1% - Waikato District Council

44NAVIGATING THE FUTURE | WAIKATO DISTRICT COUNCILBecause the money we borrow is secured against our ratesincome, as is common for local government, we pay lowinterest, helping keep the cost of debt low.We will be using the Local Government Funding Agencyas a source of funds in the future. A group of 18 councilsthroughout New Zealand set up this agency as a way ofproviding councils with a source of funds outside the majorlending institutions, to gain better terms and conditions. WaikatoDistrict Council is not a member of the agency, but will beborrowing from it. While the majority of the interest ratechanges relate to reduction in overall debt, this decisionhas also had a positive impact on the interest rate we willbe paying in 2012/13.Managing riskThe Canterbury earthquakes have brought risk managementinto sharp focus for all councils. We have $1.4 billion in assetsin the district, many of which are vulnerable to events affectingthe Waikato district.In 2010 we thought about joining the Local AuthorityProtection Programme to insure some of our water,wastewater and stormwater infrastructure that can’t otherwisebe insured. There were enormous claims on this scheme as aresult of the Canterbury earthquakes, so we’ve decided not tojoin the scheme.Insurance costs have, however, increased massively. We arebudgeting for insurance costs at 110 per cent above 2010levels. We have also resolved not to fully fund our insuranceand therefore are taking on some self-insurance risk.This means lower rates, but greater risk.If there is a natural disaster affecting our water, wastewater andstormwater infrastructure under the ground, we will have toborrow to pay for the repair and replacement.To reduce the amount of borrowing that would be requiredunder these circumstances; we have budgeted to put partof the general rate aside to increase the amount within ourdisaster recovery fund during the last four years of the plan.More details can be found under Organisational Support onpage 102.Our investments – are they doing what we want?The council has financial, property and equity investments.Investment 2012 2015Value Return Value Return$(000)$(000)Financial 740 6% 740 0%Property 535 9% 535 10%EquityStrada Corporation Ltd 4,500 6% 4,500 4%Waikato RegionalAirport Ltd2,639 0% 2,639 0%NZ GovernmentInsurance Corporation 99 0% 99 0%LtdLocal AuthorityShared Services Ltd114 0% 114 0%Waikato DistrictCommunityWellbeing Trust2,560 0% 2,732 0%Strada Corporation LtdAs noted on page 26 we are reviewing our investment inStrada Corporation Ltd.Strada was formed in a very different environment to todaysand we are able to gain fair prices for our road contractingtenders in this market. Our reasons for owning the companyare now for a financial return, and we need to have a fair returnfor ratepayers on such an investment.We have appointed a new director, and the board is reviewingthe business. 40 per cent of after-tax profits are to be paid tothe council in dividends, but because of the economic recession,the company has struggled to make a profit in recent years.In the context of this plan, we have assumed we will continueowning Strada, and its value will continue to increase steadilyuntil after-tax profits return about 14 per cent, equating to$500,000 each year in dividends. More details on budgeteddividend income can be found on page 13 in Volume Two.Once the review is complete the council will decide whetherto keep full ownership, sell it, or a part of it, and the best timeto do so. Any decision to sell would be significant and the publicwould be asked for feedback on the full proposal and options.