Financial performance reports

Balancing the books is a little like ensuring we don’t buy our groceries using our mortgage. We want the everyday costs of running our great river city to be paid for by our everyday revenues – instead of borrowing for them. 

Everyday costs are what we need to pay to deliver the services we provide. These include keeping clean drinking water flowing through your tap, maintaining our streets and footpaths and lots more. It costs about $380 million every year to deliver these services.  

We get everyday revenues from rates, fees when people receive a service like a building consent or when they visit a facility like the zoo. 

If everyday revenues aren’t enough to cover everyday costs, it means we need to borrow money to do so. Using debt to pay for everyday costs means future generations of Hamiltonians will be paying for services that residents are receiving now.  

Debt should only be used to pay for things that will be around for a long time, like new roads and water pipes – this means the repayments are shared across generations.

As well as complying with the financial reporting regulations that all councils around the country are required to follow, we use a balancing the books measure that is more relevant to our growing city. Our measure excludes capital revenue (such as Waka Kotahi subsidies) from the equation, as the purpose of that revenue is to build assets, not fund our everyday expenses. By separating the types of revenue, the city can maintain a clearer financial picture and ensure that capital revenue is used for its intended purpose.

Debt is when we borrow money to pay for the entire cost of infrastructure (such as a new bridge) up front.  

Major city infrastructure projects - like bridges, libraries or water treatment plants – cost a lot of money to build, typically tens if not hundreds of millions of dollars. It would be impossible to pay for this up front using our everyday revenue. 

Borrowing money means we can build the bridge now but can spread the payment over many years – meaning that costs are paid by future generations of residents who, over time, all benefit from the investment.  

This is fair because it means that the cost of major infrastructure isn’t falling solely on current Hamilton ratepayers.

The debt to revenue ratio is how much money we are borrowing, compared to how much money we have coming in.  

For example, if our debt to revenue ratio is 300% this means we are borrowing $3 for every dollar of revenue generated.  

We have set limits to manage how much we are borrowing and to keep an eye on our ability to pay it back. This difference is what’s called debt capacity.  

Having debt capacity allows us to take on more debt (borrow more money) in the future for necessary infrastructure or to respond to unplanned events such as a natural disaster.  

In local government, budgets and the timing of capital projects are set through long-term plans and subsequent annual plans. Capital projects and their costs are scheduled for specific financial years.  

If for some reason (delays by third party suppliers, change in elected member decision making, staff resourcing) a capital project is not completed in the year it is scheduled, the work and its associated budget can be moved to a future year. This is called a deferral.  

This helps ensure that we maintain transparency over the delivery of the capital programme and the impact on debt while taking into account that there are genuine reasons for changing the timing of delivery. 

Depreciation is a way of spreading the cost of an asset over its useful life, recognising that assets lose value as they age. 

Local authorities in New Zealand own and maintain various assets which are essential for providing services to their communities – such as buildings, vehicles, equipment, roads, and bridges. 

Depreciation is treated differently in local government compared to the private sector. Using an average depreciation rate across local government assets isn’t a relevant or practical measure. The “useful lives” of assets can range from a few years (e.g. for IT equipment) to 150 years (e.g. for some transport infrastructure), with many variations of useful life and depreciation rate Local government assets are unique compared to the private sector, which generally has fewer assets with shorter useful lives. 

A development contribution is a one-off charge imposed on new developments. It contributes to the growth-related cost of our infrastructure network and supports the city’s long-term growth. 

Development contributions are assessed on water, wastewater, stormwater, reserves, community infrastructure, and transport activities. 

The Government introduced these charges via the Local Government Act 2002 so councils could recover some growth infrastructure costs from developers. 

This is fair, because a developer will benefit from the sale of new properties, but before people can live in them, Council must provide roads, footpaths, water and sewerage to them. 

Net debt is the amount Council owes after subtracting any cash or cash-like funds it holds. It provides a clearer picture of overall financial position than looking at borrowing on its own. Net debt is a standard measure used across local government and required by lenders and financial regulations. It reflects both borrowing and available funds, and is used to assess financial sustainability.