Infrastructure Strategy and Financial Strategy

Long-term infrastructure objectives

Infrastructure is the term for pipes, treatment plants, pump stations, roads, footpaths and other assets that are essential for our communities to live, play and do business. Council’s commitment to meeting legal requirements, looking after our assets, and preparing for expected growth has meant increased budgets to renew and maintain our critical infrastructure, and continued investment in required growth-related assets. This is reflected in the draft Infrastructure Strategy.

As part of this draft Long-term Plan, we have reviewed our Infrastructure Strategy which sets out how we intend to manage and maintain this significant infrastructure over the next 30 years. The draft infrastructure strategy will ensure:

Assets are well looked after and in good condition for future generations.
We are planning and investing to support growth and housing development.
We are maintaining levels of service and improving public health and environmental outcomes, including working with iwi and hapū to protect and restore the health and mauri of our waterways.
We are managing natural hazard risks to ensure our infrastructure is resilient.

Our infrastructure strategy proposes an increased budget for renewals of infrastructure such as roads and water pipes, significant investment for growth; and working in partnership with iwi to improve environmental outcomes.

This draft strategy also sets out the major infrastructure challenges that we expect to face over the next 30 years, the options for addressing these, and when important decisions will need to be made. These are:

Identifying a solution for transport from the northern side of the Waikato River and through Taupō town.
Managing wastewater north of the Waikato River.
Improving wastewater disposal in Tūrangi.

Draft Infrastructure Strategy 2024 (PDF, 4.6MB)

Financial Strategy

We have to carefully manage what Council borrows as well as care for its existing assets. We want our future generations to inherit good-quality assets that have been well looked after. The draft Financial Strategy highlights recent pressures that have put considerable strain on rates, particularly in the first few years of this Long-term Plan. Rates increases are needed to meet the growing costs of providing essential infrastructure and we recognise that these increases will be challenging for the community.

This draft Financial Strategy outlines the financial vision and priorities for the next 10 years. It aims to achieve an appropriate balance between the needs of our communities, responsible management of our assets, and financial sustainability over the long term. To achieve this, we are proposing the following:

Maintaining current levels of services.
Continuing to fund 100 percent of depreciation of council assets over the assets’ life cycle.
Prioritising essential infrastructure, such as water services.
Prioritising topping up negative reserve balances with rates funding in later years. This will ensure no further pressure is put on future generations and that Council is setting aside funding for the eventual replacement of those assets.
Continue to use development contributions and development agreements to fund the portion of new assets required as a consequence of growth.

Draft Financial Strategy 2024 (PDF, 4.1MB)

Proposed rates limits

Council is forecasting average rates increases for existing ratepayers of 5.3 percent across the 10-year period. Recent inflationary pressures, non-controllable cost increases, and increased interest costs have put considerable pressure on rates, particularly in the short-term.

Council is proposing to increase its rates increases affordability benchmark from Local Government Cost Index (LGCI) + 2.5 percent to LGCI +5 percent, considering past performance challenges due to LGCI being a forward-looking projection, whereas Council cost increases often occur subsequently to inflationary increases. For most years in this 10-year period, Council is projecting to be well below its self-imposed benchmark. Average rates increases are for existing ratepayers only (after removing forecast growth in rateable properties).

Council recognises that although these short-term rates increases are fundamentally outside of Council’s control without compromising key priorities, they are also likely to be challenging for the community. Council has recognised this by not adjusting the benchmark for the two years but instead showing these two years as a short-term breach to the affordability limit.

Increased costs for Council’s water services have meant that rates increases are proportionally higher for residential ratepayers who have the ability to connect to Council’s water and wastewater services. This has been partially mitigated by a proposed differential increase for electricity generators, utilities, and networks. This differential change is being proposed to ensure all industrial/commercial ratepayers pay rates on the same basis, but also in response to Council’s consideration of the affordability of rates for the community, for which the proportionally-larger increases in residential rates in recent times was a factor.

Availability of alternative funding streams, such as external funding, is considered more challenging than previous Long-term Plans and therefore Council will see an increased reliance on rates revenue during this 10-year period. This is reflected in Council’s rates (income) affordability, including a breach in the last two years to the benchmark of rates not exceeding 80 percent of total operating revenue.

Council has proposed increases to its fees and charges to better reflect increased costs over the past three years. Without these increases, Council would not meet revenue and financing policy funding principles and Council would need to either intentionally breach these principles or amend them to suit current user-pays ratios. This would further increase Council’s reliance on rates revenue.

Council believes that the breach in rates (income) affordability, that total rates revenue must not exceed 80 percent of operating revenues, is substantially outside of its control considering the substantial increases already applied to fees and charges.

If Council does not receive the assumed external funding streams in this Long-term Plan, such as New Zealand Transport Agency Waka Kotahi subsidies, it will need to reassess the appropriateness of its capital programme and/or specific projects.

Council will also continue to prioritise opportunities to grow its sources of third-party funding for capital projects. Council will achieve this through relationships with funding agencies, government departments, and community groups. Council will also continue to advocate to central government for alternative funding sources, through its own means and through its involvement with sector partners like Local Government New Zealand and Taituarā.

Proposed debt limits

We mainly use debt to invest in new infrastructure assets or improving assets we already have. Renewals (replacing old infrastructure with new infrastructure) are funded by depreciation.

Achieving the balance between debt sustainability and affordability over the long term and Council’s priorities of maintaining current level of services, meeting legislative requirements, looking after our assets, and provisioning for the expected growth, has been challenging for this 10-year period.

Council has managed to maintain debt sustainability and affordability by minimising pressure on debt through voluntary repayments on Council loans, depreciation reserve top-ups, and rationalisation of Council’s discretionary capital projects.

Council has increased its self-imposed debt limit from 225 percent to 250 percent of gross external debt to revenue for this financial strategy, recognising the increase in growth during this 10-year period. Due to the forecasted growth projections, Council will be required to carry more debt going forward with increasing capital investment required to provision for this growth.

Through this financial strategy, Council also recognises the importance of debt head room as a key part of planning for unexpected events and changes.

Despite the increased pressure on Council’s debt and significant increases during this Long-term Plan, it remains at prudent levels. The new limit is well below debt covenants that are set by the New Zealand Local Government Funding Agency, and Council remain comfortably below the increased limit.

Maintaining a low cost of financing is key for this financial strategy and Council aims to achieve this by obtaining high-quality treasury advice and achieving a positive outcome during Council’s annual credit rating process. Council’s credit rating is currently AA+ (negative watch) and Council endeavours to maintain a credit rating of at least AA during this 10-year period, to ensure the lowest possible lending margins.

Due to Council’s increased growth projections, Council is allowed to increase its debt servicing benchmark to borrowing costs to be below 15 percent of revenue (from 10 percent), as per Local Government (Financial Reporting and Prudence) Regulations 2014. In the context of the old benchmark, higher projected interest rates and higher growth were putting pressure on this ratio (due to the revenue calculation excluding growth revenue, such as development contributions), however, Council comfortably sits inside the benchmark for high-growth councils.