Part C: Financial information

Finances at a glance

Operational expenditure

Operational expenditure provides for all day-to-day operations and services, from waste disposal, water supply and maintaining our roads, to issuing building consents, running our recreational facilities and maintaining our parks and gardens.

The Council plans to spend $480.3 million on operational expenditure in 2017/18. This compares with $473.5 million forecast for 2017/18 in the Long-term Plan 2015–25 (LTP).

The graph below shows this operational expenditure by activity area in 2017/18.

Sources of operational fundingTop

Some 65 percent of our operational expenditure is funded from a combination of general rates (paid on all rateable properties) and targeted rates. The remainder is funded from user charges, ground and commercial lease income, dividends and other revenue such as grants and government subsidies. Figure 1 shows how our operational expenditure will be funded in 2017/18.

Operational expenditure Annual Plan 2017/18 by activity area

Detailed information on all of our rating mechanisms is included in the Funding Impact Statements on page 66.

Your ratesTop

For 2017/18, total rates are forecasted to increase by 4.4 percent before allowing for growth of 1.1 percent in our ratepayer base. After allowing for expected growth, our total rates are forecast to increase by 3.3 percent.

Rates on the average residential property (valued at $571,930) are expected to increase by 3.2 percent to $2,401 (excluding GST) in 2017/18. An average rates increase of around 3.6 percent for commercial properties, includes the impact of increases in metered water charges in 2017/18. These increases average to a 3.3 percent rates impact overall ratepayers, after growth in the ratepayer base have been taken into account.

Explaining your ratesTop

Our total rates revenue is split between general rates and targeted rates.

General rates are used to fund activities where the Council is unable to clearly identify a specific group of ratepayers who receive the benefit of that activity, or where is it not possible or suitable for that group to be targeted to pay. General rates are split over two categories: the base sector general rate (residential) and the commercial sector general rate. These are both assessed based on a rate per-dollar of capital value. The Council has a general rates differential in place that decides how the general rate is shared between the residents and businesses in each category.

In 2017/18, the commercial sector general rate per dollar of capital value is to remain at 2.8 times higher than the base sector general rate for a residential property of the same value.

Targeted rates are used to fund activities where the Council is able to clearly identify a specific group of ratepayers who receive the benefit of the activity, and where it is proper that this group be targeted to pay. The Council sets targeted rates to fund costs associated with the city’s water, sewerage and stormwater systems. Separate targeted rates are also set for our base (residential) sector, commercial sector, downtown commercial sector, Marsden Village, Tawa driveways and business improvement district (BID) for the Miramar, Khandallah, Kilbirnie and Tawa business districts.

Your total rates bill will be made up of the general and targeted rates that apply to your property.

Property valuations and rates distributionTop

The Council sets the total amount of rates required to fund its spending based on the budgeted costs. For the majority of its rates the Council then uses property valuations as the basis to distribute the total rates requirement proportionally across all properties in Wellington by setting a rate per-dollar of capital value on your property.

The Council is on a 3-yearly valuation cycle and for the 2017/18 rating year the September 2015 valuations will be used to distribute the total rates requirement across all properties. The current property valuation will be used to distribute the total rates requirement for the 2016/17, 2017/18 and 2018/19 rating years.

It is important to note that your rates bill does not automatically change when your property value changes. Your rates bill will only be impacted by change in your property’s capital value relative to the change the in capital value for the entire city. The final rates bill for an individual property will depend on:

Changes to our rating mechanismsTop

New targeted rate for Tawa Business Improvement District: A new targeted rate is being included in the Annual Plan 2017/18 under the terms of the Business Improvement District Policy, for $95,000 (excluding GST) to be applied to commercially rated properties in the Tawa Business Improvement District area

Liability for this rate will be calculated as a fixed amount of $520 (excluding GST) per rating unit, plus a rate per dollar of rateable capital value for any capital value over $350,000 per rating unit.

Funding our activities

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When we’re deciding how to fund an activity, we consider a wide range of factors including:

Our Revenue and Financing Policy outlines how we propose to fund our activities. In 2017/18 we propose to make no changes to the policy.

Understanding the Council’s budgeted surplusTop

The Council is forecasting a net operating surplus of $32.4 million in 2017/18. The majority of this surplus arises from cash funding received for capital purposes (Crown grants for housing, development contributions, NZTA subsidies and bequests). This income flows through to the net operating surplus to be available to fund capital expenditure. Offsetting this are some depreciation costs on assets that we have resolved not to fund.

Capital expenditureTop

We’re continuing to invest in our city’s infrastructure while focussing on city resilience.

Capital expenditure pays for purchasing, building or developing the Council’s assets (e.g. pipes, roads, libraries, swimming pools). Our capital expenditure (excluding ‘carry-forwards’ and loans to other organisations) is forecast to be $182.5 million in 2017/18, $23.8 million less than in the same period forecast in the Long-term Plan 2015-25. The graph below shows where this capital expenditure will be spent by activity area in 2017/18.

Sources of capital fundingTop

We fund capital expenditure from depreciation, borrowings, NZTA subsidies, grants and development contributions. For asset renewals, the main funding source is depreciation. For new assets and upgrades, the main funding sources are borrowings, subsidies and grants. Figure 2 shows how our capital expenditure is being funded in 2017/18.

Capital expenditure Annual Plan 2017/18 by activity area

Borrowings: Total borrowings are forecast to be $528.2 million at the end of 2017/18. This equates to a net debt over operating income of 114.7 percent, compared to 124.4 percent as presented in the Long-term Plan 2015–25 (LTP). Our forecast asset base totals $7.4 billion in 2017/18.

Land sale: The Council only owns property assets that are necessary for public works or another purpose aligned to Council strategies. Property assets falling outside of this will be considered for sale or redeployed.

Reflected in the 2017/18 plan is $2 million worth of property asset disposals, with proceeds being used to reduce Council borrowings. There is also sale proceeds for the sale of the Municipal Office Building and Site 9 on the waterfront. Every specific property asset sale will be publicly consulted upon as per the standard Council process.

Variances from the Long-term Plan

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Each year we review the underlying assumptions and costs that make up each activity. For each activity we consider the impact of a number of factors including:

This means the costs for each activity may differ from those we had originally forecast in the LTP.