The
finances

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.

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What we’re planning to spend

To keep the city running, we will spend $3.7 billion over the next 10 years.

Total operating expenditure over 10 years

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We will also invest $2.9 billion in capital projects

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A city that’s easy to live in
A city where our people thrive
A central city where people love to be
A fun city with lots to do
A green city
Corporate capital

Rates

You can give us your feedback on our proposed rating structure here.

To address the challenges our city is facing over the next 10 years, and help deliver what you’ve told us would make Hamilton Kirikiriroa even better, in 2021/22 we’re proposing a total average rates increase to existing ratepayers of 8.9%.

This is made up of a 4.4% average increase to the general rate. We’ve also highlighted Council’s costs to help deliver work driven by central government in our water services and District Plan by taking funding out of what we collect from general rates and ring fencing it as a new targeted rate called the compliance rate. This is equivalent to a 4.5% average rates rise.

After year one, the annual average rates increase to existing ratepayers would be 4.9% (made up of both the general and targeted rates) every year.

The rates increases seek to balance affordability to ratepayers while tackling the challenges of being one of New Zealand’s fastest-growing cities. It also covers stricter water and planning compliance work required by central government.

 

Compliance Targeted Rate

The compliance targeted rate will cover:

1. increasing costs in our water services

2. the cost of changing our District Plan as a result of legislation introduced by central government.

We’ve introduced the compliance targeted rate because we believe it enables us to clearly pull out and explain what costs are associated with our water services and changes to our District Plan.

Water services 

The government’s increasing emphasis on water regulation and compliance are driving up the cost for all councils to deliver water services to their communities.

Our Council is no different. We need to make sure our drinking water network has more capacity and resilience (like building new water storage reservoirs and upgrading our treatment plant). We also need to continue ensuring that the processed wastewater and stormwater that goes into the Waikato River from our city is of the very high standard required.

Over the next 10 years these requirements have a significant impact on our budget and we’ve estimated about $7.5 million per year to cover this. It is this cost that we are planning to cover with the new compliance targeted rate.

The cost of providing our current water services is built into the general rate. Last year this cost more than $80 million.

 

Making changes to our District Plan 

A number of new government requirements are forcing significant (and costly) changes to our District Plan over the next few years. While the requirement to make these changes is beyond Council’s control, this presents an opportunity for us to redefine what Hamilton Kirikiriroa will look like in the future.

Based on what Hamiltonians have told us, Council is determined to make sure the revised District Plan delivers good urban design across our city, improves housing affordability and diversity, and enables a city that grows up and out in the appropriate places – all while protecting and enhancing our natural spaces and improving transport choice and accessibility.

We’ve budgeted $15.4 million to overhaul the District Plan. Of this, $12.4 million is to pay for work required by government and this is what is covered in the compliance targeted rate. This work will be undertaken (and the cost incurred) over the duration of the Long-Term Plan, but the portion of the compliance targeted rate aimed at District Plan costs will only be collected over the first five years.

 

Annual rates increases

From 1 July 2022 the average rates increase is proposed to be 4.9% each year. For 2026/27, once the costs to fund the District Plan have been collected, the rates collected for the compliance targeted rate will decrease and the general rate will increase meaning the average remains at 4.9%.

 

Average rates increases to existing ratepayers by year 

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Rates - how do we compare?

Even with rates increases of previous years, Hamilton’s average residential rates have remained lower than other growing cities and neighbouring councils.

We have included comparisons with Ngaruawahia and Raglan (Waikato District Council) and Cambridge and Te Awamutu (Waipā District Council) as houses in these towns receive largely the same water services as houses in Hamilton, and property types are similar.

Average residential rates comparison 2020/21 

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Cost Savings

We have budgeted for costs savings over the 10 years of the Long-Term Plan, with a total value of $106 million. These savings are expected to be achieved mainly through:

  • Property savings – we plan to reduce our property costs by adopting new ways of working, including enabling more staff to work remotely, increasing use of community-based facilities and exploring opportunities to consolidate worksites.
  • Strategic procurement – we are in the process of changing the way Council contracts and buys various products and services. By doing so, we think we can negotiate better deals and reduce our costs.
  • Capital programme optimisation – we continue to improve the way that we deliver capital projects, resulting in lower delivery costs and ongoing costs.
    This is achieved through leveraging our scale, better aligning the timing and phasing of projects, and working in partnership with suppliers, developers and others.
  • Digital-enabled business transformation – we are embracing technology to improve our customer experience, our internal processes, and our business efficiency which we expect to deliver sustainable savings.

Given the size and diversity of our activities, along with opportunities to partner with central and other local government, businesses and the community, we are confident these savings can be achieved. It is our intention these savings will be achieved without changing the services the community receives.

These savings reduce Council’s ‘everyday costs’ and help to minimise the amount of ‘everyday revenue’ (e.g. from rates, fees and charges) needed to fund our operations. If we are unsuccessful at achieving all of the savings, we may not balance our books as quickly as we have forecast, and we would rely on using debt to make up the difference. Depending on when this occurred, we may come close to, or go over, our debt-to-revenue limit. If this happened, we may need to increase rates beyond what we have planned.

Our financial
strategy

Balancing the books measure

Over 10 years, it costs around $3.7 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 2024/25.

Balancing the books

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Draft 2021-2031 Long-Term Plan

Debt 

Most councils in New Zealand have debt. Debt is where we borrow money to pay for the entire cost of infrastructure (things like the new bridge over the Waikato River) up front.

Using the bridge example, borrowing money means we can build the bridge 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.

 

Net Debt

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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. This draft Plan proposes following the LGFA maximum levels by:

  • resetting Council’s net debt-to-revenue limit to 300% for 2021/22
  • then decreasing by 5% each year until 2025/26 where we will remain at 280% from 2026/27 to 2031/32.

Unless we use our maximum debt capacity, we simply cannot afford to build the critical infrastructure our city needs. And we’re not alone in this position. Other high growth councils are also considering (and some are proposing) adopting the LGFA maximum limit to address the same challenges we are facing.

We’re forecasting to have some headroom between our forecast debt-to-revenue ratio and the LGFA limit in the initial years of the Long-Term Plan, however, the ratio wis near the maximum limit from 2024/25 to 2025/26. In those years, we will be unable to take on more debt, unless we generate additional revenue.

 

Debt-to-revenue ratio

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Draft 2021-2031 Long-Term Plan
Debt-to-revenue limit

Assumptions

When we are preparing our budgets and forecasting for the next 10 years, there are always factors we have to make a prediction (judgement) call on. When we do this, we also think about the impact if the actual situation is different from our prediction.

In addition to the cost savings (page 65), infrastructure asset condition information (page 73) and capital programme delivery (page 60) disclosures, here are the key assumptions applied to our budgeting that have a high degree of uncertainty

  What we have assumed What it could be
COVID-19 We have assumed that Hamilton will be in Alert Level 1 for Year 1 (July 2021 – June 2022). From Year 2 (2022/23), we have based our budget on a postCOVID-19 ‘new normal’ operating context. We have forecast a decrease in revenue in Year 1 at our venues (FMG Stadium Waikato, Claudelands and Seddon Park), our community facilities and through our consenting activities

COVID-19 could still be in our community and result in the country or the Waikato region moving into higher alert levels.

The impact of this would be a restriction on people attending major events and restrictions on commercial activities. This would reduce our revenue forecasts.

Population growth

We have based our population forecast on the National Institute of Demographic and Economic Analysis low population forecast.

The population forecast is used to inform our estimates of the facilities and services we need to provide, and what infrastructure we will need in place to meet growth demands.

The forecasts are revised regularly and actual population growth may be different than forecast.

As we receive updated data and forecasts, we may need to review our budgets and 30-year Infrastructure Strategy programme.

Climate change

We have used the Ministry for the Environment data on the impact of climate change on the Waikato region and have started including actions in our asset plans to address the impact of climate change based on this information.

We are doing more work to understand the impacts on Hamilton of transitioning to a low- carbon future. The outcome of this work may mean we have to change how we deliver our infrastructure in the future – for example, providing more shade or being able to cope with more extreme rainfall.

Three Waters Reform

Government is working through a reform of the way that water, wastewater and stormwater is managed in New Zealand.

Under a signed MOU, Council is collaborating with central government on the reform programme, which proposes significant changes in the future provision of Three Water services in New Zealand in coming years. If implemented, these changes would materially impact some of the information in this document. No changes have yet been confirmed and this consultation document has been prepared on the basis that Council’s management of these services will continue.

The timing and implications for the Three Waters Reform has not been confirmed by government.

We may need to review our Long- Term Plan once this information is available.