Assumptions, Disclosure and Compliance Medium – below ground • The forecast contributions from the Local Authority Protection Programme (LAPP), insurance, Government and the NZTA will be received. Risk • Through a combination of Council’s reserves, investment realisation, credit Assets wear out and need to be replaced earlier than anticipated. facilities and rescheduling capital and other works, Council can meet the remaining costs associated with a major disaster over a seven year period. Financial Impact Depreciation and borrowing costs would increase if replacement Capital Expenditure • As a result of a second earthquake occurring in Christchurch, Council has also was required earlier than anticipated. However, these impacts could be mitigated in modelled the financial impact of second significant event. Through the use of part by reprioritising the Capital Expenditure programme. There may also be an the same mechanisms identified in the two bullet points above, Council could increase in maintenance costs to keep the asset operational until it is decided to meet the remaining costs associated with a second major disaster over a seven proceed with replacement. year period post the second event. The LAPP fund is a mutual pool set up to assist Councils cover their share of damage Subsidy Rates to “below ground” and river protection assets resulting from a significant natural event. Assumption At the time the fund was formed commercial insurance alternatives for these assets was not available. There was also a clear requirement from Central Government that The New Zealand Transport Agency (NZTA) has recently reviewed its financial any assistance given to rebuild infrastructure following a disaster will only be made assistance policy and it is assumed that Council will retain, for the period of the Plan, available if Council has made adequate financial provisions to cover its own repair its current subsidy rate of 51% for road maintenance and construction works. obligations. Level of Uncertainty Above ground assets are insured through commercial insurance. These costs are in addition to LAPP contributions. Insurance costs have increased over recent years as a Low. direct result of national and international disasters. Council has mitigated the effect by joining with Nelson City and Tasman District Councils and a pool of over 600 Risk Australian Local Authorities. NZTA will either reduce the subsidy rate and/or toughen the criteria for the inclusion of 2016 Kaikoura Earthquake. Council is still investigating the damage caused by the works in the qualifying programme. November 2016 Kaikoura earthquake. Evidence suggests the earthenware sewerage Financial Impact network pipes in Blenheim and Picton have sustained extensive damage. The LTP has includes a provisional $12.0 million for their replacement over 10 years. Council is If the subsidy rate is reduced, either a reduction in the level of service or an increase in working with Government officials and its insurers to reduce the amount it must fund rates would be required. Council is already receiving very good pricing for road itself. Also strengthening work is required for a number of Community Facilities. These maintenance compared to other Local Authorities, through its collaboration with NZTA allocations have reduced the dedicated Emergency Events Reserve to a forecast in the form of Marlborough Roads. balance of just over $9 million at 30 June 2018. Council had intended to rebuild this Reserve using the surpluses from the General Revenues Account, but the forecast Natural Disasters balance in 2028 is still only $3 million. This is because of the expected ongoing funding demands from Road and River damage following rainfall events and the reduction in Assumption revenue into the account resulting from the decision to reduce the interest rate assumption. While Council would like to increase this balance over time, it is also Should a major natural disaster occur the District could be faced with significant repair aware of its ability to reprioritise its capital works programme, probable insurance and and reconstruction costs. Council has estimated the maximum probable loss (MPL) Government funding and its total Reserve position. As a result Council believes that it cost as a result of a major earthquake, flood or tsunami at approximately $485 million, has sufficient capacity to meet its obligations should a significant natural disaster occur following a joint Treasury supported exercise with AON and Tonkin and Taylor. It is without the need for an immediate rates increase. assumed that this forecast is accurate. It is also assumed that: 2018-2028 Long Term Plan Page 233