Financial Strategy In assessing financial prudence consideration is to be given to: whether it was sustainable to undertake the level of capital expenditure proposed in the Long Term Plan together with increased operating costs associated with the higher debt • The estimated expenses of achieving and maintaining the predicted levels of service level. If the Council has too much debt then future ratepayers will subsidise current provision set out in the Long Term Plan, including the estimated expenses ratepayers. If population growth, which is expected to fund the growth portion of assets associated with maintaining the service capacity and integrity of the assets incorporated into the capital expenditure programme, does not occur or occurs at a throughout their useful life; slower rate this may either increase rates or slow the delivery of capital projects. • The projected revenue available to fund the estimated expenses associated with The policy of fully funding depreciation except for Community Assets has been maintaining the service capacity and integrity of assets throughout their useful life; continued in the Long Term Plan and is considered an appropriate measure to ensure the concept of intergenerational equity is maintained. That is, current ratepayers will pay The equitable allocation of responsibility for funding the provision and maintenance for its use and a share of its replacement cost in relation to the assets provided. • of assets and facilities throughout their useful life; In summary, the rate movements have been affected as a result of: • The funding and financial policies. Price increases – cost adjustors (inflation) that have been applied to the estimates • During the development of the 2018-28 Long Term Plan, the Council considered how to within the Long Term Plan. maintain its current levels of service, operating expenditure and capital expenditure needed to replace existing assets and provide new infrastructure and facilities to meet • Growth – while development contributions fund much of the growth related capital the levels of growth that are forecast within the 10 years of the Long Term Plan. The expenditure, additional developed land and services need to be maintained and add Long Term Plan as presented should, for the majority of activities, enable Council to to the Council’s operational expenditure. Generally the additional costs are met by maintain current levels of service. the rates recovered from the extra ratepayers. The Council is forecasting that its Activity expenditure will increase from $97 million in • Service levels increases – for some services, such as water supply, sewerage and the 2017-18 Annual Plan to $138.3 million (43.3%) for the 2027-28 financial year. The environmental activities, a greater total rate take will be required. increase is primarily due to investments in infrastructure including Community Facilities, improvements in levels of service, especially in the environmental and Solid Waste • Depreciation and interest payments – the increased capital expenditure programme Management areas with the balance representing inflation. will mean that there will be a corresponding increase in depreciation and debt servicing costs that will be required to be met through fees and charges and rates. Borrowing over the period of the Long Term Plan will increase from $96 million shown in the 2017-18 Annual Plan to $270.8 million (gross) in 2023-24, decreasing to $214.5 Rates, Rates Increases and Rate Increase Limit million in 2027-28 to help fund the proposed capital expenditure programme. Projected debt includes an allowance for up to $131.9 million to be loaned to the MDC Holdings Council is very conscious of the impacts of rates increases in the community, the Group Ltd (Port Marlborough NZ Ltd and Marlborough Airport Ltd) and $16 million for community’s wish to maintain or enhance current levels of service and the underlying the development of an irrigation scheme in Flaxbourne. It is intended that the debt cost drivers that Council has limited ability to control. The underlying cost drivers servicing costs for the Flaxbourne Scheme will be met by a targeted rate on the particularly relate to the materials that go into building and maintaining infrastructural subscribers to the Scheme, with no rating impact on other rate payers. assets i.e. diesel, bitumen, pipes and other construction materials and the remainder of the Capital Expenditure Programme. Council has reviewed the Capital Expenditure Development contributions have been reviewed accordingly to fund growth related Programme and looked to defer projects where possible without significantly affecting expenditure. The “Financial Trends and Summaries” section of the report below provides levels of service. the extent of capital works and the funding sources. Existing Reserves and Development Contributions are the first sources for funding Under section 101 of the Local Government Act 2002, Council considered its financial capital expenditure. The balance is generally funded by loans, predominantly on a 20 management responsibilities where it must manage revenues, expenses, assets, year table mortgage basis. Loans have a rating impact, but as their repayment is liabilities, investments and general financial dealings prudently and in a manner that spread, they reduce the burden on current rates and spread the costs over those future promotes the current and future interests of the community. The Council also considered ratepayers who will also benefit from the asset being created. Increased operating and 2018-2028 Long Term Plan Page 162