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Our draft Long-Term Plan sets out our proposed Financial Strategy for how Council will sustainably fund its projects and services over the next 10 years.

Our Financial Strategy considers the increasing costs of a growing city and how those costs should be shared between Council, our partners and developers. It also takes into account affordability and certainty for ratepayers.

What we're planning to spend

To keep the city running, we will spend $6.3 billion over the next 10 years.

Pie graph showing the total operating expenditure over 10 years

Capital projects spend

A third of our capital programme is to look after our existing assets and Council is committed to making sure this programme is delivered. Just over half of the capital programme is to fund assets to enable growth across the city. If we can't deliver our planned projects due to external delays or our development partners not being ready, we can move projects between years to stay within our financial strategy limits. The impact of moving the timing of projects may mean services and facilities will be ready for the community in a different year than we have indicated.

Balancing the books measure

Over 10 years, it costs around $6.3 billion in what we call everyday costs to keep Hamilton Kirikiriroa running each year. A key principle of our Financial Strategy is to balance the books – this means that everyday costs of running the city are paid for by our everyday revenues. Everyday revenues are rates paid by property owners, fees and charges when people use a Council service, like dog registration or building consents, and grants and subsidies for our operating activities. If we’re not balancing the books, it means we’re borrowing money (debt) to cover the shortfall. This also means we also have to cover the interest costs on the debt, and our ability to borrow money for future projects is limited. And future generations of Hamiltonians would be helping to fund services that only current residents are receiving, which isn’t sensible, sustainable, or fair. For these reasons, we want everyday costs to be covered by everyday revenues as soon as possible. This Long-Term Plan will see us balance the books in 2026/27, with increasing operating surpluses (bringing in more in revenue than we spend in everyday costs) in the following years, which is necessary to ensure we remain within the debt-to-revenue limit.

A graph showing the balancing the books measure for the duration of the 2024-34 Long-Term Plan

Debt-to-revenue ratio

Our Financial Strategy sets debt-to-revenue ratio limits to manage how much we are borrowing (debt) and our ability to pay it back (revenue). Our main source of borrowing is the Local Government Funding Agency (LGFA). The LGFA has its own limits for how much it will lend based on how much revenue the council it is lending to has coming in.

Council is investing $4.7 billion across the 10 years in its largest capital programme to date. This includes increasing spending on community infrastructure, on renewing existing assets and on delivering projects that meet the objectives of our five priorities.

The Debt-to-Revenue Ratio limit of 285% in the first year, and 280% in all subsequent years, is in line with the limits set by the LGFA.

Remaining under these limits supports Council’s strong credit rating (AA-). Our ability to fund potential unforeseen events is discussed in the section below.

A graph showing the net debt of council throughout the duration of the 2024-34 Long-Term Plan

Net debt

Debt is where we borrow money to pay for the entire cost of infrastructure up front. Net debt is the money we owe our lenders, less cash. Borrowing money means we can build now but can spread the payment over many years – meaning that costs are paid by generations of residents who, over time, all benefit from the investment. This is fair because its means that the cost of major infrastructure isn’t falling solely on current Hamilton ratepayers.

Projections show net debt increasing to a peak of $2.4 billion in 2023-34. Rates increases from 2027 onwards at 15.5% will create surpluses to contribute to repaying debt.

By 2033-34 Council will have $459 million in debt capacity within the 280% debt-to-revenue ratio limit. Council’s 2021-2051 Infrastructure Strategy shows that debt capacity is needed beyond 2034 for future infrastructure investment.

Assumptions

When we are preparing our budgets and forecasting for the next 10 years, there are always factors we must make a judgement call on. When we do this, we also think about the impact if the actual situation is different from our prediction. Here are the key assumptions applied to our budgeting that have a high degree of uncertainty:

Population growth

What we have assumed

Population growth has been forecast for territorial authorities in the Waikato by the National Institute of Demographic and Economic Analysis (NIDEA), University of Waikato. On 14 June 2023 through the Strategic Growth Committee, Council adopted the NIDEA high projection (2021) to prepare this Long-Term Plan.

Population projections from this projection series have been used to help prepare 30-year demand forecasts for the Infrastructure Strategy.

What it could be

As a result of the variability in immigration settings, there is a high degree of uncertainty around these projections. If the government continues with a permissive immigration policy, the rate of growth is likely to be higher than forecast. A move to a restrictive immigration policy would likely result in growth lower than projected.

We monitor population growth and projections can be revised if immigration or growth settings change and growth diverges substantially from what it is projected.

To ensure we have the best information available, we rebase our population projections annually when the latest Statistics New Zealand population estimates are released.

Ratepayer growth

What we have assumed

Ratepayer growth considers the annual increases to the number of rating units, Separately Used or Inhabited Parts (SUIPs), land value, and capital value resulting primarily from subdivision and building works.

The ratepayer growth achieved from previous years is compared to the number of completed new dwellings and is projected using the number of total households forecast by NIDEA high.

Building and development activities are highly influenced by the economic climate, building industry, and housing market. Ratepayer growth is not linear from year to year and some variance from forecasts is expected.

What it could be

As a result of this complexity there is a high degree of uncertainty around these forecasts. 

The percentage increase and additional revenue represent the increase from the previous year due to the growth in the:

  • general rate
  • Uniform Annual General Charge (UAGC)
  • Government compliance rate
  • Business Improvement District (BID) rate
  • council owned property remission
  • community organisation with retail shops remission
  • water, wastewater, and refuse collection services remission.

As we receive updated data and forecasts, we may need to review our budgets.

Development contributions revenue

What we have assumed

Future revenue has been projected using the Development Contributions (DC) model and is based on the projects included in the funded infrastructure programme.


The DC revenue assumption considers projected growth from Hamilton City Council’s growth model, assumed market response to high DC charges, the difference between forecast growth and growth that pays DCs, current and historical payment patterns, DC remissions, capping and phasing of DC charges, and takes consideration of growth modelling error margins.


Should Hamilton grow more quickly than expected, DC revenue would exceed these expectations. However, the increase in revenue will be offset over time by a need to accelerate growth-related core network infrastructure. Conversely, if growth is slower than expected DC revenue will be lower - offset by new infrastructure that may be deferred until needed. In cases where infrastructure cannot be deferred, infrastructure is supplied ahead of need and the costs will be recouped as the demand (and DCs) is realised. The DC model and its revenue projections is updated every Long-Term Plan to account for what has happened in the past three years.

What it could be

While development contribution revenue projections are made using the best information and peer reviewed models, the fact of that uncertainty arises because development contribution revenue projections themselves are based on inherently uncertain assumptions including long term growth projections, economic projections, and projected future land use and capital investments. The timing of the receipt of DCs and the capital spend related to the projects for which DCs have been collected, will impact the debt levels. Given the Council is closer to its Debt to Revenue threshold, this requires careful management of the timing of the capital programme to align it with revenue growth.

Revaluation of non-current assets

What we have assumed

Revaluations on property, plant and equipment have been calculated on the preceding year's balance as disclosed in the Statement of Financial Position. This includes an inflationary allowance calculated in accordance with the GHD cost escalation report provided to Council as at 31 December 2023, in respect of the capital works programme.

What it could be

There is a high level of uncertainty due to the significant inflationary pressures on the capital programme in a high inflation economy, that has yet to settle. There is also demand pressure on capital resourcing with the additional resource demand caused by the 2023 Hawkes Bay and Auckland flood events. Should inflation be higher than budgeted assumptions for revaluation, insufficient rates may be collected for debt repayment and for future renewals.

Transport third party funding

What we have assumed

We have assumed that operating and capital expenditure programmes, which have in the past received NZ Transport Agency Waka Kotahi subsidies and/or satisfy the criteria required for subsidy, will continue to receive subsidy funding over the course of this Long-Term Plan.

We have further assumed that the NZ Transport Agency Waka Kotahi subsidy rates of 51% that has generally been applied will continue to apply.

This assumption is highly uncertain.

NZ Transport Agency Waka Kotahi provides confirmation of the programmes of work which will receive funding as part of its three yearly National Land Transport Programme (NLTP). Funding advice has not been received for the 2024-27 period and this is subject to the priorities of the new incoming government.

What it could be

The government is proposing to change the approach to transport spending in New Zealand. The draft Government Policy Statement on Land Transport 2024 was released on 4 March 2024. While it is a draft at the time of writing, there is a high risk that NZ Transport Agency Waka Kotahi will reduce the amount of subsidy available for Council’s capital transport programmes.

If funding from NZ Transport Agency Waka Kotahi is lower than we’ve assumed, we would need to review our planned work to ensure our programmes best align with the new criteria and therefore receive subsidy, or potentially fund any subsidy shortfall. Programmes that we had expected to receive subsidy for may be reassessed and the approved programmes may be adjusted in the final Long-Term Plan. In particular, we would need to be mindful of the implications for our Debt to Revenue ratio, which is already close to the limit set by the Local Government Funding Agency, in most years.

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