LTP 2012-2022 - Introduction - Hurunui District Council

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www.hurunui.govt.nz Financial Strategy Executive Summary Core Principles In reviewing the Long Term Plan (LTP), we revised our core principles and these have been used as the basis in developing our Financial Strategy. These principles are: • Focus on core services • Financial responsibility and affordability • Continuous improvement in service to everyone in our district • Facilitate appropriate growth in the district • Maximise Thermal Pools and Spa profit Key Factors in our Financial Strategy Within the context of our core principals, the following have been identified as the key factors that shape the Financial Strategy over the life of the Long Term Plan: • We want to ensure that our services remain affordable • We want to maintain or improve our current levels of service • Our key funding mechanisms are: a Rates, both District Wide and Targeted rates b Surpluses derived from the Hanmer Springs Thermal Pools and Spa c The use of the Internal Financing structure which provides internal loans for communities requiring funding and also an avenue for communities to build up funds to meet funding requirements in the future In taking care to ensure that our services remain affordable, we have had modest rate increases over the past three years. However, due to various factors facing us, particularly the increased cost of insurance and compliance with drinking water standards, rates will increase at levels well above what was anticipated when the 2009-2019 LTP was prepared. (Refer to the Key Issues section). We are carefully monitoring our levels of service for roads due to reduced government subsidies (refer to Key Issues section). With the exception of roading, we intend to maintain our levels of service in most areas. With regards to improving drinking water levels, treatment of sewage and developing some community facilities, we will be in a position to improve the levels of service that we are currently providing. We also aim for continuous improvement to our customer service. We continually review funding options available. The use of the internal financing structure allows communities to carry out required capital expenditure and manage the cost of those works over a longer period. As a result, this smoothes out the rating impact and allows communities to start setting aside funds to meet the capital projects for the future. The Hanmer Springs Thermal Pools and Spa is a successful Council owned business and we proactively use the profits to offset costs relating to the reserves in the District which results in lessening the rating burden. For the first three years of the Long Term Plan the Council is funding more reserve based costs than it is earning from the surpluses from the Hanmer Springs Thermal Pools & Spa and by doing so, is utilising some of the reserve balance that has been generated by the surpluses in the past. Our Financial Position at the Start of the LTP Period Our financial position at the start of the Long Term Plan period is set out in the 2011/2012 Annual Plan which shows: • The total rates were set at $12.8 million; of which $5.3 million are in District Wide rates and $7.5 million are in targeted rates. • Total income from non-rate sources was $16.9 million, which includes $9.6 million in gross revenue derived from the Hanmer Springs Thermal Pools and Spa. • Total Operating Expenditure is forecast at $23.5 million and Capital expenditure for the 2011/2012 year is expected to be $9.2 million (which includes a level of Capital that has been carried over from the 2010/2011 year). • External Debt was expected to be $13.5 million at the end of June 2012; however, the forecast has been reduced to $12.5 million due to deferring some projects as part of the LTP budget preparation. • Internal Financed Debt is expected to total $16.6 million as at 30 June 2012. • Total Assets as at 30 June 2011 was $335 million, of which $253 million related to our infrastructure. Our Financial Position at the End of the LTP Period As at the end of June 2022, the key components of our financial position are forecast as follows: • Total rates revenue will increase by 55% over the ten years to reach $19.9 million in the 2021/2022 year. • Total income from non-rate sources will be $22.3 million (including $13.8 million in gross revenue derived from the Hanmer Springs Thermal Pools and Spa). • Total Operating Expenditure will be set at $39.6 million. • Capital expenditure over the ten years will amount to $77.3 million with the amount expected to be required in the 2021/2022 year at $7.7 million. • External Debt will peak at $22.5 million in the 2015/2016 and 2016/2017 years, but will reduce to $12 million by June 2022. 20
Hurunui Community Long Term Plan 2012 - 2022 • Total Assets as at 30 June 2022 is expected to reach $494 million. Rates, Increases and Limits The overall rates increases for the next three years are as follows: • In 2012/2013, the increase is 5.83% (this is one of the largest increases required for some years and is primarily due to factors outlined earlier such as insurance and drinking water, and funding some significant capital expenditure projects over the last few years). • In 2013/2014, the increase is 5.77% • In 2014/2015, the increase is 5.37% The Local Government Act now requires Councils to set limits on rate increases. Because a simple inflation target as the basis for setting a rate increase limit does not reflect the forecast costs that will be imposed on us, we have opted to set the rates increase limits at 2% above the forecast increases. As a result, the limit for the 2013/2014 year will be 7.77% and for the 2014/2015 year, the limit will be 7.37% Because of our rating structure, the overall increase in rates will not be consistent for each property throughout the district. It will depend on the targeted rates that are charged to that particular property and also the capital value of the property. External Debt and Limits 1. The Local Government Act also requires us to set a limit on our external debt levels. These debt levels are set out in our External Liability Management policy on page 217 and the limits are based on ratios centred on the level of income. These ratios are considered standard for the sector and the maximum debt is set at 100% of our Total Income and 10% of our Total Equity. This means that for the 2012/2013 year, where total income is forecast at $30.3 million and Total Equity forecast at $341.7 million, that the maximum level of debt is $30.3 million. For 2012/2013, the anticipated level of debt is $18.5 million. We plan to be well within prudent limits for the period of the plan. Implications of the Council’s Financial Strategy The Local Government Act requires us to assess whether we have the ability to provide and maintain existing levels of services and meet additional demands for services within the rates and debt limits as set out within the financial strategy. We face potential issues in the future regarding the level of funding for roading expected from the New Zealand Transport Agency (NZTA). We estimate that there is a $15 million difference over the ten year period of the LTP between what our Asset Management Plans tell us is needed to maintain our roading network and what we have built into this draft LTP taking into account the NZTA funding. (See the Roads and Footpaths Activity section on page 84). We are not contemplating taking on debt greater than $22.5 million and the maximum amount of interest expected to be charged on the external debt is budgeted at less than $1.3 million. Therefore, with the exception of the Roading Network due to circumstances outlined earlier, we believe we have the ability to maintain existing target levels of service and to meet additional demands for service within those debt limits. Core Principles Our revised core principles have provided the base in developing our Financial Strategy for this LTP. These are further explained in this section. 1. Focus on Core Services The focus on core services is consistent with the intent of the Local Government Act. As a rural district, our focus has always been on key infrastructure – roading, water and sewerage. Since 2008 after sever flood events, we have undertaken significant work to improve our stormwater and drainage assets. While community services and facilities (eg: halls, libraries, public toilets, reserves etc), may not be seen as essential services, they do form an important part of the community infrastructure. We have undertaken significant community projects in the last three years including the town centre upgrades in both Hanmer Springs and Amberley, as well as constructing a new Medical Centre in Rotherham. 2. Financial Responsibility and Affordability Affordability of rates was a key aspect in the preparation of the 2009-2019 LTP and in that respect; we managed to maintain modest increases in the rates over the subsequent three year period. In preparing the 2012/22 LTP, affordability is still an important factor as well as spending responsibly to minimise rate increases. Costs do increase and we are ever mindful of the need to ensure that these costs are appropriately funded, while ensuring our debt levels remain manageable. 3. Continuous Improvement in Service to Everyone in Our District In the context of affordability, we aim to improve our customer service to everyone who needs our services. This includes our residents and ratepayers, as well as visitors to our district. Our annual resident satisfaction survey provides us with good information to gauge how we are doing and where to improve. Whereas actual levels of service in most cases are intended on being maintained, our aim for continuous improvement relates 21
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LTP 2012-2022 - Introduction - Hurunui District Council

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