Tō mātou mahere ngahuru tau - Our 10-Year Plan Volume two | Long-term Plan 2021-2031 - Wellington City Council
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Tō mātou mahere
ngahuru tau
Our 10-Year Plan
Volume two | Long-term Plan 2021–2031
SLUDGE
Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Contents
Contents
Significant forecasting assumptions 4
Financial and Infrastructure Strategy 18
Summary of significant accounting policies 71
Revenue and Financing Policy 85
Investment and Liability Management Policies 156
Rates remission policy 163
Rates Postponement Policy 171
Significance and Engagement Policy 173
Volume 2 (this document) includes:
• significant assumptions underpinning this plan
• financial policies and strategies that support this plan.
Volume 1 includes:
• an overview of the outcomes and priority areas we are
working towards
• a description of our services and key projects
• how we will track performance against outcomes and
performance targets for services
• supporting and financial information on what it costs
to deliver those services.
3
Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Significant forecasting assumptions
Significant forecasting assumptions
The tables below outline the specific forecasting assumptions to be used in the Economic growth
preparation of the 2021 LTP and associated documents. It notes their data source, Assumption That the Wellington City economy will Year Wellington City Wellington City
GDP Unemployment
continue to be impacted by the effects
key challenges and risks around the assumption including commentary on how 2019 25,651 2.3% 4.2%
of COVID-19 until beyond 2023 with GDP
the risk will be managed. remaining lower than March 2020 levels 2020 26,135 1.9% 3.8%
2021 25,332 -3.1% 4.2%
until 2024. Some sectors, including tourism
Population 2022 25,904 2.3% 4.7%
related industries including hospitality will
Wellington City 2023 26,021 0.5% 4.5%
Assumption The long-term population forecast for Year have on-going impacts
Population 2024 26,537 2.0% 4.4%
Wellington City is growth of between 50,000 well into the period of the long-term plan.
2020 214,537 2025 27,189 2.5% 4.3%
to 80,000 over the next 30 years. This is the
2021 216,505 2026 27,815 2.3% 4.1%
forecast growth projection that underpins
2022 218,734 2027 28,464 2.3% 4.0%
our Spatial Planning.
2023 221,421 2028 29,128 2.3% 3.8%
Planning within this LTP has been based 2024 223,585 2029 29,786 2.3% 3.8%
on existing assumptions provided by 2025 225,587 2030 30,430 2.2% 3.8%
Forecast.id growth projections as shown in 2026 227,094 Data Economic projections are based on economic modelling of Wellington City economy
the table to the right. (this aligns to the low 2027 228,312 undertaken by Infometrics commissioned in January 2021. This report will be available on the
end of Spatial planning projected range for 2028 229,303 WCC LTP website.
population growth). Once the Spatial Plan is 2029 230,252 Level of certainty Moderate
finalised then we will ensure full alignment 2030 231,242
between our Spatial Plan and LTP. Key risks Risk Effect of risk Mitigation
2040 243,958
2043 248,953 Economic growth is lower Lower levels of economic We have been conservative
than forecast due to: growth will impact the in our assumptions around
Data Long-term population and demographic assumptions are provided by Informed Decisions
(.id) for Wellington City modelling population growth, demographic changes and housing • the impacts of COVID-19 affordability of Council plans: economic recovery to
demand at a neighbourhood and city level. These forecasts were created in December 2020 by before more severe • ratepayer base growth reduce the likelihood of this
.id, on behalf of Wellington City. Forecasts are available for each year from 2013 to 2043. They or lasting longer than assumptions will be downside risk
do not consider potential impacts to assumptions stemming from COVID-19. anticipated inaccurate (see later Our economic assumptions
Forecast inputs are based on Statistics NZ data and detailed information from the Council • external market factors assumption) will be closely monitored and
about current and planned residential activity in the city. • the affordability of Council any resulting updates to our
• insufficient investment
Note that given COVID-19 we have supplemented our long-term population projections in infrastructure/ services will be lower for long-term plans will be made
with advice on the short-term effects of COVID-19 on population growth. This advice has services constraining city households, businesses through Annual Planning
not changed this long-term population assumption, however will be used to inform the development and users of services process
shorter term ratepayer base growth assumption (see below) which is informed by the short to
medium term economic and growth outlook. Growth in ratepayer base
Level of certainty Moderate Assumption Year Capital value growth Rate units* * The rate units are stated
Mitigation 2021/22 0.7% 86,602 at the end of the preceding
Key risks Risk Effects of risk
2022/23 0.6% 87,494 financial year
Population forecast If population growth is Moderate growth can be
growth assumptions are higher than forecast, added accommodated within the 2023/24 0.6% 88,568
conservative, which may pressure will be put on present level of Council 2024/25 0.6% 89,434
lead to an underestimation of Council infrastructure and infrastructure.
2025/26 0.6% 90,235
population growth. service provision, leading
Where higher levels of 2027/28 0.6% 90,838
to possible failure to meet
A risk exists that total growth create demand
expected levels of service or 2029/30 0.6% 91,325
population growth continues for new infrastructure,
constraining growth. 2030/31 0.6% 91,721
to track higher than average. the Council will collect
If population growth is lower development contributions to 2031/32 0.6% 92,101
Risk that short-term growth
than expected, then we risk meet a portion of the costs of 2032/33 0.6% 92,497
will be significantly lower
investing in services and new or upgraded investment.
than forecast as the impacts Data Ratepayer base growth is based on current property information from Council valuation
infrastructure that will be
of COVID-19 slow levels of Our LTP is updated every service provider (Quotable Value Ltd), forward looking consenting, historic trends and
over servicing the population.
migration to Wellington. three years allowing for expected population growth assumptions provided by Informed Decisions Ltd.
This impact may however be
growth projections and
short-term if over the long- Level of certainty Moderate
investment plans to be
term growth continues.
updated on a regular basis.
4 5Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Significant forecasting assumptions
Key risks Risk Effects of risk Mitigation Climate change
The growth in the ratepayer If growth is higher than We will measure and report Assumption We assume climate change occurs in Category Description Transitional
response
base is higher or lower than forecasted, average rates on growth in the rating base line with Ministry for the Environment’s
projected. funding increase will be and review the projections global emissions scenarios ranging A Coastal subdivision, Avoid hazard
greenfield risk by using
reduced by an equivalent and underlying strategy on from low to high greenhouse gas developments sea-level rise
amount as there is a greater a regular basis. Ratepayer concentrations these are informed by and major new over more than
number of ratepayers growth assumptions are the Intergovernmental Panel on Climate infrastructure 100 years and
the H+ scenario
across which the rates reconfirmed through each Change (IPCC).
funding requirement will be Annual Planning exercise and B Changes in land use Adapt to hazards
The most notable impact of which for and redevelopment by conducting a
allocated. provide the opportunity to Wellington City will be increased risks (intensification) risk assessment
adjustment plans based upon of coastal storm surge, and higher
using the range
If growth is lower than of scenarios
updated growth projections. frequency and magnitude of flooding
forecasted, the average rates and using
increase for the ratepayer events, both exacerbated by sea level rise the pathways
approach
will be higher. The annual and increased volumes of water during
rainfall events. C Land-use planning 1.0m SLR
impact of a 1 percent of controls for existing
variance in growth in the Table 12 from the MfE guidance informs coastal development
ratepayer base is equivalent and assets planning.
our base assumptions for planning being: Use of single values
to approximately $3.9 million at local/district scale
of rates in 2021/22. Table 12: Minimum transitional New
transitional until
Zealand-wide SLR allowances and dynamic adaptive
Civil defence and emergency
scenarios for use in planning instruments pathways planning is
Assumption The assumed risks of a significant earthquake are in MMI level Average return period where a single value is required at local/ undertaken
line with Wellington lifelines planning and relate to MMI7 ~30 years district scale while in transition towards D Non-habitable short- 0.65m SLR
likelihood of earthquakes at different scales on the MMI8 ~120 years lived assets with a
adaptive pathways planning using the
functional need to be
Modified Mercalli intensity (MMI) scale. Likelihood MMI 9 ~400 years New Zealand-wide SLR scenarios at the coast, and either
captured in the table below. MMI 10 ~1350 years low-consequences
For detailed guidance on the application or readily adaptable
Data Sourced from Wellington Lifelines report 2019. of these assumptions see MfE guidance. (including services)
Level of certainty Low Data Assumptions are directly informed by Ministry for the Environment projections for
Key risks Risk Effects of risk Mitigation Wellington and Wairarapa.
That a significant event The city is unable to recover In order to recover from Level of certainty Moderate – while there is certainty on the direction of change, there is uncertainty as to the
occurs during the period of sufficiently or quickly enough a significant event the speed at which the climate and sea level rise will change.
the Long-Term Plan in order to prevent long- Council has insurance and Key risks Risk Effects of risk Mitigation
term adverse effects on the debt provision to provide
That sea level rise may If sea level rise happens The effects of sea level rise
population or local economy. some flexibility to respond
be lower or higher than slower than assumed, then occur over a long-period
financially to adverse events.
planned for. we will have over invested in and we will regularly review
The Council is further mitigating or management climate predictions as
prepared to respond to large strategies. The impacts of we make choices around
events, as some response this may be short-term as sea our investment and as we
plans are in place and staff levels continue to rise over regularly update our long-
members are regularly the longer-term. term plans.
trained. However, work
If sea level rise is faster We also plan in the longer
is needed to ensure that
than assumed then we term to transition towards
learnings from any activation
will have increased levels dynamic pathways planning.
are captured and contribute to
of service interruption,
the ongoing improvement of
including to storm water
the city’s preparedness.
and transport services.
A key focus for this LTP will be
Resource consents
improving the city’s resilience.
There will be a number of Assumption Conditions for existing resource consents held by the Council will not be significantly altered.
earthquake strengthening Any resource consents due for renewal during the 10-year period of this plan will be renewed
and resilience projects aimed accordingly.
at helping us mitigate the Data N/A
adverse impact of a significant
event and manage our event
insurance costs.
6 7Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Significant forecasting assumptions
Level of certainty Moderate – there is some uncertainty around consenting conditions for the renewal of some Cost of carbon
Council consents: Assumption WCC assumes that the cost of carbon will inflate over the coming years as per the table below-
• Stage 1 of the global consent for stormwater discharge expires in 2023, for stage 2 and
This assumption directly informs the carbon unit costs related to the Southern Landfill.
future consents there is a likelihood of more stringent conditions as the requirements of
More broadly the growing cost of carbon will have implications on the investment profile of
the National Policy Statement for Freshwater Management come into effect
individual projects and design of Council services, these impacts will be considered through
• Consenting of any sludge minimisation plant in the coastal environment would be the establishment of frameworks the Council will use in future project investment analysis
significantly more challenging than the current site and service review.
• Landfill consents expire in 2026. Given the Southern Landfill consenting conditions are
Year 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
substantially about the management of water, there is a likelihood that conditions will be
Rise to $50 in Year 2 $35.00 $35.00 $50.00 $51.00 $52.02 $53.06 $54.12 $55.20 $56.31 $57.43 $58.58 $59.75
substantially more rigorous. by 2031 with ongoing
2% growth thereafter
Key risks Risk Effects of risk Mitigation
% increase from 2020 0% 43% 46% 49% 52% 55% 58% 61% 64% 67% 71%
Conditions of resource The financial effect of any Generally, the Council
Data Short to medium term price assumptions are based on price controls in the NZ ETS (The initial
consents are altered change to resource consent considers that it is fully
Cost Containment Reserve price trigger to be set at $50 in 2021 and rise by two per cent for
significantly. requirements would depend compliant with existing
each subsequent year). Over the long-term these assumptions trend in line with the long-term
upon the extent of the resource consents. Changing
The Council is unable to price signals from the 2018 Productivity Commission report ‘Low Emissions Economy’ that
change. consenting conditions will
renew existing resource signals a need for prices to move to between $75 and $200 by 2050.
be inputs into planning
consents upon expiry A significant change in
individual projects- for Level of certainty Moderate – the certainty of our cost of carbon assumption is moderate particularly beyond
requirements could result in
example in the scoping 2025 when current ETS regulatory price controls expire. A range of factors including the pace
the Council needing to spend
of any landfill or sludge of technological change and level of economic activity could significantly affect both the
additional funds to enable
minimisation investment. long-term trend and year on year costs.
compliance.
Key risks Risk Effects of risk Mitigation
Inflation
That actual inflation will be The Council’s carbon unit Annual review of the budget
Assumption Cost adjustors significantly different from costs and the landfill income through the annual plan
Inflation rates have been estimated using the BERL mid-scenario Forecasts of Price level the assumed inflation. required to fund those costs process.
Change Adjustors to 2031. We also assume that the Reserve Bank will use monetary controls will increase by the rate of
to keep CPI within the 1.5 percent to 3 percent range. inflation unless efficiency
gains can be made.
Interest revenue – forecast to remain constant. Interest rates do not increase annually in line
with rates of inflation. This includes to secondary
impacts on other Council
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 20 yr ave budget lines, for example the
Planning and regulation 3.2% 1.7% 0.5% 2.7% 2.5% 2.3% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.0% cost of fuel and electricity,
Roading 2.3% 1.9% 0.8% 3.3% 3.1% 3.0% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.5% which are not directly
Transport 2.8% 1.8% 0.7% 2.9% 2.6% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.2% informed by this carbon price
Community activities 2.0% 1.7% -0.2% 3.2% 2.7% 2.5% 2.4% 2.5% 2.4% 2.5% 2.6% 2.6% 2.4% 2.1% assumption.
Water and environmental 3.8% 2.5% -3.8% 6.0% 3.5% 2.6% 2.7% 2.9% 2.8% 3.2% 3.3% 3.4% 3.1% 2.5% Asset revaluations
management
Assumption Assumed growth in asset values are outlined in the table below. Growth in Council asset
WCC HR cost adjustor 2.8% 2.4% 1.5% 1.7% 2.0% 2.2% 2.3% 2.4% 2.6% 2.7% 2.7% 2.5%
values are key drivers of forecasting increasing capital investment and depreciation rates.
Data Inflation rates applied – Inflation rates have been estimated using the BERL Forecasts of Price
21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31 40/41 50/51
level Change Adjustors to 2031. We also assume that the Reserve Bank will use monetary
Buildings Revaluation 16.5% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
controls to keep CPI within the 1.5% to 3% range.
Waters Revaluation 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Inflation is affected by external economic factors, most of which are outside of the Council’s
Treatment Plant Revaluation 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
control and influence.
Roading Revaluation 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Level of certainty High
Key risks Risk Effects of risk Mitigation Depreciation and revaluation of property, plant and equipment (including water and
That actual inflation will be The Council’s costs and the Annual review through the transport assets)
significantly different from income required to fund annual plan process. Financial forecasts in this Long-Term Plan include a 3-yearly estimate to reflect the change in asset
the assumed inflation. those costs will increase by valuations for property, plant and equipment in accordance with the Council’s accounting policies.
the rate of inflation unless The following assumptions have been made for this LTP:
efficiency gains can be made.
• The Council will continue its policy of fully funding depreciation which is affected by
asset revaluations
• Revaluation movements shall equate to the inflation rates applied for all depreciable
property, plant and equipment (refer to the “Inflation” section)
• The value of non-depreciable assets (such as land) is forecast to remain constant
8 9Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Significant forecasting assumptions
Data Asset revaluation assumptions are based off asset valuation analysis provided by CBRE Interest rates – cost of borrowing
and BERL. Assumption The Council borrowing rates for debt will change as per the table below.
Level of certainty Moderate – moderate uncertainty in how Council asset values will change over time
21/22 22/23 23/24 24/25 25/26 26/27 27/28 28/29 29/30 30/31 50/51
Key risks Risk Effects of risk Mitigation
Effective Interest Rate 2.41% 2.74% 3.00% 2.96% 3.16% 3.31% 3.27% 3.39% 3.54% 3.55% 3.16%
That actual asset value Asset value growth at higher Annual review of
growth will be significantly rates than assumed will lead assumptions through the Data Assumption reflects Council actual borrowing rates along with forecast rates based on
hedging position and range of economic forecasts.
different from the assumed to increasing pressure on annual plan process.
rates. rates and borrowing levels. Level of certainty High – There is relative higher levels of certainty over short-term borrowing rates for Council
This risk has impacted debt in the short term given hedging policies. Longer-term, certainty levels are lower as
Council planning repeatedly interest rates are subject to wide range of factors.
in recent years as asset Key risks Risk Effects of risk Mitigation
value growth has exceeded That prevailing interest rates Based on the minimum Interest rates are largely
budgeting assumptions. will differ significantly from hedging profile, a 0.1 percent driven by factors external to
those estimated. movement in interest rates the New Zealand economy.
Significant asset lifecycles will increase/decrease annual The Council manages its
Assumption The estimated useful lives of significant assets will be as shown in the Statement of interest expense by between exposure to adverse changes
Accounting Policies. The asset life of key assets (three waters and transport is included $200,000 and $1,000,000 per in interest rates through the
below). The majority of the significant assets will continue to be revalued every three years. annum across the 10-year use of interest rate swaps.
It is assumed that assets will be replaced at the end of their useful life. Ranges in average ages period of this plan At any time Council policy
is to have a minimum level
relate to the variability of component parts of assets and changing material and design of
of interest rate hedging
assets over time.
equivalent to 50 percent of
core borrowings.
Key Asset – Pipes Asset life in years Key Asset – Roads Asset life in years
Water pipes 50-95 Surface 10 Expected returns on investment and funding sources
Water reservoirs 40-100 Base 50 Assumption We assume that the impacts of COVID-19 will mean that WIAL dividend income will be zero
Water pumping stations 20-100 Bridges 80
in 2021/22 before progressively increasing back to pre COVID-19 levels by 2024/25.
Sewer pipes and tunnels 60-110 Footpaths 20-50 The Council has made assumptions on the level of subsidies it expects to receive from central
Sewer pumping stations 20-80 Retaining walls 50-75 government through the NZTA over the period of the plan. This is that the normal Funding
Assistance Rate (FAR) is expected to remain at 51 percent of eligible expenditure for the
Stormwater pipes 50-130 Sea walls 80-100
period of the plan. It is assumed that the NZTA subsidy will apply to 85% of our transport
Stormwater pump stations 20-100 Kerbs and channels 70-120 programme of work (maintenance, renewal and upgrade works) excluding the majority of
cycleways which the NZTA subsidy is assumed to apply to 100% of, excluding some specific
It is also assumed that: projects where it is known that the work will not be eligible for the NZTA subsidy, for example
the Island Bay cycleway.
• the majority of the significant assets will continue to be revalued every 3 years.
Data n/a
• assets will be replaced at the end of their useful life.
Level of certainty Low – We have a lower than normal level of certainty on WIAL dividend assumptions given
• planned asset acquisitions (as per the capital expenditure programme) shall be depreciated the current economic climate and impacts of COVID-19.
on the same basis as existing assets.
Moderate – NZTA have provided their indicative 2021-24 NLTP allocations, with final funding
Data Assumptions of asset lives are informed by guidance on the Useful Life of Infrastructure from allocations to be confirmed in August 2021. The indicative NZTA income assumptions have a
the NAMS Council and Council actual condition information of assets. moderate level of uncertainty as final allocations are to be confirmed, including the level of
funding for the accelerated cycleways programme.
Level of certainty Mixed – The level of certainty of useful lives of assets ranges across different asset types.
Underground assets that are not easily accessible have lower levels of confidence on their Key risks Risk Effects of risk Mitigation
current condition and therefore expected remaining useful lives. That the WIAL dividends If the actual returns/ Annual review of
are significantly lower than revenues from these sources assumptions through the
Key risks Risk Effects of risk Mitigation
assumed or that NZTA makes are significantly less than annual plan process.
That assets wear out earlier or Depreciation and interest Generally, we have the further changes to the forecast, the Council will need
later than estimated. costs would increase if capital ability to prioritise work subsidy rate, the funding cap to look for alternative funding
expenditure was required programmes should assets or the criteria for inclusion through rates or borrowings. If
earlier than anticipated. wear out earlier or later in the subsidised works the returns were greater then
The financial effect of the than estimated. In addition programme. Council would have additional
uncertainty is likely to be we are actively investing revenue above forecasts.
immaterial. in improving the quality of
asset condition information A 5 percentage point change in
including of our three the level of NZTA subsidy over
waters assets, to reduce the our transport programme would
likelihood of this risk. represent approximately $1.7m
increase or decrease in revenue
each year.
10 11Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Significant forecasting assumptions
Ability to deliver capital programme Key risks Risk Effects of risk Mitigation
Assumption We assume that there will be market capacity to deliver our planned capital programme. This That there are significant If customers begin to expect The Council has well defined
will be supported by careful programme planning, investment in internal capability and changes in the impact of a higher level of service, service levels for its planned
Wellington Water increasing their capability, capacity and use of innovation and scale. pressures on the demand for we either risk decreasing activities, which have been
services or levels of service residents’ satisfactioan or reviewed as part of the 10-
Data n/a
beyond those planned in this an increase in ongoing costs year plan process.
Level of certainty Moderate – There is always an inherent level of risk in delivering a capital programme, plan. to maintain a higher level of
particularly one that is substantially increased. Although we have plans to manage this risk Customer satisfaction surveys
service
there remains uncertainty. In the short-term this is linked to the ongoing effects of COVID-19 and other engagement
border measures on labour and material supply, in the longer-term this relates to the ability strategies generally support
of the supplier market to respond to regional investment plans and on how other planned the key assumptions made
infrastructure investment across the region progress. within the 10-year plan and
therefore there are currently
Key risks Risk Effects of risk Mitigation
no known additional areas
That our capital programme If we are unable to deliver Regular monitoring of our of the Council’s service
is not able to be delivered as the planned capital capital programme progress, that require significant
planned. programmes, then the and adjustments to plans modification.
benefits of investment will through the formal Annual
Three waters reform
be delayed. For projects Planning process.
aimed at enabling growth, Assumption While the Government’s three waters reform programme is currently underway, and the
Cycleways investment will Council is participating in that work, the Government is not expected to make a decision on
this could constrain the pace
ramp up over the ten years the reforms until May 2021. As such, for the purposes of planning it is assumed that three
of growth. There will also be
of the plan and as we do so water services will continue to be delivered through their existing arrangements between the
delays to our planned capital
create opportunities to grow Council and Wellington Water over the life of the Long-Term Plan.
expenditure profile with flow
the local market or look at
on impacts on borrowing Data Our assumption is in line with SOLGM advice on the treatment of reforms as outlined in their
alternative contract options
and operating expenditure practice note Three Waters Reform in the 2021–31 Long-Term Plans
(alliance models etc.)
projections. Level of certainty Uncertain
Careful programme planning,
investment in internal Key risks Risk Effects of risk Mitigation
capability and Wellington That the three waters A change in ownership of Any decisions on the
Water increasing their reform leads to changes to three waters assets would Council’s involvement in
capability, capacity and use the management and/or have substantial direct reforms would require
of innovation and scale. ownership of Council’s three impacts on Council finances consultation with the
waters assets and its financial and community and that would
If unable to deliver the
infrastructure strategy. It include full consideration of
capital programme, Council
could also have second order the direct and second order
will prioritise renewals
impacts on Council’s long- impacts.
work (to prevent asset
term planning in other areas
failure and resulting service
given fundamental changes
interruptions) and critically
to the Council’s financial
review the planned capital
position. For example, our
upgrade work programme
debt to revenue position may
including identifying
be negatively affected should
opportunities for deferral
the value of three waters
of works.
debt that is transferred be
Level of service disproportionately lower
Assumption For this 10-year plan we assume that: relative to three waters
• the current demand for Council services and customer expectations regarding business as income compared with wider
usual levels of service will not significantly decrease during the planning period Council debt and income
levels.
• beyond what is specifically planned for and identified in this 10-year plan, there will be
no significant additional impact from above pressures on asset requirements or operating Sludge funding
expenditure. Assumption It is assumed that off balance sheet funding for the sludge minimisation project is able to be
Data n/a secured (through the Infrastructure Funding and Financing legislation (IFF)). This would
enable the project to proceed without impacting Council debt limits.
Level of certainty Moderate
Data n/a
Level of certainty High – Council has had clear positive support from Crown Infrastructure Partners who
manage the application process for IFF financing.
12 13Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Significant forecasting assumptions
Key risks Risk Effects of risk Mitigation Funding sources – ground leases
That we are not able to secure Until funding is secured then Council’s Annual Planning Assumption That long-term ground leases for Michael Fowler Centre carpark, Municipal Office Building
off balance sheet funding the sludge minimisation process provides a process and Civic Administration Building are all secured in the first two years of the LTP to enable
arrangements for sludge project would not be able whereby reprioritisation of revenue from those ground leases to be used to pay down Council debt. Proceeds from those
minimisation as assumed. to proceed, or alternatively the capital programme can be
ground leases would be approximately $27m
reprioritisation of the capital undertaken.
programme or alternative Data n/a
Alternative Public Private
Public Private Partnerships Level of certainty High – While the MFC carpark negotiations are more advanced and therefore the likelihood
Partnership that will enable
would be required.
Sludge to be financed off of ground lease more certain, the MOB and CAB sites are less certain as we have not yet
Delays in confirming the balance sheet are being tested the market. Council has had valuations on the land and unsolicited queries from the
sludge minimisation project investigated in parallel. private sector about opportunities with Civic Square. The need to gain resource consent for
would impact planning for demolition of those buildings and potential consultation requirements associated with that
Setting a debt limit at 225%,
dependant pieces of work, in
below the 280% limit of the also creates risks to this assumption
particular the future of the
LGFA covenant provides some Key risks Risk Effects of risk Mitigation
Southern Landfill and waste
flexibility for future additional
minimisation activities. That long-term ground leases If long-term ground leases are Council’s Annual Planning
debt.
are not able to be secured delayed or at a lower value process provides a process
Vested assets
in the timeframe of this then that may impact Council’s whereby reprioritisation
Assumption It is assumed that the sludge treatment plant, valued at $187m and delivered through a special assumption or are at a lower debt position and may lead and/or rephasing of the
purpose vehicle, will be vested back to the Council once completed in year four of the long-term plan. value than assumed. to breach of proposed debt to capital programme can be
Data n/a revenue limits. undertaken.
Level of certainty Medium Development contributions
Key risks Risk Effects of risk Mitigation Assumption We have assumed annual revenue from Development Contributions of $3.5m over the 10 years
That the sludge minimisation A delay of vesting of the Regular monitoring of our of this long-term plan.
project is delayed and vesting asset into Council ownership capital programme progress, Data n/a
of the asset is delayed. will have minimal effects on and adjustments to plans
Council budgeting through the formal Annual Level of certainty Moderate – the level of Development Contribution revenue is broadly in line with actual levels
Planning process. of revenue over the previous three financial years.
LGWM funding Key risks Risk Effects of risk Mitigation
Assumption Only initial $283m costs of LGWM delivery projects plus programme funding are included in The level of development If the level of development Council’s Annual Planning
our budget given the significant uncertainty about the full future programme scope and costs contributions collected and contribution income is less process provides a process
of LGWM, including the funding split for those costs. Their exclusion from the budget does not
the timing could results in than forecasted, this would whereby reprioritisation of
mean the Council does not plan to proceed with LGWM, the Council remains committed to
improving Wellington’s transport infrastructure as envisioned through the LGWM programme. insufficient income to cover mean the debt is not paid budget can be undertaken.
the costs of required growth off as quickly as planned,
Their exclusion from the budget however mean that future further costs of LGWM identified infrastructure. and therefore interest costs
through business cases will either need to be funded alternatively and/or accommodated
relating to this debt would
through further extending the Council’s debt position agreed to through this LTP. Alternative
funding arrangements are preferred and, for example, may include identification of be marginally higher than
new revenue streams such as traffic demand management or off balance sheet funding planned
arrangements through the Infrastructure Funding and Financing legislation. Sale of assets
Data n/a Assumption We have assumed sale proceeds from asset sales of $48m will be realised to repay borrowings
Level of certainty Low across the 10-year period of this plan.
Key risks Risk Effects of risk Mitigation Data n/a
That alternative funding This would either require The LGWM partners are Level of certainty Moderate
for the full costs of LGWM Council to accommodate engaging with the Minister
are not able to be identified additional costs into an of Transport on the range of Key risks Risk Effects of risk Mitigation
and, in order to proceed amended budget with funding tools. That the sale of assets do not If the level of asset sales is Council’s Annual Planning
with LGWM business cases, breaches of proposed current
Setting a debt limit at 225%, occur at forecasted levels. less than forecasted, either process provides a process
the Council would have rates and debt limits or
below the 280% limit of the our level of debt will increase whereby reprioritisation of
significant unbudgeted costs. aspects of LGWM may not be
LGFA covenant provides by the relevant amount or budget can be undertaken.
able to proceed.
The need for the Council to some flexibility for future
the Council may consider
identify alternative funding The effect of this risk on additional debt should Council Setting a debt limit at 225%,
or make significant variations Council finances and the decide that LGWM investment revising its level of asset
below the 280% limit of the
to this LTP to accommodate programme is significant warrants further extending investment. The interest cost
LGFA covenant provides
additional costs may also lead given the draft size of the the debt position. of servicing this debt will be
some flexibility for future
to delays to decision making full programme identified in lower or higher depending on
Council’s Annual Planning additional debt.
around programme business the indicative programme the level of asset sales.
process also provides a process
cases. business case was $3.2b
whereby reprioritisation of
for the three partner
the capital programme can be
organisations.
undertaken.
14 15Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Significant forecasting assumptions
Insurance Renewal of external funding
Assumption The Council will maintain its current level of asset insurance to indemnify itself against the Assumption It is assumed that the Council will be able to renew existing borrowings on equivalent terms
expected damage caused in a one in one thousand year earthquake event. This level will
Data n/a
cover approximately 70% of the forecast loss, with the remaining 30% of the loss assumed to
be funded by debt. Level of certainty High
Data The 1–1000 year event loss estimates for Council owned assets are calculated by GNS. This Key risks Risk Effects of risk Mitigation
informs our strategy on how we transfer the risk to a third party and also the level of financial That new borrowings cannot Future capital programmes The Council minimises its
risk that is held by Council if third party risk transfer is not available or affordable. be accessed to fund future may be delayed and the liquidity risk by maintaining
Level of certainty Moderate – Price and available capacity of insurance is reducing over time in areas of the capital requirements. Council improvement a mix of current and
world that are deemed to be of high risk, as a result of a natural disaster. programmes/infrastructure non-current borrowings
Key risks Risk Effects of risk Mitigation assets may not receive the in accordance with its
That the Council is not able to An inability to secure The assumptions that drive required investment. Investment and Liability
secure sufficient insurance sufficient insurance or actual the 1–1000 damage estimates Management Policy.
losses exceeding estimated are updated every 2–3 years by Weathertight homes
That the increasing costs of
loss would mean that not all GNS to ensure up-to-date asset
holding insurance exceed Assumption The Council will continue to spread the cost incurred by settling weathertight homes claims
assets would be able to be information is understood
available budget. by funding claims from borrowings and spreading the rates funded repayment across a
repaired or replaced post the e.g. buildings that are based
number of years. This 10-year plan assumes that the Council’s weathertight homes liability
That the financial loss to the earthquake event. isolated and unlikely to have
assets in a major event is any major damage. will be fully settled and the associated borrowing repaid over the 26–year period.
Meeting increasing costs
significantly greater than that Data n/a
of insurance to maintain Council is also working to
estimated. Level of certainty High
coverage would have direct minimise potential impacts of
impacts on rates and fees and an event through significant Key risks Risk Effects of risk Mitigation
user charges. investment to earthquake
strengthen buildings (base That the level of the claims The weathertight homes N/A.
isolation). New developments and settlements is higher liability is an actuarial
and renewal of our assets are than provided for within the calculation based on the
also done with earthquake 10-year plan. best information currently
resilient materials e.g. Water available. The liability
pipes, reservoirs, tunnels and provided for within the
bridges. Council’s financial statements
is $39 million, a 1 percent
The Forecast Debt limit
change in this figure would
includes the provision of
equate to $0.4 million.
approximately 30% debt
funding of the forecast loss. General rates differential
LGFA Assumption It is assumed that the general rates differential will remain at 3.25:1 Commercial: Base/
Residential over the 10-year period of this plan.
Assumption Each of the shareholders of the LGFA is a party to a Deed of Guarantee, whereby the parties
to the deed guarantee the obligations of the LGFA and the guarantee obligations of other Data n/a
participating local authorities to the LGFA, in the event of default. Council assumes no default Level of certainty High
event occurring during this Long-Term Plan.
Key risks Risk Effects of risk Mitigation
Data n/a
That the Council makes Should the Council decide Council’s Annual Planning
Level of certainty Low – The Council believes the risk of the guarantee being called on and any financial loss the decision to change the to change the general rate process provides a process
arising from the guarantee is low. The likelihood of a local authority borrower defaulting is general rates differential from differential, the maximum whereby rates differential can
extremely low and all of the borrowings by a local authority from the LGFA are secured by a forecast. it could be expected to be reconfirmed regularly.
rates charge. move would be from 3.25:1
Key risks Risk Effects of risk Mitigation to 1:1 Commercial: Base/
In the event of a default by Payment would be required The structure and makeup Residential. This could
the LGFA, each guarantor by Wellington ratepayers of the LGFA through the potentially transfer the rates
would be liable to pay a for the relevant amount in foundation documents sets impost from Commercial
proportion of the amount default out the protections and ratepayers back to Base/
owing. The proportion to processes of guarantees Residential ratepayers of
be paid by each respective and defaults. The LGFA Risk approximately $60 per
guarantor is set in relation management committee, annum.
to each guarantor’s relative reporting framework, Key
rates income. performance indicators and
variance at risk all mitigate
the risk eventuating
16 17Financial and Purpose
Infrastructure The purpose of this combined Financial and
Strategy
Infrastructural Strategy (F&IS) is to provide
a decision-making framework that enables
the Council to make informed, prudent
and sustainable investment decisions that
balance the funding of the City’s:
Contents
Purpose 19 • strategic needs (the things we have to do
Strategic Overview and Purpose 20 to protect and enhance our infrastructure
Current Finance & Infrastructure Settings & Health 23 assets, to mitigate our risks, and to
Challenges 27 manage future growth) with its
Affordability 34
• strategic wants (the changes and
Future Finance Settings & Health 36
improvements we have to make in
Managing and improving infrastructure 42
services, assets and outcomes for us to
Appendix A – Data definitions – condition,
deliver our future vision for Wellington).
data confidence and criticality 70
19Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Financial and Infrastructure Strategy
Strategic overview and purpose
Introduction • The declaration of a climate emergency, and adoption
of Te Atakura (first to zero carbon emissions)
framework to assess, prioritise, consult on and
finance proposals
• Funding operating expenditure – funded through
general and targeted rates, fees and charges,
He toka tū moana, ara he toa rongonui – strong like a • The emergence of the plan for Let’s Get Wellington • Commit the Council to a set of funding limits and investment income, government subsidies (eg NZTA)
rock in the rapids. Moving (LGWM) other financial measures to ensure that our long-term and other funding sources.
A City’s physical infrastructure is the basic • An ambitious waste minimisation plan that aims to plans are sustainable and affordable
foundation upon which its residents can thrive. Good reduce waste to landfill by one third by 2026. • Outline how we manage our assets and ensure Community Outcomes
infrastructure is critical but usually taken for granted. • A productivity commission review of Local sufficient funding is generated to maintain
To help prioritise our Long-term Plan investment we
Poor infrastructure can bring a City to its knees – it can Government funding that has resulted in no new infrastructure networks and the services
developed a Community Outcomes Framework to put
undermine economic confidence and – at worst – can funding sources for Local Government they provide
community wellbeing at the centre of our planning.
undermine public health.
The response to these financial challenges requires These community outcomes drive our investment
Good infrastructure is also expensive, which means improvements to our levels of services both in operational Principles of financial and choices across our infrastructure.
that funding for infrastructure renewals, replacements
and growth has to be prioritised and protected. At
areas and increasing the amount of infrastructure. infrastructure investment
In areas not specifically referenced in this document,
the same time, this investment must be balanced we need to maintain levels of service at current levels. decision-making Environmental
with affordability, intergenerational benefits and the To achieve this, we have to make sure that: The following set of principles are designed to enable A sustainable, climate friendly eco capital
Council’s other investment priorities.
• The impact on rates of the planned investment is consistent and effective financial and investment
A city where the natural environment is being
included in the rates increases forecast across the 30 decisions, and they form the basis of the F&IS:
Why this strategy is important years of our long-term plan. • Affordability – focusing on areas that offer the
preserved, biodiversity improved, natural resources
are used sustainably, and the city is mitigating and
The scale of the capital investment we need to make • We are able to fully fund depreciation on current greatest outcome. adapting to climate change – for now and future
in our infrastructure assets is substantial. This level of assets to generate cashflows needed to renew assets • Fairness & intergenerational equity – applying debt generations
investment to be affordable, both now and in the future, as forecast across the 30 year infrastructure strategy. funding and depreciation to ensure ratepayers pay for
requires a robust and informed strategic planning
It is important that we continue to raise awareness of Te assets as they are using them. Cultural
approach that considers the most effective prioritising,
Ao Māori where everything in the world is believed to • Sustainability – investment priorities include areas
timing and financing of these investments. Getting
be related or interconnected. This approach, including that grow the economy and the Council’s rating base. An innovative, inclusive and creative city
these decisions wrong may have serious consequences
the relationship between humans and the rest of nature
not only for our City’s basic infrastructure but also for • Maintaining a balanced budget – each year the Wellington is a vibrant, creative city with the energy
promotes being responsible kaitiaki. We intend to
the Council’s future financial sustainability. Council will raise sufficient income to fund the
increasingly bring this focus on wellbeing and reducing and opportunity to connect, collaborate, explore
operating costs (including depreciation) of providing
At the same time, the environment in which the Council our impact on the environment into our financial identites, and openly express, preserve and enjoy
its services.
operates is rapidly changing. A combination of external and infrastructure planning this commitment being arts, culture and heritage
pressures and risks, and the evolving expectations the platform for the development of further work on • Managing our investments and equity securities –
of our communities, means that we need to take a integrating Te Ao Māori into the implementation of the we optimise the return on our overall investment
Social
comprehensive and long-term view of the financial resulting actions. portfolio, and provide diversity in the Council
challenges we face, and a strategic plan to allow us to revenue sources.
A people friendly, compact, safe and accessible
respond to them. Some of these emerging financial
challenges include:
Objectives of the strategy • Operating a policy on securities – using our rates
revenue as security on our borrowings.
capital city
The overarching objective of the F&IS is to ensure An inclusive, liveable, and resilient city where people
• The impacts of a global pandemic • Managing insurable risk – we achieve an adequate
that financial and infrastructure investment decision- and communities can learn, are connected, well
level of insurance at acceptable value for money.
• The increasing unaffordability of housing in the City making directly supports the Council’s strategic housed, safe and healthy
objectives and the Long-Term Plan (LTP). Underpinning • Maintaining transparency – our priorities are costed
• A Mayoral Taskforce that highlighted challenges with
this, the F&IS also aims to: and the funding methods and tools are clear to
three waters infrastructure Economic
ensure the community is aware of our proposals and
• The emergence of a new blueprint for the future • Outline the current health of the Council’s finances their implications.
shape of the City (Planning For Growth) and infrastructure networks A dynamic and sustainable economy
• Funding capital expenditure – generally funded
• A requirement to review our District Plan for the • Identify significant issues and costs over the next initially by borrowing and then repaying borrowing The city is attracting and developing creative talent
Government’s National Policy Statement on Urban 30 years by rating for depreciation. Other funding sources to enterprises across the city, creating jobs through
Development (NPS-UD) by mid-2022 • Identify the main options for managing the issues include development contributions for infrastructure innovation and growth while working towards an
• The closing of the Central Library due to seismic • Enable effective financial and infrastructure to meet the demand for growth, government environmentally sustainable future.
concerns with public safety investment decision-making by providing a subsidies and donations.
20 21Wellington City Council Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Tō mātou mahere ngahuru tau | Our 10-Year Plan 2021–2031 Financial and Infrastructure Strategy
Current finance & infrastructure
settings & health
Wellington Water Limited Our current financial position who will benefit from it, making it affordable to
ratepayers today.
Wellington Water Limited (WWL) provides drinking The Council’s current financial position is strong • On projects where based on financial prudence,
water, wastewater and stormwater services on behalf and compares well to other local authorities. We the Council may impose a targeted rate to repay
of client councils – Hutt City, Porirua City, South have a robust balance sheet with manageable levels borrowings on an asset at a faster rate than over the
Wairarapa District Council, Upper Hutt City, Wellington of debt relative to the assets and income generating full life of the asset.
City and the Greater Wellington Regional Council. investments we own; as at 30 June 2020:
• The Council will use capital funding from third
WWL is a council-owned, shared service organisation.
• Our total assets were valued at have a $7.6 billion parties to fund investment in new or upgraded
A representative from each council sits on the regional
replacement cost. Our debt to income ratio of 128% assets (such as funding received from the NZ
Wellington Water Committee, which provides overall
was within our agreed limit of 175% and was lower Transport Agency).
leadership and direction for the company. Wellington
than most metropolitan councils in New Zealand. • The funding of capital expenditure from the sale of
Water is governed by a board of independent directors.
• We held income generating investments of almost surplus assets is decided on a case-by-case basis.
WWL aims to deliver services focusing on three $468 million which would help offset our total level Funds received from the sale of surplus assets that
customer outcomes: of debt of $662 million if they were sold. are not applied to the funding of capital expenditure
• Safe and healthy water: ensuring a safe drinking- In February 2021, the independent credit rating agency shall be used to repay borrowings.
water supply and work to protect communities Standard & Poors confirmed the Council’s credit rating • The funding of capital expenditure from restricted or
from exposure to the harmful effects of wastewater at AA+/A-1+. This means we continue to have a very special funds is decided on a case-by-case basis and
overflows. strong capacity to meet our financial obligations and is subject to the specified purposes and conditions
• Respectful of the environment: seeking to avoid commitments. governing the use of those restricted funds.
harm to the natural and built environment and, over • If an approved capital expenditure project is not
Operationally, we consistently set a tax (rates) to cover our
time, enhance it for the benefit of future generations. completed by the end of the financial period,
net costs (after other revenues) to break even each year (a
• Resilient networks that support the economy: balanced budget). Our sources of income are diversified, the unspent funds may be carried forward to
maintaining reliable water networks that can meaning that more than one third (36%) of our operating the next financial period to enable the project to
withstand shocks and stresses, and future-proof costs are funded from sources other than rates. be completed.
those networks to support a strong regional economy • The Council has agreed that Development
now and into the future. How we fund capital expenditure Contributions are to be used as the primary funding
Water is of great significant to Māori /iwi. Our local Capital expenditure represents expenditure on tool for capital expenditure related to population
iwi are Taranaki Whānui (the legal entity representing property, plant and equipment. Property, plant and and employment growth for: water, wastewater,
its interests is ‘Taranaki Whānui ki te Upoko o te Ika equipment are tangible assets that are held by the stormwater, roads, and reserves. The Council will
a Maui’) and Ngāti Toa Rangatira (the legal entity Council (for example: bridges, libraries, swimming continue to collect residual RMA based Financial
representing its interests is ‘Te Rūnanga O Toa pools). Capital expenditure is funded from rating for Contributions on developments consented prior to
Rangatira’). Representatives from each iwi are members depreciation, development contributions, capital 2005/06. In some circumstances, funds collected
of the Wellington Water Committee to provide a local funding, and restricted funds or through new or under either the Development Contributions Policy
te ao Māori perspective and enable the role of iwi as extended borrowings as outlined below: or the Financial Contributions Policy in the District
partners, as envisaged under the Treaty of Waitangi, to • If the capital expenditure relates to the replacement Plan will result in a corresponding decrease in the
be brought alive at the governance level. (renewal) of an existing asset, that expenditure amount to be funded from new borrowings.
will be temporarily funded by borrowings. These
How we fund operating expenditure
borrowings will be repaid by rating for depreciation
over the life of the asset. Any surplus rate funded Establishing the level of operating revenue required
depreciation, after paying for the replacement of to fund operating expenditure
Council assets, will be used to repay borrowings. Operating expenditure pays for the Council’s day-to-
• If the capital expenditure relates to the construction day operations and services, from collecting rubbish
or purchase of a new asset or to the upgrade or and providing street lighting to maintaining gardens
increase in service potential of an existing asset, and issuing building consents. The Council will set its
that expenditure will usually be funded from new projected operating revenue at a level sufficient to meet
or extended borrowings. Borrowing is the most the current year’s projected operating expenditure,
cost-effective and equitable way to do this as it except where the Council resolves that it is financially
spreads the cost of the asset over all the generations prudent not to do so. When setting projected operating
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