LTP 2012-2022 - Introduction - Hurunui District Council

www.hurunui.govt.nz
Statement Concerning Balancing of the Budget
Introduction
In terms of the Local Government Act 2002, the Council is
balancing the budget over the period of the Long Term Plan as in
most years; the budgeted operating income exceeds budgeted
operating expenditure. There are some areas of expenditure
that the Council has resolved not to fund, which are discussed
further. The Council also has developed an internal financing
policy to cope with funding for future capital expenditure
requirements.
Local Government Act 2002
Under Section 100 of the Local Government Act 2002, the
Council is required to balance the budget. The provisions of the
sections specifically state that “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”.
The Act goes further to state that a local authority may set
projected operating revenues at a different level from that
required if the Council resolves that it is financially prudent to
do so, having regard to:
to that activity. In some cases, the Council has resolved to use
reserves to fund some specific expenditure. This is particularly
the case where the Council actively uses the Reserve built up
by surpluses recorded from the Hanmer Springs Thermal Pools
and Spa to fund the operating expenditure of other reserves
throughout the entire district.
Receipt of Capital Income
For some of the Council activities, the Council has budgeted to
receive various amounts of income that are of a capital nature.
This capital income is in the form of development and reserve
contributions and vested assets which are not used to reduce
the amount of rates to be charged of a particular activity. These
amounts are instead applied to the capital requirements of the
activity that it relates to.
Funding of Depreciation
The introduction of the Local Government Amendment (No 3)
Act 1996 imposed the requirement for local authorities to fund
depreciation.
a) The estimated expenses of achieving and maintaining
the predicted levels of service provision set out in the
long-term council community 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 polices set out in this long
term plan
Use of Reserves
The council is forecasting to record an overall deficit (excluding
gains on Asset Revaluation) in each of the first three years of teh
Long Term Plan. These deficits have been caused by the Council’s
decision to fund more reserve based costs than it is generatimg
from the surpluses of the Hanmer Springs Thermal Pools & Spa.
The Council is comfortable with this approach as it is able to
utilise surplusses that have been generated over the past few
years that have yet to be allocated. The Council is forecasting
to record surpluses for each year of the Long Term Plan from
year four onwards. In some activities however, the Council has
resolved not to set revenue to fund all of the costs relating
In 1999, the Council widely consulted with its community over
this requirement and it concluded that the Council will not cash
fund depreciation on Water and Sewer assets, roading or ward
Amenity assets. In addition, it has been resolved not to fund
depreciation on the library building.
Rates for these activities are set at a level higher than required
to meet the operating costs in terms of the Internal Financing
System. The additional rates will be used to either repay debt (if
the activity holds some internal debt) or used to build an amount
to fund future capital expenditure. The Internal Financing system
is fully discussed in the Internal Financing Policy.
Implications to Not Fully Fund
Depreciation
As there are no specific depreciation reserves created for water,
sewer, roading and ward amenities, there are no funds available
immediately to apply to capital expenditure requirements of
each of these activities. As a result, the community of benefit
is required to meet the cost of the capital expenditure through
the use of internal loans or fund the capital cost through rates
and other income.
If internal loans are used, there is the requirement on that
community of benefit to fund not only the appropriate interest
charge but also a portion of the principal of the outstanding loan
on an annual basis. Both interest and principal repayments has
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