Financial Overview people (Democracy and Library) related activities.NB, Irrigation, Parking and Debt Economic Development are included under Regional development. While existing Reserves, subsidies and Development Contributions are the first sources for funding Capital Expenditure, the balance is generally funded by loans. Council usually funds up to 50% of new capital assets from Reserves if available. Loans have a rating impact, but as their repayment is generally spread over 20 years it reduces the burden on current rates and spreads the costs over those future ratepayers who will also benefit from the asset being created. Increased maintenance and operating costs from capital projects are funded primarily by rates. Gross borrowing over the period of the LTP will increase from $96.0 million shown in the 2017-18 Annual Plan to a maximum of $270.8 million in 2023-24 to help fund the proposed Capital Expenditure programme for the entire Council Group, including that to its subsidiaries, MDC Holdings Ltd, Marlborough Airport Ltd (MAL) and Port Marlborough NZ Ltd (PMNZL). Gross borrowing is forecast to reduce to $214.5 million in 2027-28. Projected Gross debt includes an allowance of $16.2 million for the separately rated development of an irrigation scheme at Flaxbourne. Balancing the Budget However, the more important debt measure is Net Debt (Total debt less amounts advanced to subsidiaries, investments and cash on hand). Net Debt The Council is required under the Local Government Act 2002 to ensure that over the period of the LTP will increase from $27.4 million shown in the 2017- each year’s projected operating revenues are set at a level sufficient to meet 18 Annual Plan to a maximum of $131.9 million in 2023-24 before reducing to that year’s projected operating expenses, that is, the Council must $96.7 million in 2027-28. The maximum forecast value of Net Debt will remain demonstrate financial prudence. below Council’s $140 million debt cap. In preparing its budgets, Council must make a number of assumptions. These The following table identifies Council’s projected debt at a gross, net of cash include, legislative change, interest rates, inflation, subsidy rates etc and are and investments and net debt without the Flaxbourne Irrigation Scheme shown in more detail in the Financial Strategy. The Council is forecasting that included. its Activity expenditure will increase from $96.5 million in the 2017-18 Annual Plan to $138.3 million (43.3%) for the 2027-28 financial year. The increase is primarily due to forecast inflation, a cumulative average increase of 2.33% per annum, a larger population to be served and the balance represents the effects of supplying either additional or improved services offset in part by the impact of deferring capital works and Council’s decision to reduce its interest rate assumption from 6% to 5.5%. 2018-2028 Long Term Plan Page 16