Long Term Community Plan 2012-2022 - Hurunui District Council

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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 32
Hurunui Community Long Term Plan 2012 - 2022 the effect of increasing the operational cost that the community must bear and as a result, increases in the rate requirement are inevitable. The Internal Financing system goes further to ensure that communities continue to fund additional payments, even if the debt has been repaid, to build up a reserve fund to assist in funding capital expenditure requirements in the future. Council is comfortable with increasing rates to meet the cost of interest and principal because existing ratepayers have previously been relieved of any rate increases that may have been required if the Council resolved to fully fund the depreciation on those assets. 33
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Page 9 and 10: About the Plan Introduction The Loc
Page 11 and 12: How Your Rates are Spent The Counci
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Hurunui Community Long Term Plan 20
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Activity 1: Roads and Footpaths Ove
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Roading and Footpaths - Group Activ
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Governance Overview Governance cove
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Governance - Group Activity Financi
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Financial Introduction Purpose of t
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Annual Plan Year 1 Year 2 Year 3 Ye
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Funding Impact Statement (and Rates
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External Liability Management Polic
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Investment Policy General Policy In
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Significance Policy Introduction Th
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Representatives of our District Hur
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Independent Auditor’s Report Huru
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283 Hurunui Community Long Term Pla
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Phone: 03 314 8816 Fax: 03 314 9181
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Long Term Community Plan 2012-2022 - Hurunui District Council

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