Draft Long Term Plan 2012-2022 - Hurunui District Council

Hurunui Community Long Term Plan 2012 - 2022its external borrowing requirements; and the Council’s internalfinancing policy bases the interest paid or charged to individualcommunities on those applicable rates.As part of the Council’s Treasury Risk Management policy, theCouncil has entered into a range of interest rate swaps designedto set a fixed portion to the interest rates charged over a periodof time. Based on this information and advice from the Council’sTreasury advisers:• Council will receive an average of 3.5% on its limitedcash investments.• Council will be charged an average rate of interest onits external borrowings at 6.25%.• Communities that hold internal loans with Council willbe charged interest at 7.25% (100 basis points overthe level of interest Council is charged for externalborrowings).• Communities that have built up reserves for futurecapital expenditure will be credited interest at 3.5%(the same level the Council is expected to receive fromits cash investments)• Any internal loans to the Hanmer Springs ThermalReserve will be charged an interest rate of 8.75%(250 basis points above the level of interest Council ischarged for external borrowings)Risks and UncertaintiesThe Council is exposed to the market with respect to interestrates and as such, the rates will be subject to adjustment overthe period of the long term plan. Pursuant to its Treasury RiskManagement Policy on page 264, the Council has entered intoa series of interest rate swaps which is aimed at minimising theexposures to changes in the short term interest rates. Wherethe Council’s overall external interest rates do change, thechange will be reflected in the level of interest charged or paidto the relevant communities as well as being reflected in thelevel of interest the Council receives on its cash investments orcharged on its external borrowings.For the 2012/2013 year, it is forecast that external interest paidwill be $921,875. Should there be a 1% increase the externalborrowing costs – a move from 6.25% to 7.25%, the resultingexternal interest expense will increase to $1,069,375.Rating of Uncertainty: Medium3. Assets Vested in CouncilWhen a developer carries out a subdivision, they are requiredto vest various assets to Council.These assets include any new roads, water mains, sewer mains,footpaths and landscaped areas. The Council is then responsiblefor the maintenance and future replacement of those assets.To determine the value of the assets to be vested, the Councilmade assumptions based on an analysis of the costs of recentsubdivisions in the District. The average costs were assumed asfollows:• Roading (incl. Footpaths) $7,000 per section• Sewer $1,500 per section• Water $1,500 per sectionThese amounts will be applicable to all urban areas and theamounts will be multiplied by the numbers of urban sectionscreated in each year to arrive at the total assets to be added tothe Council’s asset register. The number of new urban sectionsprojected to be created is allowed for in the assumption forProjected Growth Change factors. This will also be inflationadjustedeach year according to the BERL inflation forecastsas described in the assumption for inflation. Each additionto the asset register will be depreciated by any appropriatedepreciation charge. Please note that no vested assets will beapplied to rural sections.To balance the books, the introduction of the asset value needs tobe reflected in income, therefore, there will be a correspondingincome line called “Vested Assets Income”.Risks and UncertaintiesThe assumption has based the level of assets vested to Councilon an analysis of recent major subdivisions carried out in theDistrict. Some subdivisions may not result in any further assetsto be vested in the Council as there has already been adequatecapacity provided for the new sections and some subdivisionsmay have a greater amount of assets vested into Council asthere may be a greater per property costs associated with thesubdivision.Rating of Uncertainty: Low4. Depreciation Rates of AssetsThe same depreciation rates as for all significant assets havebeen assumed for planned asset acquisitions. These depreciationrates are as given in the Statement of Accounting Policies.Risks and UncertaintiesThe useful lives are based on historical information. Some assetsmay last longer than the life stated above because of differingfactors and conversely, some assets may deteriorate at a fasterrate than the lives stated above.Rating of Uncertainty: Low149