Download Environmental Scan - Thames-Coromandel District Council

2012-2022 Ten Year Planning
Financial Sustainability Strategy
Supporting Document: Environmental Scan
February 2011
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Contents
Introduction ........................................................................................................................................ 4
Background ........................................................................................................................................ 4
Statutory Provisions ........................................................................................................................... 4
Current Financial Objectives .............................................................................................................. 8
What is a Financial Strategy? .......................................................................................................... 12
Setting the Scene ............................................................................................................................. 14
Where We Have Come From ........................................................................................................... 14
Growth and Infrastructure ................................................................................................................ 15
Is Continued Growth Good for the Peninsula? ................................................................................ 19
Capital Works Programmes ............................................................................................................. 20
Comparisons .................................................................................................................................... 22
Comparison with Other Local Authorities in New Zealand ............................................................... 22
Comparison of Rates and the Economy .......................................................................................... 24
Comparison of Rates and the Rate of Inflation ................................................................................ 26
Affordability ...................................................................................................................................... 27
Socio-economic Profile of District .................................................................................................... 28
Population and Dwellings ................................................................................................................. 28
Age of Population ............................................................................................................................. 29
Personal Income .............................................................................................................................. 30
Household Income ........................................................................................................................... 31
Current Financial Position ................................................................................................................ 35
Economic Environment.................................................................................................................... 36
The Economy and Impact of the Recession .................................................................................... 36
Central Government ......................................................................................................................... 39
Local Economy ................................................................................................................................ 40
Key Performance Indicators for Growth ........................................................................................... 40
Long-term performance 1998-2008 ............................................................................................. 42
The Future Environment ................................................................................................................... 44
Growth Projections ........................................................................................................................... 44
Coromandel Peninsula Blueprint ..................................................................................................... 46
Land Use Changes .......................................................................................................................... 48
Community Expectation and Priorities ............................................................................................. 49
Levels of Service .............................................................................................................................. 51
Iwi and Co-management .................................................................................................................. 52
Sustainable Development ................................................................................................................ 52
Current Financial Principles............................................................................................................. 53
Financial Policy Framework ............................................................................................................. 53
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Policy Statements ............................................................................................................................ 54
Principles Included in the Current 2009-2019 Revenue and Financing Policy ............................ 54
Principles Included in the Liability Management Policy................................................................ 55
Principles Included in the Investment Policy ................................................................................ 56
Appendices ...................................................................................................................................... 58
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1.0
Introduction
1.1
Background
The Council requires a financial strategy in place to provide guidance, including limitations, for
producing the 2012-2022 Ten Year Plan. Not only is the development of a financial strategy good
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practice, but recently passed legislation means that it has now become a legislative requirement to
include such a strategy in Council’s ten year plans.
This document provides an overview of the existing financial situation and future financial challenges.
In essence, it helps provide more detail on the financial context within which the Thames-Coromandel
District Council operates.
1.2
Financial Management Legislation in Local Government
The purpose of local government can be found in section 10 (part 2) of the Local Government Act
2002 which states as follows:
The purpose of local government is—
(a) to enable democratic local decision-making and action by, and on behalf of,
communities; and
(b) to promote the social, economic, environmental, and cultural well-being of
communities, in the present and for the future.
In summary, the purpose of Council (and therefore its objective) is to enable localised democratic
decision-making to promote the four “well-beings” of its communities, now and in the future. It is
important to be aware of those final words of the section, “the present and for the future” which does
not indicate a limit of 10 years but a much longer time frame when Council considers the well-being of
its communities. This longer view when considering the economic (financial) well-being of its
communities is referred to as “intergenerational equity”. This issue will be commented on in more
depth later in this document.
Further guidance on how a local authority must go about managing its finances in order to meet its
purpose, or objectives, is covered in sections 100 to 102 which state as follows:
100
1
Balanced budget requirement
th
Parliament passed Local Government Act, 2002 Amendment Bill 2010, on Thursday 18 November
2010.
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(1) 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.
(2) Despite subsection (1), a local authority may set projected operating revenues at a different
level from that required by that subsection if the local authority resolves that it is financially
prudent to do so, having regard to—
(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 policies adopted under section 102.
101
Financial management
(1) A local authority must manage its revenues, expenses, assets, liabilities, investments, and
general financial dealings prudently and in a manner that promotes the current and future
interests of the community.
(2) A local authority must make adequate and effective provision in its long-term council
community plan and in its annual plan (where applicable) to meet the expenditure needs of
the local authority identified in that long-term council community plan and annual plan.
(3) The funding needs of the local authority must be met from those sources that the local
authority determines to be appropriate, following consideration of,—
(a) in relation to each activity to be funded,—
(i) the community outcomes to which the activity primarily contributes; and
(ii) the distribution of benefits between the community as a whole, any identifiable
part of the community, and individuals; and
(iii) the period in or over which those benefits are expected to occur; and
(iv) the extent to which the actions or inaction of particular individuals or a group
contribute to the need to undertake the activity; and
(v) the
costs
and
benefits,
including
consequences
for
transparency
and
accountability, of funding the activity distinctly from other activities; and
(b) the overall impact of any allocation of liability for revenue needs on the current and
future social, economic, environmental, and cultural well-being of the community.
102
Funding and financial policies
(1) A local authority must, in order to provide predictability and certainty about sources and levels
of funding, adopt the funding and financial policies described in subsection (4).
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(2) A local authority must, subject to subsection (3), use the special consultative procedure in
adopting a policy under this section.
(3) A policy under this section may be adopted by a local authority as part of its long-term council
community plan.
(4) A local authority must adopt—
(a) a revenue and financing policy; and
(b) a liability management policy; and
(c) an investment policy; and
(d) a policy on development contributions or financial contributions; and
(e) a policy on partnerships between the local authority and the private sector; and
(f) a policy on the remission and postponement of rates on Māori freehold land.
(5) A local authority may adopt all or any of the following policies:
(a) a rates remission policy:
(b) a rates postponement policy.
(6) A policy described in this section may be amended only as an amendment to the long-term
council community plan.
Section 101 emphasises the need for Council to manage its finances in a prudent manner.
The hierarchy of the sections quoted above regarding the assessment of financial
prudence can be depicted as follows:
2
2
Matters arising from the 2006-2016 Long-Term Council Community Plans. Controller and Auditor
General Table 21 page 73
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Section 101
Establishes a general requirement to manage financial
matters prudently and in a manner that promotes the current
and future interests of the community.
Requires local authorities to adopt certain funding and
Section 102
financial policies to provide predictability and certainty about
sources and levels of funding.
Requires a local authority to balance the budget (breakSection 100
even or surplus) or forecast a deficit where it is financially
prudent having regard to:
•
Maintaining levels of service;
•
Intergenerational equity;
•
Section 102 policies; and
•
Revenue flows required to maintain asset service
capacity and integrity.
Council also needs to take into account the new provisions of the Local Government Act 2002
Amendment Bill 2010; section 17 of the Bill is relevant when discussing financial strategy. This section
states as follows:
New section 101A inserted
The following section is to be inserted after section 101 of the LGA'02:
101A Financial strategy
(1) A local authority must, as part of its long-term plan, prepare and adopt a financial
strategy for all of the consecutive financial years covered by the long-term plan.
(2) The purpose of the financial strategy is to facilitate—
(a) prudent financial management by the local authority by providing a guide for the
local authority to consider proposals for funding and expenditure against; and
(b) consultation on the local authority's proposals for funding and expenditure by
making transparent the overall effects of those proposals on the local
authority's services, rates, debt, and investments.
(3) The financial strategy adopted under this section must—
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(a) include a statement of the factors that are expected to have a significant impact
on the local authority during the consecutive financial years covered by the
strategy, including—
(i) the expected changes in population and the use of land in the district or
region, and the capital and operating costs of providing for those changes;
and
(ii) the expected capital expenditure on network infrastructure, flood protection,
and flood control works that is required to maintain existing levels of service
currently provided by the local authority; and
(iii) other significant factors affecting the local authority's ability to maintain
existing levels of service and to meet additional demands for services; and
(b) include a statement of the local authority's—
(i) quantified limits on rates, rate increases, and borrowing; and
(ii) assessment of its ability to provide and maintain existing levels of service
and to meet additional demands for services within those limits; and
(c) specify the local authority's policy on the giving of securities for its borrowing;
and
(d) specify the local authority's objectives for holding and managing financial
investments and equity securities and its quantified targets for returns on those
investments and equity securities.
The Bill reinforces the requirement for Council to manage its financial affairs prudently as well as
placing on it some specific disclosure requirements. In addition, Council will need to quantify limits on
rates, rates increases, and borrowing.
1.3
Current 2009-2019 Financial Objectives
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Council put in place Financial Sustainability Strategy as part of the 2009-19 Ten Year Plan process .
The definition adopted in that strategy identifies three main objectives underlying the development of
financial policy. It lists these objectives as follows:
1. “Ensuring maintenance of Council’s high priority expenditure programmes, both
operating and capital (otherwise known as ‘programme stability’). Hence, Council
requires a methodology for determining priority between expenditure programs
and ensuring that the funding required to maintain these can be identified;
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Thames-Coromandel District Council Financial Sustainability Strategy May 2010
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2. Ensuring a reasonable degree of stability and predictability in the overall rates
burden (otherwise known as ‘rates stability’). Predictability, would require by
definition a method of communicating this information to ratepayers; and
3. Promoting a fair sharing in the distribution of Council resources and the attendant
taxation
between
current
and
future
ratepayers
(otherwise
known
as
‘intergenerational equity’). As such, Council’s internally set debt limits will have an
impact on intergenerational equity. Some may consider these debt limits to be
conservative while others may see them as too restrictive given the level of
capital works that they see as being desirable.
The Intergenerational Equity Principle in Action
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The financial sustainability of Council is paramount due to the importance of the services it delivers to
its communities. If it is not financially sustainable, it may not be able to deliver those services in the
future. At the same time, it has to be affordable, that is, rates need to be set at a level that ratepayers
can afford. There is always a tension between these two factors as Council endeavours to meet the
demands placed on it for services and the building and maintenance of its infrastructure.
4
Dollars and Sense: Financial Management Under the Local Government Act 2002. Society of Local
Government Managers.
9
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Rates are Council’s single largest source of revenue (75.8% for year to 30 June 2010) and the
amended legislation will require Council to review this level of rates, determine if it reasonable and
affordable and to what level it will implement increases in rates in the future.
Key messages from the Financial Sustainability Strategy:
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Council’s definition of Financial Sustainability is where…:
i.
continuation of the council’s present spending and funding policies;
ii.
likely developments in the council’s revenue-raising capacity and in the
demand for and costs of its services and infrastructure; and
iii. normal financial risks and financial shocks
...altogether are unlikely to necessitate substantial increases in council rates,
rates predictability (or, alternatively, disruptive service cuts).”
In seeking to balance these two components of financial sustainability Council will
determine its spending (Financial Requirements) and funding (financial Capacity)
policies through consultation with its communities and an open and transparent
decision-making process. It will also incorporate affordability concerns of its
ratepayers into that decision making process
Council will seek to balance its 'financial requirements' and 'financial capacity'
over the medium to long term.
2. Council will recognise the affordability of rating for different sections of its
community in its Revenue and Financing Policy and Ten Year Plan.
3. Council will develop a Ten Year Plan that reflects its view that it:
•
is financially sustainable; and also
•
is
delivering
on
Community
Outcome
objectives,
and
legislative
requirements.
4. Council will implement a risk assessment model which will assist it in identifying
potential risks to its financial sustainability.
5. Council will use the community outcomes to inform (amongst other factors) the
prioritisation of its activities and consequently, expenditure requirements.
5
Thames-Coromandel District Council Annual Report 2009/2010
10
6. Council will use activity plans and asset management plans to identify
expenditure requirements in the construction of its triennial Ten Year Plan. In the
development of these resources, they will give effect to the prioritisation of those
activities.
7. Council will continue to use a prioritisation model to assess and determine
prioritisation of activities (and consequently expenditure).
8. In developing its Ten Year Plans Council has developed a view on what it
considers to be an affordable level of rating for its different communities over the
life of that Ten Year Plan.
The financial sustainability strategy provides the following statements:
“Financial Sustainability is where:
i. continuation of the council’s present spending and funding policies; ii. likely developments in the council’s revenue-­‐raising capacity and in the demand for and costs of its services and infrastructure; and iii. normal financial risks and financial shocks altogether are unlikely to necessitate substantial increases in council rates, rates predictability (or, alternatively, disruptive service cuts).” 11
The financial sustainability strategy then goes on to state:
“In seeking to balance these two components of financial sustainability Council will
determine its spending (financial requirements) and funding (financial capacity) policies
through consultation with its communities and an open and transparent decision-making
process. It will also incorporate affordability concerns of its ratepayers into that decisionmaking process
Council will seek to balance its 'financial requirements' and 'financial capacity' over the
medium to long term.”
From the foregoing, it can be seen that as part Council has already put in place a sustainability
strategy which played a significant part in the formation of the 2009 Ten Year Plan. The financial
strategy required for the 2012 Ten Year Plan that will itself provide much of the detail required for
consultation.
The financial sustainability strategy discusses issues in depth and develops a series of policy
statements within the body of the document.
2.0
What is a Financial Strategy?
The financial strategy is all about defining the parameters, or limits, within which Council will develop
its financial planning. This resulting picture is frequently referred to as the “fiscal envelope”.
The Hon John Carter, Associate Minister for Local Government, had the following to say about the
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financial strategy as prescribed in the Bill :
“Requiring councils to consult on a financial strategy with quantified targets for rates and
debt levels will encourage councils to debate with their ratepayers more carefully the
trade-offs between additional expenditure and the effect on rates and debt.
A statement was made by one of the Mayors that his rate increase would be less than the
rate of inflation – about 3%. That was the Mayor of the Far North District Council. The
Mayor of Whangarei District Council announced that he would be able to do better, and
that his ratepayers could expect an increase of about 2%. Not to be outdone, the Mayor
of Kaipara District Council said that he would have a 0% rate increase.
6
Local Government Act, 2002 Amendment Bill 2010
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This is all well and good, but the problem is, of course, that none of them has told their
ratepayers about their infrastructure deficit. None of them has actually disclosed to their
ratepayers what challenges are ahead.
It is not about just the economics of the council; it is about the infrastructure and about
what people can expect ahead of them.”
Looking at the amended legislation, it is not difficult to determine what is prescribed for inclusion in the
strategy. It must include a statement on:
•
Population changes;
•
Land use changes;
•
Capital and operating costs of meeting the foregoing changes;
•
Capital expenditure on infrastructure to maintain existing levels of service;
•
Any other significant factors affecting ability to maintain existing levels of service;
•
Limits on rates;
•
Limits on rates increases;
•
Limits on borrowing;
•
Assessment of ability to maintain levels of service;
•
Policy on giving of securities for its borrowing;
•
Objectives for holding and managing financial investments and equity securities; and
•
Quantified targets for returns on financial instruments and equity securities.
Overall, the financial strategy should tell a story. It will provide a summary of Council’s overall strategy
and in particular:
•
Detail financial targets;
•
Be explicit about levels of service to be delivered;
•
Identify trade-offs that have been made;
•
Broaden understanding of finances and tools; and,
•
Allow for informed debate and decision-making.
One of the key issues to be considered by Council is the question of trade-offs in arriving at limits on
rates and rates increases, and then consulting on those trade-offs. As highlighted in the Hon John
Carter’s statement, Council cannot just decide to limit rates increases to say 2% per annum without
disclosing the effects of this on the services provided by Council.
There needs to be recognised that there is a base level of funding required to provide for the core
activities of Council and many of these activities cannot be changed. What can be changed is the
level of service within a particular activity or activities, but, if this happens and it is a trade-off for a
reduced level of rates increase, Council must spell this out to its ratepayers in the strategy. Also the
converse applies. If Council decides to spend more on a particular activity it needs to make clear what
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advantages are gained and reflected in community outcomes, and how it would affect rates increases,
or other activities receiving less funding as a result.
We all live with these sorts of choices and decisions in everyday life. Take an average household
budget; after allowing for a base level of expenditure that is required to function as a family unit, food,
electricity, phone, housing costs etc, there is hopefully some “discretionary income” left over for the
nice things to have but not enough to have everything that is desired. So choices have to be made.
Mum wants to study part-time from home, Dad wants to play golf regularly, daughter wants to learn
ballet and son wants to learn the piano, but there isn’t enough money. So, ideally after a family
discussion, choices are made. Dad may forego golf for a few years, Mum may put off her study for a
period so daughter can learn ballet and son can learn the piano. The sacrifices made by the parents
for a period of time result in their children having a wider education and appreciation of the arts, which
provides them with a greater level of social and cultural well-being.
And that is the purpose of the financial strategy – to provide an overall umbrella (fiscal envelope)
within which Council makes these sorts of decisions, and then consults with its communities on those
decisions.
The financial strategy does NOT provide all the answers. It does not make priority decisions for
Council (although it will provide some guidelines and principles), and it will not take away the debate
and ensuing consultation necessarily. In fact, it should provide tools for more informed debate and
consultation. It will inform, tell a story, and set a base for activity management planning. This planning
will then flow through as budgets and performance standards to the Ten Year Plan.
3.0
Setting the Scene
3.1
Where We Have Come From
While any strategy is necessarily forward looking, it is useful to look at the recent past to see where
the significant changes have occurred and the reasons for those changes.
Without doubt, the change that attracts the most interest is the level of rates collected by Council to
enable it to provide its stated levels of service, which are themselves determined by the community
outcomes desired by its communities. There is always a tension between what the community would
like to have, what it needs to have, and the level of rates it sees as acceptable. This is no different to
the issues faced by central government and the interest of the wider community on the level of
taxation it has to pay for these centralised services that government provides.
In the past decade-and-a-half there have been accelerating levels of rates collected by local
authorities throughout the country to the extent that in 2006, the then government initiated an
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independent inquiry into local government rates. The rates inquiry panel completed its work by 31 July
7
2007 producing an extensive report on its findings. The report should be read in its entirety to obtain
a complete understanding of the causes and effects of rates increases, but the following paragraphs
from the executive summary provides some explanation based on summarised 2009-2019 long-term
council community plans (LTCCPs) nation-wide.
11. Local authority expenditure has been rising rapidly, driven by expenditure on
infrastructure renewal, expansion, and upgrading. A major item of increased
operating expenditures is depreciation on the larger stock of assets, which most local
authorities fund with cash raised through rates. However, over the next 10 years,
local authority operating expenditure is forecast to stabilise in real terms (after
adjustment for inflation) and decline as a percentage of GDP as capital expenditure
and rate of growth in the associated operating costs decline.
12. Rates, however, increased by 38% in real terms (that is, above the rate of inflation)
over the 12 years from 1993/94 to 2006/07. The LTCCPs forecast that rates will
increase in nominal terms by 8% per year over the next few years but reduce to
around a 4% per year increase by the end of the 10-year period.
So, this Council is not on its own and does not work in isolation. The trend of high rates increases
here is reflected nationally and this Council faces many of the same problems as other councils, but
some unique ones as well.
The following paragraph in the executive summary puts in nutshell the reason for producing a financial
strategy:
13. Local government needs to show more restraint in its expenditures, and to improve its
planning function, which drives these expenditures. It needs to give more rigorous
consideration to the desirability and prioritisation of expenditures, including
consideration of deferral or pushing out of expenditures to later years. In general local
government is not adequately presenting key choices or alternatives in its LTCCPs to
facilitate useful input by citizens and to enable councillors to adequately manage and
prioritise expenditures.
3.2
Growth and Infrastructure
The Thames-Coromandel District has enjoyed consistently high growth in property numbers and the
number of household units it has to service, albeit nearly 50% of properties are not always occupied
7
Funding Local Government – Local Government Rates Inquiry Panel August 2007.
15
for a significant portion of the year. The notable exception is the summer months were both resident
and non-resident properties alike overflow with occupants (the peak population scenario).
The uniform annual general charge (UAGC) is rated on every separately used or inhabited portion of a
rating unit and is a good indication of the need for increased capacity (and therefore expenditure) to
provide services. The first graph below shows the growth in UAGC numbers over the past decade
while the second shows the same growth as a percentage.
An increase in units to be provided services, in excess of 30% in a decade, is substantial and cannot
be achieved without considerable additional resources, which means considerable increases in
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expenditure. While it can be argued quite reasonably that the marginal cost of providing these
services is not as high in proportion to servicing the original number of units, there comes a time when
infrastructure is just not adequate and huge sums need to be expended on extensions or upgrading
and at this point the marginal cost comparison becomes irrelevant. It is also perfectly reasonable to
point out that increased properties means increased rates revenue, but the increase in revenue is not
necessarily in proportion to increases in expenditure. To help illustrate this point, the graph below
shows the movement in the value of fixed assets and the corresponding increase in depreciation over
the same decade.
The picture shows just one item of expense (certainly a major one), depreciation, increasing from
$6.6m to $16.2m, an increase of 145% compared to the increase in units serviced of some 30%. At
the same time, the value of assets has increased from almost $400m to $1.2b. Through all this it is
important to remember that no matter how much an increase (or in the case of quite a number of rural
authorities in New Zealand, decrease) there is, an activity still requires a certain level of expenditure to
provide the service and while expenditure can be decreased by reducing that level (if the community
will agree to that happening) it will not all go away.
In addition to increases in depreciation, the level of growth in infrastructure indicated above has
required Council to borrow money to fund it. This obviously has to be serviced and the graph below
indicates the movement in debt levels over the past decade
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The next graph indicates the resulting debt servicing costs (interest). Again, this is an increase in
costs substantially greater than the level of growth in the District.
This combination of interest and depreciation is sometimes referred to as “legacy costs”. In other
words, when infrastructure is built, future generations “inherit” both interest and depreciation charges
and this is part of the inter-generational issue that Council needs to consider. Also, Council “inherits”
infrastructure through subdivision and other means. In the past decade Council has received $62m in
vested assets which require servicing and which have to be depreciated.
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Another relevant factor in all this is to consider where the growth is occurring. The graph below is
drawn from rating differentials which indicates the main use to which any property is used and plots
8
the growth in land values by differential category over the past decade . It indicates that almost all of
the growth has occurred in residential properties, with little movement in farming and commercial
properties. This means that most of the growth in properties are residential without there being a
similar increase in the economic base of the District, that is, those properties that contribute towards
the gross domestic product (GDP).
Land Value by Rating Differential
9,000
8,000
$ millions
7,000
6,000
5,000
4,000
3,000
2,000
1,000
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
Year
Rural
Farming & Horticultural
Industrial and commercial
Off-shore islands unused
Off-shore islands used
Residential
Forrestry
So while the District has “enjoyed” considerable growth, there has been a price to pay.
3.3
Managing Growth
The Council's approach to managing growth is determined initially in its Coromandel Peninsula
Blueprint. The Blueprint is then supported by a number of regulatory and non-regulatory tools such as
the District Plan.
Although some infrastructure has been provided by developers and vested in Council, the bulk of
growth, particularly water and wastewater, has been catered for by Council providing capacity in its
existing schemes, sometimes at significant cost. While it is true that now Council’s policy on
development and the contributions that development should pay is starting to claw back some of that
cost, there has still had to be a considerable investment by Council up front with the ongoing costs of
8
Using movement in valuation of Rating differential category is a proxy for growth in individual rating
differential group. However it is note that it is influenced also by rating revaluations and as such it is
an indicator only.
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interest and depreciation being met by its ratepayers. It may well be time for Council to consider
whether or not it wishes to continue doing this.
A key to building the right infrastructure in the right place, to cater for development, is to ensure that
asset management plans are firmly linked to forecasts of and plans for growth. It is fundamental and
pure common sense that additional capacity should only be built into assets where growth is forecast
to occur. No growth, then no additional capacity!
However, it may be that Council itself does not need to continue to provide the infrastructure for
growth. This could be achieved by requiring developers themselves to provide more capacity in the
infrastructure, or some other form of participation from the private sector. The use of Public Private
Partnerships (PPP) or Build, Own, Operate, Transfer (BOOT) schemes could evolve with advantages
to Council and its ratepayers. This would not necessarily mean a change of strategic direction by
Council (encouraging growth within certain guidelines) but rather the means by which that is achieved.
3.4
Capital Works Programmes
The high level of capital works that Council has had in recent years is a reflection of the need to
provide the infrastructure needed to cater for growth and meet the needs of its existing communities.
Capital works required to meet the existing communities’ needs can be split into "renewals" and
"increased levels of service" components. Renewals relate to the replacement of existing assets at
the end of their economic life while increased levels of service relates to the upgrading of
infrastructure to meet, for example, new resource consent standards.
The following table provides an overview of the apportionment of Council's current capital works
programme between these different components taken from the 2010-11 Annual Plan:
Capital
Percentage of
expenditure
capital
($)
expenditure
Renewals
11.8m
36%
Increased Level of Service
13.6m
41%
Additional Capacity for Growth
7.4m
23%
32.8m
100%
Type of capital expenditure
2010/11
Total
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Furthermore, the following graph indicates the high level of capital works projected to undertaken over
the 10 year period from 2010-2019. (These figures are updated from the 2009-19 Ten Year Plan at
the time the budgets were completed for the 2010-11 Annual Plan.)
The big drivers for capital expenditure can be found in the water, wastewater, and to a lesser extent,
stormwater activities and come about because of increased standards being placed on Council in the
provision of those services(New Zealand Drinking Water Standards, resource consent requirements,
growth, community aspirations, etc). This in turn gets reflected in operating expenditure with increased
contract and energy costs, depreciation and interest on the associated borrowing required to fund the
capital expenditure.
Looking beyond the 10 year horizon, the 2009-2019 Ten Year Plan listed capital works in excess of
$100m which were not included in that plan, but are up for consideration in the 2012-2022 plan. While
the costings for these projects will not be perfect because of the difficulty of estimating that far ahead,
and also that some of them may never go ahead because they are “nice to have” rather than needed,
they are indicative of possible future requirements given the community’s aspirations and need to be
borne in mind when thinking strategically.
The size of the capital works programme creates financial management issues for Council as it has a
significant impact on debt levels and ultimately rating levels. The projected debt levels compared with
the pre-set limits from the liability management policy as a result of the adopted 2010-2011 Annual
Plan are depicted in the graph below:
21
Projected Debt Levels & Liabilitiy Policy Borrowing Limits
250
200
Total Debt over
limit by $5.189m
$millions
150
100
50
2010/11
2011/12
2012/13
Total Debt
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
Debt Limit (150% Tot Rev)
Whether the debt levels as set out in the liability management policy are adequate, reasonable, and
prudent, are issues Council will need to face when reviewing that policy, and this strategy, for the
2012-2022 Ten Year Plan. These will be addressed later in this document under the proposed
strategy section.
Note: the above debt levels include both internal and external borrowing. Internal borrowing is the
term given for using funds belonging to the district as a whole (for example, the Power New Zealand
reserve fund) and individual communities (for example, land subdivision reserves) which are used to
fund projects rather than have the funds invested with banks and other financial institutions. In other
words, Council “lends” money internally to various projects rather than borrow externally. The internal
portion of the debt does not appear as such on Council’s balance sheet as it is not owed to outside
financiers.
4.0
Comparisons
This section will compare data ranging over a number of issues, including not only how this Council
compares with others in New Zealand, but other comparisons which are relevant for Council to
consider, and which may be helpful, when developing a financial strategy.
4.1
Comparison with Other Local Authorities in New Zealand
The following high level statistical table compares this Council with all local authorities in New Zealand
which are made up of 12 regional councils and 73 territorial authorities (city and district councils). As
such it has limited value because regional councils have quite different functions to district and city
councils but it does give a “big picture” and a feel for where this Council sits within the national scene.
22
For the year ended 30 June 2009
This Council
9
All Councils
10
Operating Income
Rates
73.20%
61.10%
Grants and subsidies
8.27%
10.96%
Investment income
0.07%
4.78%
18.46%
23.16%
Employee costs
17%
23%
Depreciation and amortisation
20%
21%
5%
5%
58%
51%
Fees, fines and other sources
Operating Expenditure
Interest expense
Good and services and other costs
At a more local level, the following table lists all the territorial authorities in the Waikato region and
shows the proportion of rates income as a percentage of total operating revenue. This tends to
support the national percentage of rates to operating revenue in the table above as the regional table
below places this Council among the top Waikato councils.
For the year ended 30 June 2009
11
Total
Rates
% Rates to
Revenue
Revenue
Total Rev
$62.9m
$47.2m
75%
$152.2m
$98.3m
65%
Hauraki District Council
$25.5m
$18.9m
74%
Matamata-Piako District Council
$43.5m
$23.7m
55%
Otorohanga District Council
$13.8m
$8.7m
63%
Rotorua District Council
$89.9m
$60.6m
67%
South Waikato District Council
$23.3m
$16.8m
72%
Taupo District Council
$56.4m
$38.6m
68%
Thames-Coromandel District Council
$70.4m
$52.8m
75%
Waikato District Council
$52.5m
$35.9m
68%
Waipa District Council
$45.5m
$32.2m
71%
Waitomo District Council
$17.9m
$12.1m
68%
Franklin District Council
Hamilton City Council
A statistic often used is to compare rates with the population which arrives at an average rates paid
per head. This, however, produces a considerable distortion for this Council as there are so many
9
Thames-Coromandel District Council Annual Report 2008/2009
10
Department of Internal Affairs – Local Government Statistical Overview
11
Department of Internal Affairs – Local Councils Statistics
23
absentee ratepayers so such a comparison is meaningless. A more meaningful statistic is to calculate
the average rates per property which is shown in the table below. All figures are GST exclusive, based
on total properties rather than just rateable properties, and are produced purely for comparative
purposes.
For the year ended 30 June 2009
Number of
Properties
12
Rates
Average
6
Per
Revenue
Property
Franklin District Council
Not available
$47.2m
N/A
51539
$98.3m
$1,907
9429
$18.9m
$2,004
13731
$23.7m
$1,726
Not available
$8.7m
N/A
29282
$60.6m
$2,070
9445
$16.8m
$1,779
Not available
$38.6m
N/A
26095
$52.8m
$2,023
Not available
$35.9m
N/A
18818
$32.2m
$1,711
5322
$12.1m
$2,274
Hamilton City Council
Hauraki District Council
Matamata-Piako District Council
Otorohanga District Council
Rotorua District Council
South Waikato District Council
Taupo District Council
Thames-Coromandel District Council
Waikato District Council
Waipa District Council
Waitomo District Council
4.2
Comparison of Rates and the Economy13
The two benchmarks most commonly used by academics to compare rates and the economy are local
government expenditure in relation to the size of the economy, and, local government expenditure as
a proportion of total public expenditure. The first measure shows a relationship between the rate of
economic growth and the rate of council expenditure (see Fig 1). This contains a certain level of logic
as most councils’ expenditure is on infrastructure, which is a factor of economic growth.
12
Local Authority Shares Services Business Plan 2009/2010
13
Mythbusters – Examining common perceptions about local government in New Zealand. Local
Government New Zealand September 2010
24
Figure 1 indicates that local government expenditure has remained a relatively consistent proportion
of gross domestic product, around 3.1%, since local government reform in 1989. This suggests that
local government expenditure tends to match, and is possibly driven by, the overall demands of the
economy. As the economy grows, it creates pressure on infrastructure, such as water and roads,
causing councils to increase their investment to respond to greater demand.
A second way of analysing local government expenditure is to compare it with the expenditure of
central government and measure any changes in local government’s proportion of total public
expenditure. Figure 2 is calculated by adding all central and local government expenditure together
and then identifying the local government proportion over time.
25
As Figure 2 shows, local government expenditure as a proportion of total public expenditure has
grown slightly since 2003, although is still considerably less than its share of public expenditure 20
years ago.
Analysis of council long-term plans suggests that recent increases in rates reflect greater levels of
investment in infrastructure. Given that expenditure as a proportion of GDP and public expenditure is
relatively consistent, it would seem that local government expenditure is not unreasonable.
4.3
Comparison of Rates and the Rate of Inflation14
One of the most common criticisms made of local government is that rates should only grow at the
same pace as the consumer price index (CPI). Increases above the CPI are regarded by many as an
example of financial profligacy, but is this the case? What actually is the CPI and how does it relate to
local government?
The CPI is a measure of how much household costs change over time. It is determined by measuring
changes in a bundle of goods and services that a typical household will use, for example food,
furnishings and health services. The question that concerns us is whether an index that measures the
cost of running a domestic household is also a meaningful measure of the cost of running local
government. After all, councils are not big consumers of goods in the domestic household basket.
Interestingly, economists recognise a number of price indices. For example, New Zealand produces a
farming index that records what is happening to the cost of the major items that farmers spend money
on here and in the United Kingdom. There is even a pensioners’ price index, which acknowledges that
pensioners’ spending patterns are different from the average family (presumably more is spent on
food and heating and less on restaurant meals and entertainment).
Local government spends the bulk of its income on materials that go into various kinds of
infrastructure, especially roads and pipes. They are activities that use a lot of petroleum-based
products as well as construction materials, both of which are in high demand in developing economies
like China. To get a more accurate sense of what is happening to local government costs, Local
Government New Zealand has recently commissioned Business and Economic Research Limited
(BERL) to develop a local government cost index. This is displayed in Figure 3.
14
Mythbusters – Examining common perceptions about local government in New Zealand. Local
Government New Zealand September 2010
26
Figure 3 compares councils’ operational costs and their capital costs against the CPI and shows that
since 2005 both cost indices have exceeded CPI. The black line represents a local government cost
index (LGCI), which has been designed by combining both operational and capital costs, in proportion
to what councils spend. As shown by the graph, over the last 10 years CPI has grown by 30.6 per
cent, whereas the LGCI has grown by 43.9 per cent, a full percentage point higher per year. Taken
over the last four years, the gap is even greater.
The CPI has been designed to measure the change in prices faced by households. If local
government was to hold its rate rises to CPI at the same time that its own costs are rising more
rapidly, the most likely outcomes would be decline in infrastructure quality and a drop in the quality of
local government services, with both short-term and long-term implications for economic growth.
5.0
Affordability
The Local Government Rates Inquiry
15
(the Shand Report) concluded that it is imperative that
Councils pay more attention to analysing affordability for low income ratepayers when setting their
rating policies along with the appropriate documentation demonstrating how they have assessed and
dealt with this issue.
16
The Shand Report refers to sustainability with restraint . Financial decisions must be made within a
policy framework that ensures affordability of expenditure and equity of funding over the medium to
15
Report of the Local Government Rates Inquiry August 2007
16
Funding Local Government: Executive Summary. Local Government Rates Inquiry August 2007.
page 3
27
long term. The message from the Shand report is that whilst local authorities enjoy substantial
autonomy in terms of the financial decisions they make they must also be held accountable by their
communities for those same decisions.
The Shand Report considered that it is a pivotal function of Council and its Councillors to transparently
discharge this obligation demonstrating sufficient financial restraint and paying adequate attention to
the equity and affordability of their plans.
Thus Council should see its role in terms of not only considering the number of activities/services
being provided but also the level of service provided within these activities.
Council must consider the financial impacts on the ratepayer of the services it intends to provide. Will
the ratepayer be able to afford to live in our community once we provide all that we intend to?
So just how is one meant to assess affordability? The Local Government Rates Inquiry Panel defined
“rates affordability” as having sufficient income to pay for rates expenditure without unreasonably
compromising other expenditure. The Panel believed that a very approximate threshold of rates
17
affordability is where rates exceeded 5% of gross household income .
5.1
Socio-economic Profile of District
The socio-economic profile and demographics of the District are important for Council to have
knowledge of when considering a financial strategy. Such factors as age of population, incomes,
home ownership, and absentee owners can all have importance when considering affordability, and
not just affordability, but other issues as well. This section of the document looks at the current
demographic make-up of the District while future projections are dealt with further on.
The following statistics are taken from the 2006 Census
5.2
18
conducted by the Department of Statistics.
Population and Dwellings
The Census indicated there were 25,938 people living in the District which was an increase of 762
th
people, or 3.0 per cent, since the 2001 Census. This ranked the District 44 in size out of 73 districts
within New Zealand. (The breakdown was 12,744 male and 13,194 female.)
Included in the above figures is the Māori ethnic population of 4,020 with an increase of 426 people,
or 11.9 per cent, since the 2001 Census. (The breakdown was 1,941 male and 2,076 female.)
17
Report of the Local Government Rates Inquiry August 2007. page 183
18
2006 Census Data Thames-Coromandel District. Department of Statistics.
28
There were 11,547 occupied dwellings and 10,917 unoccupied dwellings in the District. This means
almost 49 per cent of the total dwellings were unoccupied. (The national average is a little over 10 per
cent.) Within the category of occupied dwellings, 55.5 per cent were owned by the occupier which
compares with a national figure of 54.5 per cent.
Figure 4 Ownership of Dwelling by Household
19
Thames-Coromandel District and New Zealand, 2006 Census
5.3
Age of Population
The median age (half are younger, and half older, than this age) is 46.4 years for people in ThamesCoromandel District. For New Zealand as a whole, the median age is 35.9 years.
21.2 per cent of people in Thames-Coromandel District are aged 65 years and over, compared
with 12.3 per cent of the total New Zealand population.
17.6 per cent of people are aged under 15 years in Thames-Coromandel District, compared with 21.5
per cent for all of New Zealand.
From the foregoing statistics, it can be seen that this District has an older population than for all of
New Zealand and a disproportionate number of unoccupied dwellings compared with the rest of New
Zealand. However, when talking about population it is important to remember that these figures are
only talking about the resident population. When the demographics of the absentee population are
taken into account, a rather different picture emerges.
19
2006 Census Data Thames-Coromandel District. Department of Statistics.
29
5.4
Personal Income
For people aged 15 years and over, the median income (half earn more, and half less, than this
amount) in Thames-Coromandel District is $20,300. This compares with a median of $24,400 for all of
New Zealand. (This means the median income for the District is only 83 per cent of the median for all
New Zealand.)
49.5 per cent of people aged 15 years and over in Thames-Coromandel District have an annual
income of $20,000 or less, compared with 43.2 per cent of people for New Zealand as a whole.
In Thames-Coromandel District, 12.2 percent of people aged 15 years and over have an annual
income of more than $50,000, compared with 18.0 per cent of people throughout New Zealand.
Figure 5 Income for People Aged 15 Years and Over 20
Thames-Coromandel District and New Zealand, 2006 Census
20
2006 Census Data Thames-Coromandel District. Department of Statistics.
30
5.5
Household Income
For households, the median income (half earn more, and half less, than this amount) in ThamesCoromandel District is $36,500. This compares with a median of $51,400 for all of New Zealand. (This
means the median income for the District is only 71 per cent of the median for all New Zealand.)
Figure 6 Household Income for Thames-Coromandel District
Percentage of households (%)
Thames-Coromandel District Household Income, 2006 Census
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
$20,000 or
Less
$20,001 $30,000
$30,001 $50,000
$50,001 $70,000
$70,001 $100,000
$100,001
or More
Not Stated
Incom e bands
In August 2010 Council received a report it had commissioned and which was prepared by SIL
Research entitled “Community Prioritisation Survey 2010”. This was a survey that looked at finding out
what community priorities were in regard to Council and its services. More will be mentioned of this
further on in this document but at this point it is interesting to look at the demographic information
regarding those households that were part of the survey.
The survey was conducted by telephone
21
over 500 respondents and was undertaken during July and
August 2010 interviewing a representative sample of both resident (44.4 per cent) and non-resident
(45.0 per cent) ratepayers together with a smaller sample of permanent residents living in rental
accommodation (10.6 per cent). Of the 500 surveyed, 31.0 per cent were from Mercury Bay, 21.8 per
cent from Thames, 20.4 per cent from Whangamata, 16.8 per cent from Tairua/Pauanui, and 10.0 per
cent from Coromandel/Colville. Of the respondents, 54.0 per cent were female, and 46.0 per cent
were male.
21
The 2006 Census Data reports 84.1% of households in the district have access to a telephone.
Department of Statistics.
31
The following diagrams illustrate the breakdown of the respondents surveyed in regard to household
income: by resident type, by age, and by Community Board area.
Figure 7 Household Income Profile by Resident Type
22
As presented in the chart above: Of the total number of respondents, the highest percentage (19.2 per
cent) were in the $100,000+ income group, followed by the $50-$70,000 group (13.0 per cent) and
then ‘not stated’ (12.2 per cent). Overall, 43.6 per cent of respondents had a combined household
income of $50-70,000 or greater.
There was some variation in the combined household income by Resident Type, with the ‘NonResident Ratepayer’ type having the highest percentage of respondents with a combined household
income of $100,000 (32.4 per cent) and the ‘Renters’ type
23
having the lowest (3.8 per cent).
When looking at the percentages of respondents with combined household incomes of $50-$70,000
or greater, the Non-Resident Ratepayer type had the highest percentage (59.6 per cent), followed by
the Resident Ratepayer type (32.5 per cent) and then the ‘Renters’ type (22.6 per cent). The ‘Renters’
type had the highest percentage of respondents with combined household incomes of $25-$30,000 or
less, with 43.4 per cent of the total ‘Renter’ respondents indicating this.
22
Thames-Coromandel District Council Community Priority Survey 2010. SIL Research
23
The term “Renters” means permanent residents living in rental accommodation.
32
This information paints quite a different picture to the census information on household incomes. For
example, the census shows around 6.5 per cent of residents received household income of over
$100,000 while the SIL survey shows 19.2 per cent.
At the other end of the scale, the census
indicates around 16 per cent on incomes less than $20,000 while the survey shows 9.4 per cent.
While the timing of the two sets of data is different, the movement nationally in household incomes
has not been anything like that sort of variation and the reason is undoubtedly the fact that the census
is based on resident population while the survey takes in non-resident ratepayers. This can be seen
clearly in the chart above when looking at the percentages in each bracket of non-resident compared
with resident.
This provides Council with something of a dilemma when trying to determine what is “affordable” to its
ratepayers. Non-resident ratepayers are on average better off than resident, but Council would have
difficulty in justifying a higher level of rates to the former group even though from time to time it has
been suggested through various submission processes. They do after all receive the same level of
service but use the service far less frequently so how could they be charged more? Their argument
may well be that they should pay less because of less use.
Figure 8
Household Income Profile by Age
As presented in the chart above: There was some variation in combined household income by Age,
with the highest frequency of those in the $100,000+ category being in the 45-54 age group (36.2 per
cent), followed by the 55-64 age group (25.6 per cent).
When looking at the percentages of respondents with combined household incomes of $50-$70,000
or greater, the 45-54 age group had the highest percentage of respondents (73.4 per cent), followed
33
by the 35-44 age group (56.9 per cent) and then the 55-64 age group (52.7 per cent). The 18-34 and
65+ age groups saw the highest frequency of respondents with combined household incomes of $25$30,000 or less (30.0 per cent and 40.2 per cent respectively).
Figure 9
Household Income Profile by Community Board Area
As presented in the chart above: There was some variation in combined household income by
Community Board, with the highest frequency of respondents whose combined household incomes
were greater than $100,000 coming from the Tairua/ Pauanui Board (31.0 per cent) and the Mercury
Bay Board (21.9 per cent).
When looking at the percentages of respondents whose combined household incomes totalled $50$70,000 or greater, the highest percentage of respondents came from the Tairua/ Pauanui Board
(53.6 per cent), followed by the Mercury Bay Board (47.7 per cent) and then the Whangamata Board
(46.1 per cent).
The Thames and Coromandel/ Colville Boards had the highest percentages of respondents with
combined household incomes of $25-30,000 or less (40.4 per cent and 32.0 per cent respectively).
24
A summary interpretation on the above information would be that the largest percentage of the
wealthiest ratepayers are non-resident, baby-boomers, and who own properties in the Tairua/Pauanui
Community Board area. The 18-34 and 65+ renters in the Coromandel/Colville area have the lowest
24
SIL Research state that their research was undertaken to the highest possible standards and in
accord with the principles detailed in the MRSNZ Code of Practice, which is based on the ESOMAR
Code of Conduct for Market Research.
34
incomes. This, as mentioned at the outset, paints a slightly different picture to that when viewing
permanent residents only.
6
Current Financial Position
25
Council’s financial statements
indicate a strong financial position. The following table shows the key
categories of revenue and expenditure, and assets and liabilities.
Year Ending June 2010
Budget $000’s
Actual $000’s
Revenue
Rates
57,384
57,842
5,728
5,383
15
28
Other Income
16,801
13,070
Total Revenue
79,928
76,323
Depreciation and Amortisation
17,795
16,177
Personnel Costs
10,988
12,472
3,859
3,526
Other Expenses
41,423
40,819
Total Expenditure
74,065
72,994
Net Surplus
5,862
3,329
Current Assets
8,474
7,125
Non-current Assets
1,187,365
1,190,398
Total Assets
1,195,838
1,197,523
Current Liabilities
27,325
45,355
Non-current Liabilities
64,270
24,396
Total Liabilities
91,594
69,751
1,104244
1,127,772
Subsidies
Investment Income
Expenditure
Finance Costs
Net Assets (representing ratepayer equity)
Included in the above figures is a total of $1.19b of fixed assets (operating, infrastructural, intangible
and forestry assets) and external borrowing totalled $49.2m. Not included for financial reporting
purposes under New Zealand Generally Accepted Accounting Policy (GAAP) is the internal borrowing
and internal interest component. Internal borrowing at 30 June 2010 amounted to $61m and internal
interest charged for the year ending on the same date amounted to $4m. (The internal interest earned
25
Thames-Coromandel District Council Annual Report 2009/2010
35
in place of investments is offset against the UAGC thus reducing the level of rates required to be set
by Council.)
Total rates (excluding lump sum rates, and penalties) amounted to $56,937,000
26
which when divided
by the number of rateable properties for the year of 26,258 provides an average per property for rates
charged of $2,439 (GST included ).
(Note: this average per rateable property should not be
confused with the average rates per property shown on pages 19-20 under the heading
“Comparisons”. The earlier figure does not include GST and includes an average on all properties, not
just rateable properties. Comparisons were only possible using that criteria because rateable property
figures by each of the different councils were not readily available. Also, the timing of the information
is different.)
7.0
Economic Environment
7.1
The Economy and Impact of the Recession
Between 2000 and 2007, the New Zealand economy expanded by an average of 3.5 per cent each
year as private consumption and residential investment grew strongly. Annual inflation averaged 2.6
per cent, which was comfortably within the Reserve Bank's 1 per cent to 3 per cent target range.
The local economy also performed strongly over this period and Council saw steady levels of growth
in both new dwellings and rateable properties. The level of new development is an issue for Council
in relation to infrastructure provision and the collection of development contributions.
The New Zealand economy entered recession in early 2008, before the effects of the global financial
crisis set in later in the year. A drought over the 2007/08 summer led to lower production of dairy
products in the first half of 2008. Domestic activity slowed sharply over 2008 as high fuel and food
prices dampened domestic consumption while high interest rates and falling house prices drove a
rapid decline in residential investment.
The outlook for the New Zealand economy deteriorated further following the intensification of the
global financial crisis in September 2008. The crisis created considerable uncertainty which led to
significant reductions in consumer and business confidence and banks had difficulty accessing
finance. As a result, economic activity was minus 0.9 per cent in the December quarter 2008 and new
investment declined significantly.
The Government and the Reserve Bank responded to the crisis with a range of measures designed to
alleviate its effects. The Reserve Bank lowered the official cash rate (OCR) from its level of 8.25 per
26
Thames-Coromandel District Council Annual Report 2009/10 Page 121 (GST Excluded)
36
cent over the year to July 2008 to a low of 2.5 per cent at the end of April 2009. The Reserve Bank
also introduced a range of facilities to ensure that adequate liquidity was available to the banking
sector.
The Government introduced retail and wholesale bank guarantees aimed at restoring
confidence in the banking sector and providing banks with improved access to wholesale funding.
The new National Government also introduced a 'fast-track' infrastructure expenditure programme to
try and stimulate the recovery.
The recession saw real GDP fall 3.4 per cent below its December 2007 level by March 2009. Over
the past year, the economy has clawed back just over half of this reduction with real GDP now 1.6 per
cent below the December 2007 level. On a per capita basis, real GDP fell 4.8 per cent below its
December 2007 peak by June 2009 and has to date recovered about one sixth of this, with the level of
real GDP per capita still around 4 per cent below its December 2007 level.
The following table provides an overview of a range of the economic indicators, their actual results
over the last two years and their projected levels for the next three years:
Much of the growth in GDP in the first half of the decade has been internally driven with, among other
things, rapidly increasing house prices due in a large part to net inward migration and associated
population growth. With inward migration down and the property market stagnating then it is not
surprising that GDP has fallen away and there is a need to return to export-led growth to make real
gains in the near future. However, this country is not the only one suffering and the Reserve Bank of
New Zealand recently stated:
37
“The recent global recession, and the associated financial crisis in many countries, had a
significant adverse effect on global economic activity. Most of New Zealand's trading
partners experienced contractions in GDP between 2008 and 2009. Of the countries
shown in the charts, Australia was the only economy not to experience negative GDP
growth on an annual basis. The contractions experienced by the US, UK and Japan over
27
this period were more severe than that experienced by New Zealand.”
The following graph
28
compares New Zealand’s GDP with Australia and the United States of America.
(Australia’s GDP did not move into negative numbers as did this country and the USA.)
While the economy is moving into a recovery mode, it is expected that it will be a steady and long
process and will not be without hiccups.
A recent newspaper article headlined “Recovery at risk of faltering”
29
stated the following:
“New Zealand faces a ‘significant’ risk of sliding back into recession, a leading economics
agency is warning, as the Treasury admits the recovery is not going to plan.
Business and Economics Research Limited (BERL) said in its latest forecasts that while it
expected growth over the next 18 months, the economy was ‘finely perched between
gradual, but slow, recovery and a double-dip downturn’.
BERL chief economist Ganesh Nana declined to put a probability on the chances of a
return to recession, ‘but it’s a warning that we should be aware of’.
27
Reserve Bank of New Zealand Key Graphs GDP Growth – 23 September 2010
28
Reserve Bank of New Zealand Key Graphs GDP Growth – 23 September 2010
29
The Dominion Post Business Day – 5 October 2010
38
BERL, which was formed in the 1950s, said it expected the economy to grow 1.6 per cent
in the year to the end of March 2011, and 2.3 per cent in the year following, although
there were risks to even these levels being met.
New Zealand could slide back into recession if there was further deterioration in the
United States or Europe, Mr Nana said, or if businesses’ investment failed to pick up.
‘That could be enough to send us back into small but negative (growth) numbers.’
The state of the economy, and more particularly the Auckland economy, is an important issue for the
district and Council, particularly, given the 'discretionary' nature of holiday homes, and that absentee
ratepayers make up around 50% of Council's ratepayer base.
During the recession, Council has seen a significant reduction in the level of new development and,
therefore, development contributions. This slow-down has come at a time when Council had
committed itself to significant new capital investments through, for example, the three east coast
wastewater projects, to provide infrastructure for new growth. While new growth will eventually occur
and consume the spare capacity, there is an increased 'holding' cost for Council in the interim.
Given that much of the investment in new residential properties in the District comes from Auckland,
and also Hamilton, it is likely that before a recovery is seen on the Peninsula, that recovery would
need to be evident in the two main centre's both in terms of increased employment and a return to a
30
higher level of property sales .
The recession has also meant a slow-down in the level of local economic activity with the result that
ratepayers are more sensitive to any movements in rating levels. It can be expected that this will
continue to be an issue for some time.
7.2
Central Government
The recession has also had an impact on central Government's fiscal position, which is likely to have
flow-on impacts for local government.
In New Zealand, immediately prior to the global financial crisis and onset of the recession, central
Government had become accustomed to running substantial surpluses.
In 2006, pre the global
financial crisis, this position was expected to continue for a number of years. This led to a view that
central Government had an important role to play in the delivery of a number of public good services.
30
It may be a worthwhile exercise to commission a study on this issue to determine if there is a direct
correlation between the economies of Auckland and Hamilton, and that of the Coromandel
Peninsula.
39
Post the global financial crisis there has been a major shift in the Government's fiscal position. The
central Government Long Term Fiscal Strategy is now indicating that Government will run a significant
fiscal deficit for a number of years.
A not insignificant proportion of the long term fiscal deficit issue is driven by factors, such as the aging
of the population, that are beyond the direct control/influence of central Government. As a result, it
leads to the need for community discussion about how central Government might best make choices
about what it buys, its level of expenditure and the level of taxation. These are the same issues that
Council inevitably needs to make in relation to its own portfolio of services and the level of rating etc
that it chooses to have.
Given the size of the deficit, it can be expected that central Government will be looking to reduce
and/or achieve more from the same level of expenditure. As part of this process, it will be looking for
a significant level of innovation and new thinking to the way in which it delivers it services with the
intention of trying to deliver more from within the existing levels of funding.
7.3
Local Economy
The information in the next section is taken from a BERL report produced for Council in June 2009.
The information will be updated in this document when the new report from BERL is available in either
late 2010 or early 2011.
7.4
Key Performance Indicators for Growth31
This section presents the Key Performance Indicators (KPIs) as calculated by BERL. It shows the
performance of the economy of the Thames-Coromandel District in 2008 and over the last 10 years,
and how the District economy has fared compared to New Zealand. This also provides a picture of
employment, GDP and businesses across six industry groupings.
2008 indicators
The BERL regional database collates data across seven KPIs broken down by Local Authority(LA).
These seven KPIs are listed in Table 2.1, which presents Thames- Coromandel District’s latest annual
performance compared to New Zealand as a whole.
31
Thames-Coromandel District Economic Performance 1998-2008 – BERL February 2009
40
In the year to March 2008, the Thames-Coromandel District had an average performance compared
to New Zealand in terms of resident population growth and business unit growth, and a below average
performance in terms of GDP and employment growth. Productivity growth in the District was higher
than New Zealand, as GDP in the District has remained fairly stable while the number of people
employed has decreased.
The resident population of Thames-Coromandel remained stable, with no growth on the year earlier
compared to national resident population growth of 1.0 per cent. When resident population growth is
observed over the medium term, it can be seen that the resident population of the ThamesCoromandel District has steadily increased since 2001; although at a lower level than the resident
population growth of New Zealand.
The District experienced negative employment growth due to a decline in the number of people
employed in the primary and business services sectors. The number of Full-Time Equivalents (FTEs)
employed in these two sectors has declined since 2006, due to a decrease in employment in the
agriculture, commercial fishing, finance, and business services subgroups.
Despite this decline in employment between 2007 and 2008, employment growth in the District has
remained strong over the medium term. In 2001, 8,140 FTEs were employed in the ThamesCoromandel District and this number has now risen to 10,065 in 2008. In addition, over the last
decade employment in the Thames-Coromandel District has grown by 2.1 per cent per annum
compared to the national average of 2.4 per cent per annum.
41
GDP in the Thames-Coromandel District grew by 2.2 per cent in the year ending March 2008 which
was lower than the national rate of 3.2 per cent growth. However, over the last decade GDP in the
Thames-Coromandel District has grown at a higher rate, 3.0 per cent per annum, which is still below,
but comparable to, the national average of 3.3 per cent growth. GDP per capita grew by 2.2 per cent
in the Thames-Coromandel District in 2008, which was the same as the New Zealand average.
However, over the last decade GDP per capita has grown in this District by 2.9 per cent, higher than
the national average of 2.0 per cent.
Labour productivity grew in the Thames-Coromandel District and New Zealand as a whole in 2008.
This growth was larger in the Thames-Coromandel District at 3.2 per cent, compared to 2.5 per cent
for New Zealand. As mentioned earlier, this growth in productivity was due to GDP in the District
remaining fairly stable while the number of people employed has decreased. However, when
observed over the last decade, growth in labour productivity in the Thames-Coromandel District has
remained stable at 1.0 per cent per annum, which was the same as labour productivity growth for New
Zealand as a whole.
Business unit growth in the Thames-Coromandel District has remained stable over the last year with
0.8 per cent growth, below the national rate of 1.4 per cent. The business services sector had the
largest increase in business units in 2008, and has lead the way over the last decade.
A negative result was recorded in business size in the Thames-Coromandel District for 2008, as
business sizes contracted by 1.7 per cent. This compares to a contraction in business size of 0.6 per
cent for New Zealand. However, a decrease in business size in 2008 is part of a longer-term trend as
business sizes have fallen in the Thames-Coromandel District over the last 10 years.
Long-term performance 1998-2008
Long-term performance presents a more robust picture of the ongoing development of the ThamesCoromandel District economy than a single year (where changes can be rather erratic).
Table 2.2 provides figures for the District’s performance over the last decade.
42
The trends over the last decade have generally been positive in all areas as measured by average
annual growth for the Thames-Coromandel District and New Zealand. The one exception is a 1.6 per
cent per annum fall in the average size of businesses, which mirrors a national trend as business
sizes across New Zealand have declined by 0.6 per cent per annum over the last decade.
However, while business size has decreased it is interesting to note that productivity over the same
period has remained the same as the national average of 1.0 per cent. A reason for this could be the
use of effective business practises in the Thames-Coromandel District such as the utilisation of
technology and the amalgamation of companies. One example of an increase in productivity and
decrease in business size is in the primary industry in Thames-Coromandel District where productivity
has grown 2.0 per cent over the last decade and business sizes have decreased by 1.2 per cent.
Long-term GDP growth at 2.9 per cent per annum was higher than that for New Zealand, which
averaged 2.0 per cent per annum. Over the last decade, GDP in the Thames- Coromandel District has
been similar to the New Zealand average.
Employment growth over the long term of 2.1 per cent per annum has been below the New Zealand
average of 2.4 per cent per annum.
When observed over the last decade, employment in the top three industries in the ThamesCoromandel District has been relatively stable. Business services had a 0.9 per cent per annum
increase in FTEs, while manufacturing and building had a 2.3 per cent per annum increase in FTEs.
The number of FTEs in the retail and distribution sector has also grown by an annual average of 2.8
per cent from 1998 to 2008, with most growth occurring in food retailing. The social services industry,
43
which includes the education and health sectors, has also grown steadily over the last decade in line
with government funding and population demographics.
The number of FTEs employed in the primary sector in the Thames-Coromandel District has
decreased over the last 10 years due to decreases in subgroups such as commercial fishing
and agriculture.
Resident population growth, at 0.1 per cent per annum, was less than the average rate for New
Zealand over the last decade of 1.2 per cent. A reason for this could be the popularity of ThamesCoromandel as a holiday destination and the large number of holiday homes in the District. Resident
population measures the number of people in residence and if holiday homes are not occupied this
could result in a smaller number of people being counted in the District.
8.0
The Future Environment
This section looks at the environment within which Council must work in the future and how the
various issues may impact financially on the day to day operations of Council. Many of them will have
a direct bearing on the final financial strategy that Council adopts as a basis for, and inclusion in, the
2012-2022 Ten Year Plan.
8.1
Growth Projections
Interim projections for properties (rating units), dwellings, and population, have been compiled by
Business and Economic Research Limited (BERL) for Council.
32
(These projections will be revised
when BERL updates the report as they gather more information. The updated information will then be
transferred into this document.) While the information in the report is quite extensive the graph below
summarises the growth expectations in the three areas mentioned. (Note: these projections are from
2010 out to 2042.)
32
Projections of rating units, dwellings, and population to 2042 – BERL August 2010
44
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2010
2014
2018
2022
2026
Resident population
Rating units
Dwellings
2030
2034
2038
2042
Thames-Coromandel District
The number of rating units is projected to grow to around 38,900, from 26,400 in 2010. Over the
same time, the resident population of the District is projected to increase slightly, to around 26,400.
The number of dwellings, however, is set to rise to 36,180, with a greater share being unoccupied by
2042 (54.5 per cent) than today (48.1 per cent).
While all settlements are projected to see growth in the number of dwellings, several will see their
resident populations fall. This will be the result of two factors. First, the share of dwellings in the
District that are unoccupied (mostly vacation homes) will rise.
Second, the average number of
residents per household will fall in line with national and historical District-level trends. By 2042, only
Coromandel, Matarangi, Thames South, and Whitianga are projected to have more residents than in
2010.
The largest rise in rating units, dwellings and resident population will likely be in Whitianga, with rises
of 111 per cent, 120 per cent, and 46 per cent projected, respectively.
The projections in the report are based on a neutral set of assumptions on the economic climate for
Thames-Coromandel District, Auckland and New Zealand. This means they allow for a return to
normal growth patterns over the next few years, and then assume conservative growth based on
historical patterns out to 2042. They also adopt conservative birth, death and migration rates based
on recent trends. A significant change in economic or demographic factors would result in different
outcomes from those in this neutral scenario.
This anticipated sustained growth in rating units and dwellings has a number of implications for
Council and its communities. These include:
•
District planning issues in terms of where growth might be allowed to occur and what level and
type of development is appropriate within individual communities (e.g. infill housing, higher
density/apartment development, urban sprawl, industrial/service industrial development, etc);
45
o
Whether growth should be allowed to occur and/or will occur anyway outside of the
areas currently zoned for development?
o
Urban development issues in terms of the nature and intensity of development that is
occurring and should be allowed to occur in the future within the urban areas;
o
Questions about the impact of further development on the physical environment and
the environmental standards that new development should meet;
•
Infrastructure planning and development issues in terms of both providing the infra-structure
needed, how it is to be funded and the need to ensure that it is consistent with the vision that the
community have for the district as a whole and their individual communities;
o
Community development and sustainability issues in terms of the changing social
structure of our communities and our ability to maintain a ‘balanced’ community in
terms of its socio-economic profile. There are also questions about whether
community groups and local businesses can continue to ‘survive’ given the increasing
proportion of absentee ratepayers;
o
Economic development issues in terms of ensuring that the district’s economy
develops in a ‘balanced’ and sustainable way;
o
Land use planning issues in terms of what level of protection should be given to
important natural features and landscapes such as New Chums Beach and Cathedral
Cove. An important part of this issue also relates to the question of what constitutes
an important landscape/natural feature. These issues have been highlighted again
more recently by the resource consent application for a development proposal for the
land behind New Chums that is currently with Council for processing;
o
Issues about how you best manage supply and demand in relation to the provision of
urban infrastructure and land for development.
o
Issues about the role that Council, as compared with the private sector, should play in
the provision and funding of the infrastructure needed to service growth.
8.2
Coromandel Peninsula Blueprint
To ensure that it can adequately plan for the growth occurring within the district and deliver on its
vision and strategic priorities, the 2004-2007 Council initiated the Coromandel Peninsula Blueprint
Project - a joint agency project being run in conjunction with Environment Waikato, Hauraki Whaanui
and the Department of Conservation. The project is overseen by a political steering group that has
representation from these organisations and local Māori.
The Coromandel Peninsula Blueprint ( The Blueprint) is a strategic framework for land and water use
management on the Coromandel Peninsula. It places particular emphasis on:
•
Protecting outstanding landscapes;
•
Protection of cultural and archaeological sites;
•
Recognising the diversity and character of settlements;
46
•
Enhancing water quality;
•
Protection and enhancement of biodiversity;
•
Reducing risk from natural hazards.
Key outputs from the project include:
(a) The Blueprint: is a district strategic framework that identifies growth nodes, areas to be
protected, areas at risk from natural hazards and infrastructure networks etc. The Blueprint
also identifies what is seen as important for the people of the district;
(b) Local Area Blueprints: a ‘zoomed in’ view of the major settlements in the district. These will
propose actions for:
•
The location of desired land-use types (residential density types industrial, commercial
etc);
•
Protection of landscape character, amenity and protection areas;
•
Identification of areas which are at risk from natural hazards;
•
Identification of significant sites, features or values;
•
Plans for harbour & catchment management.
33
In the introduction to the Coromandel Peninsula Blueprint (volume 1) , the following statements are
made:
For years you, our communities, have expressed concern about the impact change and
development is having on the Coromandel Peninsula – particularly on our coastline and
natural landscape. Growth projections tell us that demand for living opportunities on the
Coromandel Peninsula mean that housing will continue to grow by approximately 15,000
properties. This growth, together with the popularity of the Coromandel as a tourist
destination will continue to place a high demand on services and infrastructure.
The Coromandel Peninsula Blueprint brings together the many existing national, regional
and community plans with all available information to guide sound and consistent
planning for the Coromandel Peninsula looking forward to 2050. This Blueprint will
provide a clear direction for the partners involved that we will use in our decision-making.
This Blueprint is about ensuring that we do the best we can to achieve the Coromandel
Peninsula we want, rather than leave it to chance. The Blueprint has been driven and
guided by a Political Steering Group (PSG), with elected members from the ThamesCoromandel
District
Council
(TCDC)
and
Environment
Waikato
(EW),
and
representatives from Department of Conservation (DOC) and Hauraki Whaanui. The
33
Coromandel Peninsula Blueprint Framework for the Future” – www.coroblueprint.govt.nz October
2010
47
project has drawn on a huge amount of information we have collected about our people,
our water, our land and our economy. We also asked you what your priorities are for the
future of the Coromandel's land, water and marine environment. We've taken your
feedback and used it to help prepare a Blueprint for the Coromandel Peninsula – 'Our
Future'.
Throughout the Blueprint process we have put considerable effort towards providing for
tangata whenua spiritual values and attitudes to the natural world, Te Taiao. We have
tried to recognise the holistic view taken by Maori, which is based on the interconnected
nature of the environment, cultural heritage and all natural treasures. This holistic
interpretation of the natural environment forms the basis for management of these
resources.
This Coromandel Peninsula Blueprint is about:
•
Concentrating development and focusing services and infrastructure within three
main urban hubs
•
Maintaining services and preserving the character of smaller centres and rural
settlements
•
Improving the integrated management of catchments to protect water quality and
physical resources
•
More control of rural/coastal subdivision
•
Protecting and enhancing biodiversity and landscape values
•
Fostering additional economic activity to provide more work opportunities within the
district
•
Managing development and avoiding new development in hazard prone areas
Once the local blueprints are finalised and approved, the organisation will need to consider its
capacity to implement the various Blueprint strategies and over what period of time.
The
financial strategy will determine Council’s ability to prioritise and the various expenditures
required to implement the Blueprint, and when that expenditure will take place. It is important to
remember that the project itself looks way beyond a 10 year horizon and there will be
implications for Council in determining priorities.
8.3
Land Use Changes
The District Plan (informed by the Coromandel Peninsula Blueprint) is the key land use planning tool
used by Council. The current District Plan was publicly notified (or 'proposed') in March 1997. As a
result of public notification, around 1,630 people/organisations made either submissions or further
submissions on provisions in the Proposed District Plan (resulting in approximately 17,500 individual
submission points). From decisions on these submissions, released in October 1998, 51 appeals
48
were filed with the Environment Court. The last of these appeals, being the provisions relating to
mining, were finally resolved and the plan declared fully operative in April 2010. This follows a
decision to declare the plan partly operative in August 2007.
For a number of years, Council has been working through a process of reviewing significant parts of
the plan. It was originally intended that this would be done via a 'rolling review' process in which
different parts of the plan would be reviewed and implemented over time. In late 2009, Council made
the decision to proceed with a full review, rather than the previously proposed rolling review.
A full review of the District Plan will enable Council to be pro-active in its land use planning, show
leadership in terms of how it wants the district to develop in the future and proceed with
implementation of the land use outputs from the Coromandel Peninsula Blueprint project in a timely
way. It will also enable the changes required as a result of the review of Environment Waikato’s
Regional Policy Statement (which Council is required to ‘give effect’ to) to be implemented in a timely
manner. It is expected that the Regional Policy Statement will include a requirement for all district
plans to be reviewed within two years of it becoming operative.
8.4
Community Expectation and Priorities
Development of community plans, the Coromandel Peninsula Blueprint project, along with the 20092019 Ten Year Plan, and Annual Plan consultation processes all influence the aspirations and
expectations of Council’s various communities. This is a natural outcome of consulting widely on
matters which affect those communities. Those that have taken part in the various consultations have
taken the matter seriously, and while individuals, and organisations, may not all agree with all the
outcomes depicted in these community planning exercises, the participants certainly expect to see
some, if not all, of the outcomes put into effect over a period of time. The challenge to Council will be
to prioritise the work involved and manage the whole process of implementing the various plans, yet
stay within the parameters it will set down for levels of rates, rates increases and debt, in this financial
strategy. This will not be an easy task!
Council recently commissioned SIL Research to undertake a survey on community priorities in regard
34
to services to its communities.
(This report was referred to earlier when discussing the demographic
makeup of the District.) The survey focuses mainly on Council services and as such will provide
Councillors with some assistance when prioritising expenditure in the 2012-2022 Ten Year Plan.
However, it will not provide a complete answer, but will be another tool in determining how to allocate
finite financial resources to meet the present and future needs of its citizens and ratepayers.
34
Thames-Coromandel District Council Community Prioritisation Survey 2010 – SIL Research 27
August 2010
49
All respondents in the survey were asked to rate in terms of priority the services that the Council
provide using a five point scale. The results were graphed alongside a similar survey undertaken in
2008 and the results are shown in the chart below.
As can be seen the highest priority was providing household rubbish collection and recycling facilities
and the lowest was the provision of airfields.
The above is a very brief summary of the report which is some 64 pages in length but is intended to
give here a “flavour” of how the community sees the importance or otherwise of various services
provided by Council.
50
8.5
Levels of Service
Whilst the Financial Strategy of the organisation will inform and determine the extent to which levels of
service can be financially funded, the levels of service are then key to setting financial budgets. The
levels of service determine who gets the service (the whole district, or part of the district), how it will be
delivered, the frequency (continuous or at prescribed intervals), and the quality (for example the
quality of drinking water, the length of the grass when it is cut).
A statement of the current levels of service (2009-2019 Ten Year Plan) for each of Council’s 28
designated activities are included in Appendix 2
Note: The levels of service in Appendix 2 are presented at a very high level and at this level it is
obvious Council could not determine a reduction without more detailed information upon which to
base decisions. That detail is included in the activity plans. For example, a decision on the maximum
length of grass permitted in parks and reserves areas could not be made without knowing the current
standard. On the other hand, Council could in some instances determine to cease supplying a service
altogether but such opportunities are limited given the regulatory nature of the environment in which
Council operates.
While the higher expression of a level of service may not change, certainly underpinning standards
can, and will, change. For example, achieving the new drinking water standards will impact on
financial resources as the standards are implemented, but that won’t alter the basic level of service
which states “the water provided is safe to drink”. It is the level of safety that is the issue.
Council will review the levels of service as part of the 10 Year Plan process and may wish to have
them expressed in more explicit terms to enable easier decision-making. Given the emphasis placed
on levels of service in the amended legislation
35
that requires this financial strategy to be put into
place, more explicit wording may be required to enable ratepayers to understand any questions of
trade-off between rates increases and services. At the very least, Councillors will need a more
detailed understanding of the standards behind the levels going into the financial planning process so
that they can also understand what the impacts will be on financial resources. Changing drinking
water standards is only one. Another is the increasing standards being placed on Council under
resource consents to operate its wastewater plants, withdraw water from various sources, dispose of
stormwater, and closure of unused landfills. These increases in resource consent standards also
mean increases in monitoring which Council is obliged to pay for, so it is not only the capital costs
involved but operating costs as well. Also there are higher standards being promoted by the
community which have to be taken into consideration and nearly all of these, if not all, will have
financial implications.
35
Local Government Act 2002 Amendment Bill 2010
51
8.6
Iwi and Co-management
The role of Tangata Whenua and Iwi within New Zealand's economy and society is changing both as
a consequence of changing attitudes within the wider community and as the treaty settlement process
unfolds.
Hauraki Iwi and the Crown, via the Office of Treaty Settlements (OTS), are now well advanced in the
settlement negotiation process.
A framework agreement, which details the high level framework
within which the final settlement will be reached is close to being signed. It is also expected that a final
settlement will be achieved within the next 12 to 18 months.
In terms of the settlement itself, it can be expected that it will include the vesting of significant crown
assets (particularly Crown forest land holdings, potentially some parts of the Department of
Conservation estate and aquaculture development rights) in a new collective Iwi ownership entity. It is
also expected that there will be a number of co-management/governance regimes put in place in
relation to rivers, parts of the Department of Conservation estate and potentially the Hauraki Gulf
(Tikapa Moana). These co-management regimes will likely cover a number of local authorities in the
wider Thames Valley sub-region.
Outside of the collective agreement, it is also expected that there may be individual agreements
negotiated with individual Iwi to recognise local issues. Relative to the main collective agreement
these arrangements are expected to be small. In total, it is expected that the value of the settlement
agreement reached between Hauraki Iwi and the Crown will be in the order of $60-80 million.
The outcome of the treaty settlement negotiations will have a number of implications for this district
and Council. Iwi will play an increasingly important role in both the economic and social development
of the district. They will have significantly increased economic power and will be a large landowner in
the district. They will also likely have a role as 'joint managers' of some of the district's most valuable
assets. This provides a challenge for the district and Council to determine how it might best work with
Iwi to ensure that as an important stakeholder and potentially, joint manager of some of the district's
resources, they are able to have a significant input to Council decision-making and that value is
derived for the community as a whole.
8.7
Sustainable Development
36
An issue that is emerging both nationally and internationally is the topic of sustainability
and
sustainable development. At a national level there have, in recent years, been a number of ‘warning
36
Brundtland Commission (1971) defined sustainability as "meeting our needs without compromising
the ability of future generations to meet their needs.
52
signs’, such as the environmental problems at Lake Taupo and Lake Rotoiti and the affordability of
housing in Queenstown, to suggest that the practices that we have used in the past are no longer
sustainable.
Central Government have also taken a much stronger leadership position on
sustainability issues in recent times.
At a local level, the available data on the state of development within the Coromandel suggests that
there are a number of ‘sustainability’ issues confronting the district. These issues include:
•
The long term decline in biodiversity;
•
Limited security of long term water supply for some communities given long term water
allocation issues;
•
Questions about the long term sustainability of a number of the district's communities given
the increasing proportions of absentee ratepayers and research that has indicated that the
district is the second most unaffordable district in New Zealand;
•
The impacts of climate change and the increasing threat that natural hazards pose to both
existing settlements and the current growth cells provided for in the District Plan.
While the issues have not escalated to the point at which we have the scale of problems that are
being experienced elsewhere, it is suggested that there is a need to start addressing these issues now
if we are to avoid the ‘crises’ that is affecting other communities.
Under the Local Government Act 2002, local authorities are charged with promoting the social,
economic, environmental and cultural wellbeing of communities now and in the future. Hence, Council
has a statutory responsibility to think about and address sustainability issues.
9.0
Current Financial Principles
9.1
Financial Policy Framework
Council has in place a number of financial policies which form part of the 10 Year Plan. In accordance
with the Local Government Act 2002, they are required to be developed and approved as part of that
plan, and currently, can only be changed as an amendment. There are, however, some changes
proposed in the Local Government Act 2002 Amendment Bill 2010.
In particular, the policies include:
•
Revenue and Financing Policy
•
Investment Policy
•
Liability Management Policy
•
Development Contributions Policy
•
Rates Relief Policy
53
•
Partnerships with the Private Sector Policy
•
Determining Significance Policy
9.2
37
Policy Statements
The financial principles under which Council operates its finances, and in particular funding, can be
found in the above policies, usually as policy statements. Probably the most significant of these can
be found in the revenue and financing policy, and the liability management policy. These financial
principles have in the past been reviewed every three years as part of the development of the 10 Year
Plan and Council will no doubt need to review them again in the lead up to the 2012-2022 Ten Year
Plan. They are particularly important when it comes to choosing funding tools for individual activities
because without deciding the funding principles up front, the actual activity by activity analysis
becomes almost impossible.
Principles Included in the Current 2009-2019 Revenue and Financing Policy
Having considered section 103(1)and 103(3) in conjunction with section 101(3)(a) of the Act, the
Council developed the following policy statements in relation to section 103(2):
Section 103(2):
(a)
The general rate is to be applied to funding any benefits that are consumed by the whole
community, District-wide. In so doing, the Council acknowledges that a rate based on property
value does not match ability to pay but is the only option available under current legislation.
This policy applies to both operating expenses and, where the Council considers appropriate,
capital expenditure.
(a)(i)
The valuation system to be used for assessing the general rate is land value. This applies to
assessing the general rate to fund both operating expenses and capital expenditure.
(a)(ii)
The differentials to be applied to the general rate
38
are:
•
offshore islands - unused, a differential of 0.1 will apply on the basis that these islands
consume no, or very little, benefits.
•
offshore islands - used, a differential of 0.5 will apply on the basis that these communities
have less opportunity to consume benefits than communities on the mainland.
•
farming and horticultural, a differential of 0.6 will apply to encourage the continued use of
these rating units for farming and horticultural purposes.
•
all rating units other than offshore islands and farming and horticultural will attract a
differential of 1.0.
These differentials apply to the general rate to fund both operating expenses and capital
expenditure.
(a)(iii)
A uniform annual general charge is to be applied to each separately used or inhabited part of
each rating unit in the district. This is to be used to fund benefits, in any activity of the Council
where the benefits are consumed District-wide, and a fixed charge is deemed more
37
Under the Local Government Act 2002 Amendment Bill 2010, this policy will no longer be required.
38
Note these differentials apply only to the general rate not other value based targeted rates.
54
appropriate than one based on property values. This policy applies to both operating
expenses and, where the Council considers appropriate, capital expenditure.
(b)
Targeted rates will be determined using the mechanisms provided in Schedule 2 and 3 of the
Local Government (Rating) Act 2002, as the Council deems appropriate, to fund either
operating expenses and/or capital expenditure.
Lump sum contributions will only be used to fund the retirement of debt for specific capital
activity as determined by the Council from time to time. Lump sum contributions will not be
used to fund operating expenses.
(c)
The Council will apply user fees and charges to fund operating expenses of an activity where
the beneficiaries can be identified and charged. The Council can at its discretion decline to
recover any or all operating costs from such fees and charges.
The Council will also apply user fees and charges to fund capital expenditure if appropriate.
This is normally done to service loan repayments.
(d)
The Council will use interest and dividends from investments to reduce the requirement to
raise the uniform annual general charge (UAGC).
(e)
The Council will only fund operating expenses from borrowing when it is prudent to do so by
alleviating the need to fund in one year an abnormal spike in expenses. The Council will fund
any capital expenditure it deems appropriate to be funded by borrowing. The application of
debt will only be applied after other available sources of funds are exhausted. The Council will
not use borrowing to fund capital loan repayments unless refinancing a major loan.
(f)
Proceeds from asset sales will only be used to fund capital expenditure after any debt related
to the asset disposed has been retired. Proceeds from assets sales will not be used to fund
operating expenses unless the Council considers it prudent financial management to do so.
(g)
The Council will use funds from development contributions to fund capital expenditure in
accordance with Section 204(1)(a) of the Local Government Act 2002. The Council will not
use funds from development contributions to fund operating expenses in compliance with
Section 204(1)(b) of the Local Government Act 2002.
(h)
The Council will use funds from financial contributions to fund capital expenditure in accordance
with the Resource Management Act 1991. The Council will not use funds from financial
contributions to fund operating expenses.
(i)
Grants and subsidies received by the Council will be applied to the purposes for which they
are received, either funding operating expenses, or capital expenditure, as appropriate in
each individual case.
(j)
Depreciation reserves will be used only to fund capital expenditure including loan repayments.
Retained earnings reserves will be used to fund either operating expenses or capital
expenditure at the Council's discretion. Special reserves will be used to fund either operating
expenses or capital expenditure according to the policies that apply to the reserves.
Principles Included in the Liability Management Policy
The Policy is to be consistent with the Ten Year Plan and Annual Plans. It is to achieve the lowest
possible net borrowing costs obtainable within the policy parameters by proactively managing funding
and interest rate exposures. Benefits from favourable interest rate movements are to be maximised
while proactive measures are to be taken to minimise the effect of significant adverse interest rate
movements.
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The Council's overriding objectives are to:
•
to secure funding to finance activities at lowest possible cost.
•
manage liabilities in a manner consistent with current governing legislation and the Council's
strategic and commercial objectives.
•
raise appropriate funding in terms of both maturity and interest rate and manage the Council's
borrowing programme to ensure funds are readily available.
•
minimise margins and costs of funds to the Council. Optimise flexibility and spread of debt
maturities.
•
avoid adverse interest rate related increases to rates and maintain overall interest costs within
budgets.
•
manage and minimise the impact of market risks such as interest rate risk on Council's assets
and liabilities by undertaking appropriate hedging activity in the financial markets.
•
develop and maintain professional relationships with the Council's bankers, the financial
markets, and other stakeholders.
•
provide timely and accurate reporting of treasury activity and performance. Report on
financial/borrowing covenants and ratios under the obligations of the Council's
lending/security arrangements
Specific Borrowing Limits (Section 104(e) of the Act)
In managing both internal and external debt, Council will adhere to the following limits (based on the
Council's latest monthly financial statements and budget projections):
•
total interest expense (after interest rate risk management costs/benefits) on total debt will not
exceed 15% of total revenue.
•
net debt as a percentage of total equity will not exceed 20%.
•
net debt will not exceed 150% of total revenue.
Debt excludes any debt raised to finance postponed rates. Definitions of the above limits can be found
in Section 10.2 of that policy.
Principles Included in the Investment Policy
General Policy Including Objectives (Section 105(a) of the Act)
The Policy is to be consistent with the Ten Year Plan (LTCCP) and Annual Plans. It is to manage all of
the Council's investments and invest surplus cash in liquid and creditworthy investments.
The Council's overriding objectives are to:
•
manage investments in a manner consistent with current governing legislation and Council's
strategic and commercial objectives.
•
optimise returns while minimising credit and liquidity risks.
•
manage the overall cash position of the Council's operations.
•
maintain professional relationships with the Council's bankers and the financial markets.
•
monitor, evaluate and provide timely and accurate reporting of treasury activity and
performance.
The Council's philosophy on the management of investments is to optimise returns in the long term
while balancing risk and return considerations. The Council recognises that as a responsible public
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authority any investments that it does hold should be low risk. It also recognises that lower risk
generally means lower returns.
The Council does not hold financial investments other than those involving special funds, and cash
management balances. In its financial investment activity, the Council's primary objective when
investing is the protection of its investment. Accordingly, only creditworthy counterparties are
acceptable.
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Appendices
Appendix 1
Current levels of service (2009-2019 Ten Year Plan)
Community Leadership
•
An avenue is provided through which the community can have its views heard.
•
Direction is set to determine what activities the Council should engage in.
•
The Council will keep and maintain accurate property records.
Local Advocacy
•
Community boards offer local representation.
•
Community boards make decisions that consider local issues.
•
Opportunities are available to raise issues and understand what will happen as a result.
Strategic Planning
•
Communities are helped to identify local and District visions.
•
Customers can expect the Council to identify potential issues before they become problems.
•
Plans are in place to manage growth and change in the District.
Landuse Planning
•
The Council has a District Plan that is relevant and robust.
•
The Council has a monitoring programme that provides information on the outcomes of the
District Plan at the local and District levels.
Hazard Management
•
The Council will work with other agencies to manage the effects of natural hazards.
•
The community is able to adapt to the threat of natural disasters.
Emergency Management
•
People are prepared for a civil defence emergency.
•
People know what to do in an emergency.
•
Community support is available to recover from an emergency.
•
Surf life saving services are provided over peak summer periods.
Economic Development
•
The Council will identify where the community should focus its resources to gain the greatest
economic benefit.
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•
To increase the number of visitor guest nights that visitors spend in the District.
Community Health and Safety
•
Food services used by the public are healthy and safe.
•
The supply of liquor is controlled to prevent bad behaviour.
•
Dogs don’t wander freely in the street.
•
Council will respond when help is needed with noise issues.
•
Controls are in place to keep our communities healthy and safe.
Building Control
•
The Council processes consents, inspects and certifies building work in the District.
•
Building consent applications are processed within a reasonable timeframe.
•
Building consent applications can be tracked on the Thames-Coromandel District Council
website.
•
All reported cases of illegal building work are investigated.
Social Development
•
Information can be accessed on the social issues faced by our communities.
•
Programmes that aim to improve the health and safety of our communities can be accessed.
•
The Council provides some funding to local organisations whose main function and/or activity
is of a community, or charitable nature (via community boards).
District Transportation
Road closures or blockages are minimised and cleared in a timely manner.
•
The design, management and maintenance of District roads ensures that:
o
Roads are reliable.
o
Roads are safe and comfortable to travel on.
o
The environment is considered when maintenance and improvement works are
carried out.
•
The Council has budgeted $100,000 a year for dust sealing on rural roads.
Local Transportation
•
Footpaths can be used to get around town.
•
Street lighting is provided in urban areas and major intersections.
•
People can access a pleasant town centre.
•
Vegetation on Council-owned land is mowed regularly (excluding private berms).
Cemeteries
•
People can be buried in a cemetery in each community board area.
•
The cemetery is well maintained.
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Airfields
•
Light aircraft can be landed safely at airfields in Thames and Pauanui.
•
Land for airfield facilities is available in Thames and Pauanui.
Halls
•
People have access to a hall either in the local community or one of the main centres in the
District (Thames, Whitianga, and Whangamata).
•
The halls are available when people want to book them.
•
The halls are well maintained.
Swimming Pools
•
A clean safe public swimming pool can be accessed in the District.
Libraries
•
There is a wide range of library stock including up to date material.
Harbour Facilities
•
Boat ramps can be easily accessed in our community at any time.
•
Wharves are accessible in most major harbours.
Parks and Reserves
•
Every house will continue to have access to parks and reserves for casual and community
use.
•
Adequate access to multiple code sports facilities will be provided for in larger communities.
•
The parks and reserves enhance our communities’ quality of life.
Natural and Cultural Heritage
•
The Council works with others to protect natural and cultural icons in the District.
•
The Council promotes awareness and enhancement of the District’s unique biodiversity.
•
The Council will assist the community by providing funding initiatives for heritage and
biodiversity conservation and enhancement.
Public Conveniences
•
Public toilets are convenient and safe.
Landuse Management
•
All resource consents will be processed efficiently.
•
Good, prompt advice will be delivered to help people understand the District Plan rules.
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•
Our environment is being cared for.
Water
•
The Council provides reliable drinking water supplies
•
The water provided is safe to drink.
•
There is adequate water for fire fighting.
Wastewater
•
The Council provides wastewater services that effectively collect and dispose of wastewater.
•
Wastewater disposal does not create any smells, spills, or health issues and causes minimal
impact on the natural environment.
Stormwater
•
In light to moderate rainfall, stormwater is diverted from properties.
•
In heavier rainfall, habitable flood areas are not flooded.
•
Stormwater systems will be well operated and maintained by the Council.
Solid Waste
•
Refuse transfer stations are accessible and maintained.
•
Refuse and recycling collection services are provided and recycling actively promoted.
Land Drainage
•
Land drainage schemes are cost effective and efficiently managed.
Land Information Memoranda
•
It is easy to purchase information on any property in the District.
•
A faster service is available when my LIM enquiry is urgent.
•
Customers can understand and have confidence in the content of their LIMs.
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