total rates requirement across all properties. The current property valuation will be used to distribute the total rates requirement for the 2014/15 and 2015/16 rating years.
It is important to note that your rates bill does not automatically change when your property value changes. Your rates bill will only be impacted by the change in your property’s capital value relative to the change the in capital value for the entire city. The final rates bill for an individual property will depend on:
- the overall change in the Council’s rates requirement
- any changes to the way we fund our activities (as set out in our Revenue and Financing Policy)
- any changes in the rates differential or uniform rates applying to that property
- the growth in the number of rateable properties in the city (due to construction of new houses, apartments or business premises)
- the change in that property’s capital value compared to the average change in the capital value for the entire city
- changes in the Council’s remissions policy.
Changes to rates or rating mechanisms
The following increases to our targeted water rates to ensure the cost increases in the associated water activity are properly recovered:
|Targeted Water Rating Mechanism||Current |
|Water consumption charge for properties with a water meter||$2.067 per cubic metre||$2.151 per cubic metre|
|Annual fixed amount targeted rate for properties with a water meter||$123.63||$128.69|
|Annual fixed amount targeted rate for base (residential) sector properties without a water meter||$152.09||$158.36|
Changes to our rates remission policy
The following changes and additions to our rates remission policy are to support earthquake strengthening of the city’s most at risk buildings.
The plan is to encourage owners to take positive action to strengthen the buildings they own and make our city safer by ensuring our rating regime does not unfairly penalise this important work. The changes are detailed as follows:
During strengthening works (for all buildings):
- Remitting targeted rates on a building while it is being strengthened but is not able to be tenanted. This will be achieved by:
– Amending the scope of the policy under section 2.3 to include remission of the commercial, industrial and business sector targeted rate and the base sector targeted rates, and extending the application of this remission to beyond the downtown area.
After strengthening works (for earthquake-prone buildings25 only):
- For strengthened buildings, holding rates at pre-strengthening levels plus the annual average rates increases for three years following strengthening. This will be done by remitting rates payable on any valuation uplift that may reasonably arise from seismic strengthening works; and
- For removed buildings, remitting 10% of the rates payable on the property for a period of 3 years.
This will be achieved by the addition of a new remission policy under section 2.6 "Remission of Rates for Buildings Removed from the Earthquake Prone Buildings List".
Full details of the rates remission policy and changes can be found on page 106.
Development contributions policy
The change to the Development Contributions Policy is summarised as follows:
- Reduce the development contribution charges (cost to developers) where the Local Government Act 2002 Amendment Bill (No 3) proposes changes under which councils would no longer be able to charge development contributions for community infrastructure, or charge commercial developments for reserves contributions.
- Introduce a remission for significant ‘green’ building developments to recognise their strategic importance in the city. This will also reduce unnecessary costs to developers in doing business with the Council by providing an alternative to the self assessment process
To view the policy please refer to our website Wellington.govt.nz/your-council/plans-policies-and-bylaws/policies/development-contributions-policy
Funding our activities
When we’re deciding how to fund an activity, we consider a wide range of factors including:
- who benefits (individuals, an identifiable part of the community)
- can the beneficiary be easily identified
- can the beneficiary be easily excluded from using the service for non-payment
- intergenerational equity (ie do the benefits accrue to future generations as well as present ones)
- the ‘polluter pays’ principle (ie people should pay for negative effects they cause)
- fairness/equity of excluding people who cannot afford to pay
- transparency/accountability of a particular funding method
- overall impact on social, economic, cultural and environmental wellbeing.
Our Revenue and Financing Policy outlines how we propose to fund our activities. In 2014/15 we are not making any changes to the policy.
For 2014/15, User charges are increasing in only one area. Our fees are set in accordance with our Revenue and Financing Policy. The area where we are increasing our fees is:
- Waste minimisation, disposal and recycling management (including trade waste)
The fee increase are outlined in the appendices of this plan.
Understanding the Council’s budgeted surplus
The Council is forecasting a net operating surplus of $26.3 million in 2014/15. The majority of this surplus arises from cash funding received for capital purposes (Crown grants for housing, development contributions, NZTA subsidies and bequests). This income flows through to the net operating surplus to be available to fund capital expenditure. Offsetting this are some depreciation costs on assets which we have resolved not to fund.
We’re continuing to invest in our city’s infrastructure while focusing on city resilience.
Capital expenditure pays for purchasing, building or developing the Council’s assets (eg pipes, roads, libraries, swimming pools). Our capital expenditure (excluding ‘carry-forwards’ and loans to other organisations) is forecast to be $152 million in 2014/15, $8 million less than in the same period forecast in the Long-term Plan.
The graph below shows where this capital expenditure will be spent by activity area in 2014/15.
Sources of capital funding
We fund capital expenditure from depreciation, borrowings, NZTA subsidies, grants and development contributions. For asset renewals, the main funding source is depreciation. For new assets and upgrades, the main funding sources are borrowings, subsidies and grants.
The graph below shows how our capital expenditure is being funded in 2014/15.
Total borrowings are forecast to be $404.2 million at the end of 2014/15. Our forecast asset base totals $7.2 billion in 2014/15.
As borrowings are mainly a consequence of capital expenditure, our financial strategy set a borrowings funded capital investment target of $45 million for each three-yearly Council triennium, and a borrowings funded capital investment limit of $60 million for each three yearly Council Triennium. This will ensure our debt levels remain sustainable and affordable for years to come. This is expected to be $46 million over the period 2012/13–2014/15.
The Council only owns property assets that are necessary for public works or another purpose aligned to Council strategies. Property assets falling outside of this will be considered for sale or redeployed.
Reflected in the 2014/15 plan is $2 million worth of property asset disposals, with proceeds being used to reduce Council borrowings. Every specific property asset sale will be publicly consulted upon as per the standard Council process.
Variances from the Long-term Plan
Each year we review the underlying assumptions and costs that make up each activity. For each activity we consider the impact of a number of factors including:
- changes in direct costs
- updated forecasting assumptions (including changes to the forecast timing of projects)
- the suitability of forecast inflation and CPI adjustments
- changes affecting our opening position (e.g. updated borrowings forecasts).
This means the costs for each activity may differ from those we had originally forecast in the 2012–22 Long-term Plan.
Consolidated Activity Statements – Operating ExpenditureTop
|Weathertight Homes funding||4,996||6,662||6,662||(1)|
|Total operating expenditure and other outflows||394,443||405,334||431,338||26,004|
|Add back City housing ring-fenced surplus||(3,480)||(3,472)||(3,378)||94|
|Less expenditure not funded under section 100 of LGA:|
|NZTA Transport funded projects||(7,438)||(7,623)||(7,814)||(191)|
|General unfunded depreciation||(4,000)||(4,000)||(4,000)||-|
|Moa Point sewerage treatment plant||(3,015)||(3,624)||(3,226)||398|
|Discontinued Living Earth plant||(221)||(239)||(235)||4|
|Wellington Waterfront unfunded depreciation||-||-||(4,294)||(4,294)|
|Less expenditure funded by prior year surplus/borrowings:|
|Economic Development Fund||-||-||(3,554)||(3,554)|
|Wellington Waterfront interest||-||-||(559)||(559)|
|Total operating expenditure to be funded||376,289||386,376||404,254||17,878|
|Sewerage rates (including trade waste)||35,370||36,677||36,257||(420)|
|Base (residential) sector targeted rate||6,476||6,891||6,902||11|
|Commercial sector targeted rate||4,895||4,821||5,028||207|
|Downtown targeted rate||13,870||14,147||14,079||(68)|
|Tawa driveways targeted rate||33||33||33||-|
|Marsden Village targeted rate||14||14||14||-|
|Mirarmar Business Improvement District targeted rate||-||-||80||80|
|Total targeted rates||116,884||121,065||120,329||(736)|
|Total rates to fund operating expenditure and other outflows||246,884||257,418||254,266||(3,152)|
|Ground and commercial leases||32,912||31,710||36,574||4,864|
|Interest from investments||-||-||39||39|
|Total operating funding||376,289||386,376||404,254||17,878|
Consolidated Activity Statements – Capital Expenditure
and Loans to Other OrganisationsTop
|Renewal capital expenditure||84,094||98,610||79,480||(19,130)|
|Upgrade capital expenditure||55,625||61,733||72,523||10,790|
|Capital expenditure carried forward from 2012/13||28,000||-||-||-|
|Capital expenditure carried forward from 2013/14||(10,000)||-||32,500||32,500|
|Capital expenditure carried forward from 2014/15||-||-||(20,000)||(20,000)|
|Total capital expenditure to be funded||157,719||160,343||164,503||4,160|
|Loans to other organisations||-||-||-||-|
|Total capital expenditure and loans to be funded||157,719||160,343||164,503||4,160|
|Use of housing surplus||-||26||-||(26)|
|NZTA transport subsidies||10,264||10,884||10,590||(294)|
|Bequests & grants||1,492||1,157||749||(408)|
|Total funding for capital expenditure and loans to other organisations||157,719||160,343||164,503||4,160|
Consolidated Activity Statements – BorrowingTop
|Opening Gross Borrowings - total||345,668||401,996||355,762||(46,235)|
|New borrowings to fund capital expenditure:|
|- Housing capital expenditure||-||-||-||-|
|- Other capital expenditure||20,893||25,109||34,964||9,855|
|- Carry forward capital expenditure||18,000||-||12,500||12,500|
|Other movements to borrowings:|
|Ring-fenced housing surpluses - opex||3,479||3,472||3,378||(94)|
|Ring-fenced housing surpluses - capex||(9,954)||(5,471)||(6,844)||(1,373)|
|Self insurance fund contribution||(750)||(750)||-||750|
|Weathertight homes funding||8,772||8,593||8,430||(163)|
|Economic Development Fund||-||-||3,554||3,554|
|Wellington Waterfront interest||-||-||559||559|
|Depreciation reserve movement||3,851||10,772||(4,090)||(14,862)|
|Closing Gross Borrowing||375,635||428,931||404,163||(24,768)|
Overview By Activity AreasTop
The below table summaries the funding activity statements that are required by the Local Government Act 2002 (Act).
This shows the operation and capital funding of each activity and compares to the same period in the 2012–22 Long-term Plan.
Due to legislative requirements these operational funded expenditure do not include funded and unfunded depreciation and borrowing funded expenditure. For full reconciliation please see reconciliation on the following page.
|Activity Areas||Activity||2014/15 |
|1.1||Governance||Governance, information and engagement||15,801||14,718||(1,083)||55||61||6|
|1.2||Maori and mana whenua partnerships||252||223||(29)||-||2||2|
|2.1||Environment||Gardens, beaches and green open spaces||32,058||31,221||(837)||4,338||4,978||640|
|2.2||Waste reduction and energy conservation||13,036||12,771||(265)||818||626||(192)|
|3.1||Economic Development||City promotions and business support||17,437||36,190||18,753||2,364||(1,936)||(4,300)|
|4.1||Cultural Wellbeing||Arts and culture activities||18,345||17,450||(895)||830||851||21|
|5.1||Social and Recreation||Recreation promotion and support||31,556||30,736||(820)||9,489||7,693||(1,796)|
|5.3||Public health and safety||12,606||12,469||(137)||881||718||(163)|
|6.1||Urban Development||Urban planning, heritage and public spaces development||6,947||11,878||4,931||15,714||2,931||(12,783)|
|6.2||Building and development control||19,715||20,097||382||14,478||17,776||3,298|
|Whole of Council||296,781||321,636||24,855||174,525||167,005||(7,520)|
Reconciliation of operational fundingTop
|Total applications of operating funding (from Whole of Council FIS)||321,636|
|Total expense (from Prospective Statement of Comprehensive Financial Performance)||423,801|
|Add Rates funded repayment of borrowings||7,535|
|Total operating expenditure & other outflows (from Prospective Statement of Comprehensive Financial Performance)||431,336|
|City Housing ring-fenced surplus/(deficit)||(3,378)|
|Borrowings funded operational expenditure||(4,137)|
|Total operating expenditure & other outflows to be funded (from Opex Consolidated Activity Statement)||404,253|