Summary of our year
Overview of our performance –
The Council performed strongly financially over the past year by achieving a budgeted net surplus and achieving a near break-even underlying result, within 0.1% of total budgeted operating expenditure. Our financial position remains healthy. Council debt is equivalent to less than one year’s revenue and we have investments that provide returns exceeding debt servicing costs. Accordingly, we have maintained our AA credit rating with Standard & Poor’s, the highest for a public sector entity.
The underlying deficit is the reported net surplus ($32.2 million,) excluding non-funded ($15.3 million) and capital ($48.5 million) transactions and other adjustments ($0.4 million) that do not affect the Council’s rating requirements. (Council budgets are set to have a nil underlying net result).
Our services include managing and maintaining facilities like libraries, swimming pools, sportsfields, community centres and parks, as well as keeping our roads and footpaths at a high standard, making sure we all have safe water to drink, and supporting arts, cultural and sporting events.
Our total operating expenses for the year were $503.2 million (compared to $494.5 million in 2016/17), which represents the cost of running the city during the year.
We spent $172.9 million on building new assets for the city. This was lower than our planned $182.5 million. This was as a result of the re-phasing of some projects over a longer period of time.
This is an increase of $57.2 million from last year, which equates to $2,239 per person in Wellington. We use borrowing to spread the cost of new facilities or infrastructure over the multiple generations that will benefit from that facility or infrastructure. We believe this is the fairest way to do things.
For every $1 the Council incurs on paying interest on debt, it receives $1.10 from its investments.
The Council provides a broad range of services to the city through a range of infrastructure networks and facilities (Council assets). These have been built up over many generations and equate to around $34,000 net worth of value for every person in the city.
The Council is in good financial health – it has an AA credit rating with Standard & Poor’s.
Key influences on our overall financial performance and position were:
- the revaluation of assets, which increased the value of our assets by $180.4 million
- increased renewal of earthquake insurance costs
- uncertainty about weathertight homes costs, which resulted in an increase in provision for claims costs by $12.5 million.
Our underlying operating result
The underlying operating result provides a comparison with the rates requirement we budgeted for in our Annual Plan to achieve a balanced budget. It shows how closely our annual revenue matches how much we spend in any given year. A balanced budget helps ensure that we are not passing the costs of running the city today onto future generations and imposing future costs on current generations. On the other hand, we also need to ensure that the current generation pay their fair share and to not pass on current costs to future generations. Our goal is therefore to have an underlying surplus or deficit close to zero.
This year we got very close to a breakeven result, with an underlying deficit of $0.6 million, within 0.1% of our planned balanced budget.
To get from net surplus to underlying result, the following is excluded:
- Revenue received for capital items – for example, the funding we receive from NZTA for roading.
- Non-funded transactions – either where, through the Annual Plan, it is deemed appropriate that future ratepayers share the costs incurred in a particular year, or where another organisation is liable for the funding.
- Other minor adjustments.
These items are excluded because they generally don’t affect rates and were excluded from our Annual Plan balanced budget calculation. Table 10 summarises the capital and non-funded adjustments made to the net surplus to arrive at the underlying result.
Table 10: Summary of the underlying result
|Underlying result||Actual |
|Reported net surplus||32.2||32.4||(0.2)|
|Add items or budgeted differences not required to be rates funded||15.3||12.0||3.3|
|Exclude government funding for capital projects||(48.5)||(48.4)||(0.1)|
Figure 9 shows the Council’s performance over the past 5 years. Zero on the graph represents a balanced budget. For 2017/18 we achieved our lowest underlying result in recent years and this reflects the careful stewardship of revenue and expenditure against budget.
*Refer to Table 10 for explanation of movement from reported net surplus to underlying deficit.
Where our money comes from
Rates are our main source of funding (55% of $535 million) with revenue from operating activities (including user fees) the next largest source (29%). We also receive revenue from other external sources (mainly government) to fund capital expenditure, revenue from interest, and dividends. Figure 10 shows the overall sources of revenue for the past 3 years.
Figure 11 shows the sources of the Council’s revenue for the year. The majority of the Council’s $296 million of rates revenue received during the year was from general rates. Other sources were sewerage and stormwater targeted rates, with the fresh water provision making up most of the balance.
In 2017/18, the Council received higher cash revenues than budgeted from:
- landfill fees due to increased waste volumes ($3.8 million)
- higher-than-anticipated dividends from our investment in Wellington International Airport Ltd ($1.5 million)
- an increase in central government subsidies for transport ($1.5 million).
The Council also received higher non-cash revenues than budgeted for vested assets ($8.1 million) and an increase in investment property valuations, which is recognised as revenue ($6.9 million).
Where the money goesTop
The following graph summarises the difference between the actual and budgeted net expenditure for each strategy area. They show how the Council has prioritised its spending to support the operational and strategic direction that has been set during the Annual Plan process. Net expenditure is calculated by offsetting activity expenditure, with user charges and other direct activity income. This is the amount that is funded by rates and other corporate revenue such as dividends and rental income.
Figure 12 illustrates the difference between the actual and budgeted net expenditure for each strategy area. They show how the Council has prioritised its spending to support the operational and strategic direction that has been set during the annual plan process. Net expenditure is calculated by offsetting activity expenditure, with user charges and other direct activity revenue. This is the amount that is funded by rates and other corporate revenue such as dividends and rental revenue.
Summary of capital expenditureTop
We have a comprehensive renewal and upgrade programme for our assets and have completed $172.9 million of capital expenditure during the 2017/18 year. This equates to 95% of the annual budget or 80% once utilisation of budgets brought forward from prior years is included. Delays in a number of projects occurred during the year due to changes in design, negotiations or consultation and consents requirements. Budgets to complete these projects have been included in Our 10-Year Plan 2018-2028.
Figure 13 shows budget versus actual capital expenditure for each activity area.
Table 11: Capital expenditure by activity area ($000)
|2015/16||2016/17||2017/18 Actual||Budget Brought forward||2017/18 Budget||Variance|
|Social and recreation||26,269||30,186||40,253||21,647||24,684||6,0794|
|Total strategic areas|
Variance explanations to finances – why our actual spend differs from what was budgeted
1 Under budget due to lower personnel costs and professional fees.
2 Under budget due to delays in the Wellington Venues renewals programme ($1.640m) and the deferred decision on the Movie Museum project ($2.777m) component of the combined Convention Centre project.
3 Under budget due to the deferred decision on the Movie Museum component of the Convention Centre project.
4 Under budget due to timing of work in the completion of the Basin Reserve Master Plan; with the Johnsonville Library development project and with several of the community centre upgrades - Aro Valley, Kilbirnie, Newtown and Strathmore. As well as with the public conveniences and pavilions work programme (Alex Moore Park, Ben Burn Park and Island Bay).
5 Under budget due to timing of work undertaken with the Town Hall and St James earthquake strengthening projects.
6 Under budget due to timing of work undertaken for the cycling programme and the completion of the LED street light transition project, which has been delayed until 2018/19.
In addition to the above, the Council spent $11.2 million of a budgeted $25 million on corporate Council projects, which include buildings, equipment replacement and IT projects. The unspent portion relates to deferred building projects.