Long Term Community Plan 2012-2022 - Hurunui District Council

www.hurunui.govt.nz
Forecasting Assumptions
1. Inflation
In preparing the LTP, the Council is required to use best
estimates in determining the level of costs to be budgeted in
the future. As a result, the Council is required to account for
the effect of price changes or inflation that is expected to occur
over the ten year period.
To develop a consistent approach for local government to
account for inflation, the Society of Local Government Managers
(SOLGM) contracted Business and Economic Research Limited
(BERL) to construct forecasts for inflation.
The Hurunui District Council has endorsed the Local
Government Cost Index (LGCI) rates produced by BERL and
have used these rates as the assumption for accounting for
inflation in the preparation of the LTP. In applying the rates, the
Council has adopted the split between Operating Expenditure
(Opex) and Capital Expenditure (Capex) as allowed for in
BERL’s analysis.
Rates used:
Year
Ending
LGCI
Index
value
Rate
OPEX
Index
Value
Rate
CAPEX
Index
value
June 2013 1269 1245 1301
Rate
June 2014 1313 3.47% 1284 3.13% 1352 3.92%
June 2015 1355 3.20% 1323 3.04% 1397 3.33%
June 2016 1399 3.25% 1365 3.17% 1445 3.44%
June 2017 1447 3.43% 1410 3.30% 1497 3.60%
June 2018 1494 3.25% 1450 2.84% 1554 3.81%
June 2019 1545 3.41% 1491 2.83% 1617 4.05%
June 2020 1602 3.69% 1538 3.15% 1686 4.27%
June 2021 1664 3.87% 1590 3.38% 1763 4.57%
June 2022 1729 3.91% 1642 3.27% 1844 4.59%
In applying the inflation rates in the preparation of the budgets,
the Council has set a budget based in 2012/2013 dollars for
each of the ten years of the LTP. For each of the succeeding
years of the LTP, the following cumulative inflation rates have
been applied to each applicable cost or income.
Cumulative Inflation Rates:
Year
Ending
LGCI
Index
value
Rate
OPEX
Index
Value
Rate
CAPEX
Index
value
June 2013 1269 1245 1301
Rate
June 2014 1313 3.47% 1284 3.13% 1352 3.92%
June 2015 1355 6.78% 1323 6.27% 1397 7.38%
June 2016 1399 10.24% 1365 9.64% 1445 11.07%
June 2017 1447 14.03% 1410 13.25% 1497 15.07%
June 2018 1494 17.73% 1450 16.47% 1554 19.45%
June 2019 1545 21.75% 1491 19.76% 1617 24.29%
June 2020 1602 26.24% 1538 23.53% 1686 29.59%
June 2021 1664 31.13% 1590 27.71% 1763 35.51%
June 2022 1729 36.25% 1642 31.89% 1844 41.74%
For the Hanmer Springs Thermal Pools and Spa, it is predicted
that an inflation adjustment to the entry price will be made in
2015, 2018 and 2021. The increases in revenue in the intervening
years are the result of an increase in the customer numbers,
which is discussed further in the assumption for Projected
Growth Change Factors.
Risks and Uncertainties
Inflation in some areas may increase at a rate different to that
forecast. Some types of costs (e.g. Roading and Transport Costs)
have been subject to wild fluctuations in recent years, and as a
result, it is inherently difficult to predict trends with accuracy.
In respect to the cost of insurance premiums, the budgets set
for the 2012/2013 were based on the actual costs incurred by
Council for the 2011/2012 year. As the insurance market has
been undergoing change over the period since the Canterbury
earthquakes, there is potential for the costs of insurance to
move at different levels than assumed by utilising the BERL
LGCI rates.
Rating of Uncertainty: Medium
2. Interest rates
The movement of interest rates has a wide ranging effect on the
Council. The Council’s cash investments derive interest at the
market rates; the Council is vulnerable to the lending rates for
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