CONFIDENTIAL
Annual Plan 2020/21 Update
Council Workshop, 7 April 2020
Background / Context
CONFIDENTIAL
Average rates increase as per planned
expenditure in year three of the 2018-28 LTP
was 6.3%
Council decisions in 2018/19 pushed this rate
up to 10.1%
Additional significant cost pressures added to
the projected 2020/21 rates increase by
approx. 8%
An Activity Review was undertaken during late
2019 to find cost savings and efficiency
improvements.
A prospective rates increase of 9.8% was
endorsed in Dec 2019.
Drivers of the prospective 9.8% ($13m) rates increase
CONFIDENTIAL
Public transport costs
5.8%
Reduction in reserves usage
2.7%
Accommodation
2.0%
Debt servicing costs
0.8%
Wages movements
0.8%
Natural resource plan
0.4%
Riverlink
0.4%
LGWM
0.4%
BAU savings
(3.6%)
COVID-19 Impacts on 2020/21 Annual Plan
CONFIDENTIAL
How big the impact is depends on:
• length of lockdown
• how quickly it takes to return to normal
(bounce-back)
• the effectiveness of support and recovery
packages
COVID-19 Impacts on 2020/21 Annual Plan
CONFIDENTIAL
Revenue
Public transport fares – likely to be covered by NZTA
Other charges - some impacts unknown at this stage
Rates – Subject to postponement and remission policy
and decisions of TA's - could effect collections and
therefore cash flows
Rental income – possible requests for rent relief and
deferment
COVID-19 Impacts on 2020/21 Annual Plan
CONFIDENTIAL
Expenditure
There may be some delays in work programmes (both
operational and capital) – impact unknown at this stage
Overall project costs may increase as a result of delays
Increase in technology costs to support working from
home
Possible increase in costs to assist in stimulating
economic recovery
Options to reduce rates increase
CONFIDENTIAL
• Further savings with limited impacts on
service levels
• Additional revenue
• Reduce services levels
• Re-phase programmes
• Increase use of reserves/investment
• Debt fund operating deficit
Further savings with limited impacts on service levels
CONFIDENTIAL
The activity review undertaken last year has
already identified savings that could be made
without impacting on service levels.
Will need to review programme of works
going forward and the impacts of COVID-19
on their delivery. This may identify additional
savings, but may also impact service levels.
A clear view on this is unlikely to emerge
until late April
Additional revenue
CONFIDENTIAL
Key revenue line is public transport fares
Annual Plan has a CPI increase built in public
transport fares
Forecast patronage numbers probably
unlikely to be meet
No other significant user charges that would
move rates requirement significantly
Reduce services levels
CONFIDENTIAL
Options previously identified:
Reduce levels of service in Environment Science
0.4%
Reduce levels of service in Sustainable Transport
0.4%
Re-phase programmes of work
CONFIDENTIAL
Options previously identified:
Delay RS1 implementation
0.4%
Delay EV/BNR bus implementation
1.0%
Possible options identified for savings
CONFIDENTIAL
Defer wage & salary increases
0.8%
Reduce PT capex plan by $10m
0.25%
Reduce bus LoS by 10%
~1.5%
Pause Riverlink activity
<0.1%
Pause Project Optimus
0.25%
Fund LGWM over 20 years
0.25%
Customer Engagement
0.15%
Climate Change
<0.1%
Delay EV/BNR bus implementation
1%
Delay RS1 implementation
0.4%
Increase use of reserves
CONFIDENTIAL
Use existing reserves to fund current
operational expenditure could be considered.
Current forecast balances of key reserves as at
30 June 2021
Public Transport
$7.4m
(note that $3.5m is planned to be used in 2021/22)
Catchment/Land Management*
$14m
Corporate Systems
$1m
*Attached to specific programmes of work, or for self
insurance ($10m). A total of $1.5m could be available to use
without impacting self insurance levels.
Increase use of investments
CONFIDENTIAL
Use existing investments to fund current
operational expenditure could be considered.
Current forecast balances of key investments
as at 30 June 2021
Material Damage Contingency Fund
$8m
Major Flood Contingency Fund
$7m
Debt funding operating deficit
CONFIDENTIAL
If debt funding of an operational deficit is to
be considered regard needs to be given to:
• Requirements of the Local Government
Act (LGA)
• GW Revenue & Financing Policy (RFP)
Debt funding operating deficit - LGA
CONFIDENTIAL
100 Balanced budget requirement
(1) A local authority must ensure that each year’s projected operating revenues are set at a level
sufficient to meet that year’s projected operating expenses.
(2) 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, having regard to
(a) 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; and
(b) the projected revenue available to fund the estimated expenses associated with
maintaining the service capacity and integrity of assets throughout their useful life; and
(c) the equitable allocation of responsibility for funding the provision and maintenance of
assets and facilities throughout their useful life; and
(d) the funding and financial policies adopted under
section 102.
Debt funding operating deficit - RFP
CONFIDENTIAL
As a general rule, Council will fund its operating expenditure, including interest on debt, and
principal repayments, from:
• rates
• water levies
• grants and subsidies
• fees and charges
• interest and dividends from investments
• and any other source, which may include reserves from time to time.
Council may decide to use debt funding for operating expenditure in the following situations:
• Where the cost or additional cost is expected to be one-off in nature. For example, a spike in
insurance premiums.
• Where a loss of revenue is expected to be one-off or relatively short-term in nature. For
example, loss of revenue as a consequence of the Kaikoura earthquake in November 2016.
• Where the expenditure will provide a future benefit. For example:
• Council may fund rail track renewals where a third party owns the tracks, to provide a
better public transport service.
• Council may use debt to fund its contributions to the Wellington transport planning
project “Let’s Get Welly Moving”.
Debt funding operating deficit – RFP
CONFIDENTIAL
Simply debt funding operational expenditure (borrowing more)
would appear not to be allowed for in the Revenue & Financing
Policy. However borrowing to cover lost revenue is allowed for under
the policy.
However Council could:
1. Change the policy (requires consultation), or
2. Note that a decision does not comply with the policy
Within the policy debt repayments could be deferred by:
1. Start debt repayments in the first year after the asset is
purchased rather than in the same year ($5.3m)
2. Suspend debt repayments on loans
Options to reduce rates increase – ongoing impacts
CONFIDENTIAL
The ongoing impacts of
• Use of reserves / investments
• Increases in debt funding
Will be to increase rates in later years as
• Reserves & investments are rebuilt
• Debt is repaid
And limit ability to respond to another event
Impact of the use of reserves/investment/borrowing $10m to fund
operational expenditure would be a rates increase of 1% for 10
years.
Options to reduce rates increase – example only
CONFIDENTIAL
Options to reduce rates increase is likely to be
a combination of items
Items with limited impacts on future rates
Delay in EV’s/RS1 Example
/BNR
1.4%
Defer wage & salary increases
0.8%
Reduce PT capital programme
0.2%
Reduce bus services by 10 Only
%
1.5%
Items with ongoing impacts on future rates
Use of reserves
?%
Use of Investments
?%
Start debt repayments in
the first year after the asset
is purchased
3.9%
Options to reduce rates increase–consultation requirements
CONFIDENTIAL
LGA:
-
Section 95(2A): no consultation required where there is no significant or material
difference from the relevant year of the LTP.
-
Sections 78(1), 78(3) and 79(1): In their decision making process Council must
consider the views and preferences of persons likely to be affected by, or have an
interest in, the matter and should use their discretion to decide if the matter is
significant enough to those affected and interested persons to warrant a
consultation.
Consultation in the current environment would need to look different – no physical
publications, no in-person events or hearings, reliance on online platform “Have Your
Say” and notification via websites and Social Media channels. This will exclude
people who don’t have easy access to technology.
A number of Councils* are choosing not to consult on their 2020/21 Annual Plan and
will focus their consultation on the 2021-31 LTP pre-engagement. This is being driven
by a lack of anything significant to consult on and a desire to support their
communities who will have different matters on their minds over the coming weeks
and months.
*Bay of Plenty Regional Council and Porirua City Council are two recent examples.
Options to reduce rates increase - timing
CONFIDENTIAL
The LGA requires the Annual Plan to be approved before 30 June
2020 – so there is time to consider approach
Currently considerable debate and discussion across the sector as to
the approach to the Annual Plan 2020/21 – re consultation, rates
setting, impacts on community and economic recovery
A Covid-19 Local Government Response Unit has been formed
which has a number of projects including timing and other
legislative requirements for the Annual Plan
No decisions required immediately, but need to be conscious of
timelines if consultation is required.
Bulk Water Levy
CONFIDENTIAL
The increase in the bulk water levy is current budgeted at
6.1% ($2.1m)
Current reserves
$15m
Bulk Water Supply contingency fund $38m
Option to reduce rates increase – next steps
CONFIDENTIAL
Guidance from Council
• On level of rates increase
• Order of priorities to achieve
Further understanding of the impacts of COVID-19 on
work programme
Report back to Council workshop in about 2/3 weeks
