As part of the process of developing budgets for the Long Term Plan, Council has reviewed its Financial Strategy. There have been significant changes in the past three years, including the response to COVID-19, population growth, and incorporation of climate change response into business as usual. This Strategy sets out how Council will prudently manage its revenue, expenses, assets, liabilities, investments and general financial dealings, while responding to the challenges our community faces.

The full Strategy links the strategic direction of Council to its financial priorities, and covers the factors that influence how Council activities are funded. This includes the proposed increase in debt limits to allow for capital expenditure, the expectation that Council’s capital expenditure in any year will be approximately 90% of what is budgeted, and Council’s return to a balanced budget in 2025/26. It explains how Council balances its existing asset renewals programme, funds network and community infrastructure, manages levels of service, provides for growth and manages changes in land use.

Council must demonstrate financial prudence and consider all aspects of financial performance. The Strategy explains how we manage Council finances in a way that sustainably promotes our community’s current and future interests.

The Strategy review looked at how Council could respond to key issues including enhancing the environment, population changes, and community’s social and cultural needs. Council then prioritised potential activities and projects, summarising the key priorities in this consultation document.

The Strategy shows how Council will ensure that the level of rates and borrowing are financially sustainable, obtain pre-set returns on financial investments and equity securities and give securities on borrowing.

In preparing the draft Financial Strategy, Council has weighed up requests for more and improved services and infrastructure, while keeping rates and charges affordable and subsequent debt at a manageable level.

COVID-19 recovery, revaluations and the proposed capital expenditure in this Long Term Plan have put how much we increase rates and how much we borrow under pressure. Council’s preferred strategy is to smooth out rates increases over the ten years of the Long Term Plan by borrowing from the Emergency Fund in the earlier years and then building up the reserve in the latter years.

According to our proposals, the average overall increase in rates required in the first three years, including growth, would be 5.7%, 5.4%, and 5%, respectively. Over the following seven years, the overall increase in rates required including growth would average 5.1%.

As part of this Long Term Plan, Council is also proposing to continue to reduce the commercial differential for a further three years and make it available to other commercial ratepayers, in order to support businesses throughout Nelson. The commercial differential will be applied to commercial properties throughout Nelson. This would change the distribution of the rates, but not the overall average.

In developing the draft Financial Strategy, we considered:

• The level of debt that current and future ratepayers would need to fund balanced with the investments Council is proposing
• The balance of service levels, costs of these services, and the money required to achieve them
• The setting of rates and charges across the 10 years of the Long Term Plan, and how to minimise these while achieving the desired levels of service
• The level of population growth expected over the next 20 years and beyond.

After careful consideration, Council believes that what is proposed will deliver the core infrastructure projects that enhance the city and make our city a place where people want to live and work. Council therefore considers that the proposed Long Term Plan is financially sustainable and supports our work on Council’s visions, community outcomes, and work programmes such as the Nelson Plan and Te Tauihu Intergenerational Strategy.

Council has set a cap on the overall increase in rates required each year of the Local Government Cost Index plus 2.5%. The following graph shows proposed annual overall increase in rates required versus the rates cap:

Council is proposing the following changes to the Funding Impact Statement:

• Reduce the Rates Penalties to 5%. This was temporarily reduced from 10% following COVID-19 and Council is proposing to make this a permanent change. This better reflects the cost of financing the late payments as interest rates have reduced in recent years.
• Remove the Water Penalties. Many water penalties are currently remitted, which creates a large administrative burden. Based on an average water invoice of $160, the average water penalty would be $8. Council believes staff time would be better spent promoting efficient payments options for ratepayers such as emailed invoices and direct debit.
• Change the rates instalment invoice issuing date from 1 August, November, February and May to 25 July, October, January and April. This change will give ratepayers longer to pay their rates. In considering this change Council weighed up the cost to Council ($4,500 per quarter) and feedback from ratepayers that due to less frequent mail deliveries there is insufficient time to pay.
• Change the Water invoice dates for consistency with other Council invoices. It is proposed that the volumetric water invoices are due on the 20th of the month following invoice.
• Council will continue to reduce the proportion of rates collected by commercial rates by 0.5% per year for the first three years of the Long Term Plan (to be reviewed annually). This will mean residential properties will see rates increases of at least 0.4% higher than otherwise.

However, it is proposed to expand the Commercial Differential reduction to all commercial ratepayers in the region. The commercial differential recognises the additional Council services that businesses receive. Currently, the reduction is spread across the City Centre and Stoke commercial area and was put in place to help stimulate economic activity. However, if continued, Inner City and Stoke commercial properties would be paying lower rates than General Commercial but essentially receiving more services. By extending this to all commercial ratepayers, it would allow for some re-balancing of the relative rating contributions to all commercial ratepayers.

The expansion of the Commercial Differential to all Commercial ratepayers would rebalance rating contributions. Based on 2020/21 rates, the reduction to General Commercial Rates for 2021/22 would be approximately $286,000, and the reduction to the Inner City and Stoke Commercial Rates would be approximately $89,000 (instead of the full $375,000 which would be the case under the current policy).

• Remove the Rural Differential Category for rural properties which are zoned residential and that have a rating unit area greater than 15 hectares. This is currently a -35% differential rate. It is recognised that for rural land which is zoned residential, this differential and resulting lower rates does not encourage landowners to develop their land for housing purposes.
• For Separately Used or Inhabited Parts (SUIP) of a rating unit, removing the requirement for statutory declaration (required to be witnessed by a JP etc.) and replacing this with a requirement for a declaration (no witness required). Where a property is deemed to have a SUIP for rating purposes, a declaration can be provided to Council to confirm it is unoccupied, or the second unit is not being used as a separate unit.
• Council sets a flat charge per rating unit - the UAGC - which is currently 14% of rates collected. It is a fixed charge for services that every property receives, irrespective of its land value. It is also to reduce the extremes of rates paid for the highest and lowest valued properties. The new fixed rates arising from increased infrastructure work, including wastewater, stormwater and flood protection are funded through a fixed charge per property, and the effect of the increased work programme and expenditure for these puts an increased rating burden on lower-valued properties.

Uniform Annual General Charge (UAGC)

Therefore Council proposes to reduce the proportion of rates collected from the UAGC from 14% of total rates (excluding water charges, Clean Heat Warm Homes, and the Solar Saver rates) to 13%. With the adjustment to the commercial differential it was expected that the rates increases for residential would be at least 0.4% higher than the overall increase in rates required of 5.7%, and by adjusting the UAGC to 13%, the lowest value properties would see rates increases of 6.1% compared to the highest value properties which would go up 7.99%. Find out more about the UAGC in the Revenue and Financing Policy and Funding Impact Statement.

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Capital and Operating Costs

Capital expenditure is generally expenditure on assets that are expected to last more than one year. An increase in capital expenditure of $1 million increases rates by between $100,000 and $250,000 per annum. This covers interest, depreciation, maintenance and running costs for the asset. The reason for the range of increased costs is that depreciation and running costs vary between different assets, for example library books wear out much faster than pipes in the ground, which can last for over 80 years before they need to be replaced.

Maintaining Nelson’s transport, water, stormwater and wastewater infrastructure makes up approximately 73% of Council’s capital expenditure. This infrastructure is important to businesses and residents’ health, and the social, economic, environmental, and cultural wellbeing of the community.

Operating costs include expenditure for items such as staff costs and overheads, asset maintenance, running costs and depreciation, interest on borrowings, and grants made by Council. An increase of $100,000 in operating costs increases rates by 0.13%, or to put it another way, 1% of rates is $790,000. So, by considering the impact of increasing or decreasing Council expenditure you can estimate what effect any changes to our work programme will have on rates.

Council is consulting on proposed changes to the Rates Remission Policy alongside the Long Term Plan. These proposed changes aim to reduce administrative burdens, provide consistency, and better meet the needs of ratepayers.

Council’s Rates Remissions Policy provides for a reduction of all, or part of rates, in some circumstances. The full policy can be found here, at Council’s Customer Service Centre, or in our libraries.

Council is proposing the following changes to the Rates Remission Policy:

• Split Community, Sporting and Other Groups Remission and create a separate remission policy for Social and Kaumātua Housing with no changes to the assessment criteria. This is to provide for accurate evaluation of applications.
• Extend the Charges for Excess Water Arising from Leaks Remission to commercial ratepayers. To ensure fairness for all ratepayers, it is proposed to extend the remission to commercial ratepayers to a maximum remission of 50% of the water lost due to a leak with the same assessment criteria as residential ratepayers.
• Remove the dollar figures from the Low Valued Properties Remission for small parcels of land and allow any required changes to the value to be set by Council resolution.
• Limit the Land Affected by Natural Calamity Remission to five years. The proposed five-year remission limitation will encourage property owners to rectify issues. This limitation will not affect ratepayers currently receiving the remission.
• Remove the Early Payment of Rates Remission. Council proposes to remove the 2% discount for early payment of rates. This will affect 2,000 ratepayers annually however the $137,000 cost of early payment to Council per year is borne by all ratepayers, and is therefore subsidised by ratepayers who do not, or cannot afford to, pay their annual rates bill in one payment.
• Create a new policy for Other Remissions Deemed Fair and Equitable. The remission would give Council the ability to remit any rate or penalty when it’s considered fair and equitable to do so, and would require a Council resolution. This would provide Council some flexibility for a specific event or unforeseen circumstances.
• Remove the Remission of Rates For Cemeteries. There are two properties that currently receive the remission, both owned by Council – Marsden Valley Cemetery and Wakapuaka Cemetery. The removal of the remission will contribute to increases in overall operating costs and therefore fees will be increased by 23% to meet the increased expenses of cemetery operation along with rates remission.
• When considering these changes, Council analysed the other reasonably practicable options, namely the status quo. Council determined that the proposed changes best meet the stated aims.