Financial Statements

Financial Prudence

The Government has introduced the Local Government (Financial Reporting and Prudence) Regulations 2014 which has a series of measures and benchmarks, disclosed in the following pages. These measures further highlight the Council’s financial performance in a way that is consistent and standardised.

These measures allow for comparison of financial performance with other councils. However, readers are urged to read the commentary and explanations provided to give context to the information, as it is not always possible to compare Wellington City Council’s results with other councils due to their size, location and provision of services.

The Council considers there to be three key financial areas that demonstrate whether a council is being managed in a prudent manner; they are in broad terms the level of rate increases, level of borrowings and the balancing of the budget. A council sets what it believes to be prudent levels for each of these areas when it adopts its Long-term Plan. Set out below is a summary of how the Council has performed against those targets.

Rates increase

The Financial Strategy outlines the Council's strategy on rate increases and how to maintain the ratepayers willingness to pay rates as they perceive the value of the services provided by Council. There are two measures that indicate Council's adherence to its strategy:

1. Percentage limit on rate increases before growth (in the rating base) is 3.67%.
The actual percentage rate increase for 2014/15 is 2.94%
2. Dollar limit on rate increases for rates revenue not to exceed, this was set at $258.8 million for 2014/15.
The actual rates revenue for 2014/15 is $253.6 million.

The Council has adhered to its limits as set out in Long-term Financial Strategy as set out in the 2012 Long-term Plan.

Borrowing levels

The Financial Strategy outlines its guiding principles on the level of borrowing the Council may undertake, and in broad terms:

    a) Debt cannot be used to fund operations, and
    b) The current level of debt will not restrict a future Councils ability to fund new assets through debt.

The Council has met all of its borrowing measures set out in the following pages, as the Council continues to be prudent in carefully managing its debt levels and ensuring that future generations are not impeded in their ability to borrow to fund future capital expenditure.

Balanced budget

This measure is designed to highlight whether a council has achieved a balanced budget as discussed in the financial overview. The Council’s aim is to be as close to 100% as possible, as large variances would indicate that ratepayers are either paying too much or too little rates which could lead to intergenerational issues in later years.

The Council has achieved 104% for 2015 indicating that the Council has managed to effectively balance its budget by ensuring that operating revenue was greater than operating expenditure.

Annual report disclosure statement for year ending 30 June 2015

What is the purpose of this statement?

The purpose of this statement is to disclose the Council's financial performance in relation to various benchmarks to enable the assessment of whether the council is prudently managing its revenues, expenses, assets, liabilities, and general financial dealings.

The Council is required to include this statement in its annual report in accordance with the Local Government (Financial Reporting and Prudence) Regulations 2014 (the regulations). Refer to the regulations for more information, including definitions of some of the terms used in this statement.

Rates affordability benchmark

The Council meets the rates affordability benchmark if

These limits are based on the Local Government Cost Index and the limits are set each year during the Annual Plan process. This will cause some limits to be different than those disclosed in the 2012-2022 Long Term Plan. Where this occurs both the Annual Plan and 2012 Long-term Plan limits will be disclosed.

Rates (revenue affordability)26

The following graph compares the Council's actual rates increases with a quantified dollar limit on rates increases included in the financial strategy included in the Council's 2012 Long-term Plan.

The quantified limit, as per the 2012 Long-term Plan, for 2014/15 is $258,834,000 ($249,671,000 2013/14, $240,161,000 2012/13; quantified limit for the 2014/15 Annual Plan was $254,289,000 ($248,386,000 2013/14)).

Rates (income) affordability

Rates (increases) affordability27

The following graph compares the Council's actual rates increases with a quantified limit on rates increases included in the financial strategy included in the Council's 2012 Long-term Plan.

The quantified limit for 2014/15 is 3.67% (3.96% 2013/14, 4.29% 2012/13) increase before growth; the quantified limit for the 2014/15 Annual Plan was 3.0% (3.57% 2013/14) increase).

Rates increases (%)

Debt affordability benchmark

The Council meets the debt affordability benchmark if its actual borrowing is within each quantified limit on borrowing. The Council has seven measures for debt affordability and these are set out below. The suitability of these measures has been assessed by Council’s professional advisers, PricewaterhouseCoopers Wellington.

Net borrowing as a percentage of equity

The following graph compares the council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's Long-term Plan. The quantified limit is net borrowings, comprised of borrowings less cash and cash equivalents, being less than or equal to 10% of equity.

Net borrowings as a percentage of equity %

Net borrowing as a percentage of revenue

The following graph compares the Council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's Long-term Plan. The quantified limit is net borrowings, comprised of borrowings less cash and cash equivalents, being less than or equal to 150% of revenue. For this measure revenue is defined as total revenue less vested assets and development contribution revenue.

Net borrowings as a percentage of income %

Net interest as a percentage of revenue

The following graph compares the Council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's Long-term Plan. The quantified limit is net interest, defined as interest expense less interest revenue, being less than or equal to 15% of revenue. For this measure revenue is defined as total revenue less vested assets and development contribution revenue.

Net interest expense as a percentage of income %

Net interest as a percentage of annual rates revenue

The following graph compares the Council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's Long-term Plan. The quantified limit is net interest, defined as interest expense less interest revenue, being less than or equal to 20% of annual rates revenue.

Net interest expense as a percentage of rates income (%)

Liquidity (term borrowing committed loan facilities to 12 month peak net borrowing forecast)

The following graph compares the Council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's Long-term Plan. The quantified limit is liquidity being greater than or equal to 110%. For debt affordability, liquidity is the total of the Council’s arranged loan facilities, both drawn down and not drawn down, compared with the peak net borrowings expected for the next 12 months. Net borrowings for debt affordability are defined as comprised of borrowings less cash and cash equivalents.

Liquidity (term borrowing to 12 month peak borrowing forecast) (%)

Borrowings funded capital expenditure limit

The following graph compares the Council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's Long-term Plan. The quantified limit is no more than $60 million of capital expenditure funded by new borrowing over the council triennium. This is an accumulative measure over the three years of the Council triennium.

Borrowings funded capital expenditure limit ($000)

Balanced budget benchmark

The following graph displays the Council's revenue (excluding development contributions, financial contributions, vested assets, gains on derivative financial instruments, and revaluations of property, plant, or equipment) as a proportion of operating expenses (excluding losses on derivative financial instruments and revaluations of property, plant, or equipment).

The Council meets this benchmark if its revenue equals or is greater than its operating expenses.

Revenue/expenditure

Essential services benchmark

The following graph displays the Council's capital expenditure on network services as a proportion of depreciation on network services.

The Council meets this benchmark if its capital expenditure on network services equals or is greater than depreciation on network services.

Capital expenditure/depreciation

This measure takes a snapshot of capital expenditure on a year-on-year basis, whereas capital expenditure for essential services is planned on a project-by-project basis and does not always neatly align with the financial year. This is further impacted by delays to projects that cause timing differences that will affect the outcome of this measure.

Therefore over time there will be an irregular pattern of expenditure and the Council believes an average over time should be applied to this measure to ensure that Council is sufficiently meeting this requirement. If the average is taken for the three years shown, then Council has met the requirement for the overall period with an average of 114% for the three years.

Debt servicing benchmark

The following graph displays the Council's borrowing costs as a proportion of revenue (excluding development contributions, financial contributions, vested assets, gains on derivative financial instruments, and revaluations of property, plant, or equipment).

Because Statistics New Zealand projects the Council's population will grow as fast as the national population growth rate, it meets the debt servicing benchmark if it’s borrowing costs are equal or less than 10% of its revenue.

Borrowing costs/revenue

Debt control benchmark28

The following graph displays the Council's actual net debt as a proportion of planned net debt. In this statement, net debt means financial liabilities less financial assets (excluding trade and other receivables).

The Council meets the debt control benchmark if its actual net debt equals or is less than its planned net debt.

Actual/budgeted net debt

Operations control benchmark29

This graph displays the Council's actual net cash flow from operations as a proportion of its planned net cash flow from operations.

The Council meets the operations control benchmark if its actual net cash flow from operations equals or is greater than its planned net cash flow from operations.

Actual/budget net cash flow from operations

Additional information

Areas of reported non-compliance

The operations control benchmark shows whether actual net operating cash flow is equal or less than the planned net cash flow from operations. During the preparation of the 2012 Long-term Plan to which this control relates to, a number of assumptions were made around the timing of events. Any departure from these assumptions can affect the outcome of this measure. The Council is satisfied that it is prudently managing operational cash flow, with variances in the 2014/15 year explained by the timing difference in the receipt of revenues compared to budget that led to the “not met” outcome for this measure.

2013/14 Comparative measures

The essential services benchmark compares the level of depreciation for network assets (comprising roading, drainage, waste and water assets) to the level of capital expenditure made during that financial year for those assets. Included within the depreciation figure, is a depreciation amount included for Moa Point Treatment Plant which is under an arrangement where the assets are managed by a third party which will return the assets to the Council in the same condition that they were at the start of the arrangement. Therefore there will be no capital expenditure undertaken by Council in relation to those assets. If the depreciation attributable to those assets were excluded from the calculation, then the benchmark measure would show that the Council had “met” the target by achieving 104% for 2013/14 (125% 2012/13).

This measure also takes a snapshot of capital expenditure on a year-on-year basis, whereas capital expenditure for essential services is planned on a project-by-project basis and does not always neatly align with the financial year. This is further impacted by delays to projects that cause timing differences that will affect the outcome of this measure.

Therefore over time there will be an irregular pattern of expenditure and the Council believes an average over time should be applied to this measure to ensure that the Council is sufficiently meeting this requirement.

2012/13 Comparative measures

The debt control benchmark shows whether actual net debt as defined by the regulations is equal or less than the planned net debt. During the preparation of the 2012 Long-term Plan to which this control relates to, a number of assumptions were made around the timing of events. Any departure from these assumptions can affect the outcome of this measure. The Council is satisfied that it is prudently managing its net debt position, as reflected in its AA credit rating and favourable ratios of net debt to revenue and net debt to investments. Council’s net debt to revenue ratio is significantly lower than most other metropolitan councils in New Zealand.

The operations control benchmark shows whether actual net operating cash flow is equal or less than the planned net cash flow from operations. During the preparation of the 2012 Long-term Plan to which this control relates to, a number of assumptions were made around the timing of events. Any departure from these assumptions can affect the outcome of this measure. The Council is satisfied that it is prudently managing operational cash flow, with variances in the 2012/13 year explained by the timing difference in the receipt of revenues compared to budget that led to the “not met” outcome for this measure.

26This benchmark is required to use the quantified limit as specified in the Financial Strategy in the 2012-2022 Long Term Plan as the benchmark comparator. These will differ from the figures agreed through subsequent Annual Plans.
27This benchmark is required to use the quantified limit as specified in the Financial Strategy in the 2012-2022 Long Term Plan as the benchmark comparator. These will differ from the figures agreed through subsequent Annual Plans.
28This benchmark is required to use the 2012-2022 Long-term Plan net debt figures as the benchmark comparator. These will differ from the figures agreed through subsequent Annual Plans.
29This benchmark is required to use the 2012-2022 Long-term Plan net cash flow from operations figures as the benchmark comparator. These will differ from the figures agreed through subsequent Annual Plans.