Hastings Councillors got a look this week at the Council’s unaudited financial results for 2023/24 (year ending 30 June 2024).
Arguably not a disaster, given the disaster, but not pretty either.
HDC on its behalf makes several points about context:
First, that the this budget needed to be adopted in the immediate aftermath of the cyclone amidst huge uncertainty regarding how normal services might be disrupted and the scope and nature of recovery expenses to be borne.
Second, that a significant gap exists between Government announcement of funding support and the cash arriving, requiring Council to spend its own funds or borrow to get urgent work underway.
Third, that Council’s ‘normal’ activities and service delivery carried on during an extremely stressful period for council staff as well s the community.
The Council expects a rates deficit of $10.95 million, which will be funded primarily by borrowing.
The main drivers of this include:
- Higher interest costs driven by higher debt levels and higher interest rates than were forecast in the Annual Plan budgets (Finance costs exceed budget by $7.8m).
- Increased operating costs due to the demolition costs of Heretaunga House.
- Rising insurance, electricity and cyclone recovery contract costs.
- Reduced development contributions (“reflective of the overall market conditions with a significant reduction in development activity occurring across the district”).
- Higher depreciation expense due to asset revaluations in 2022-23.
The Council ran an operating loss of $14.3 million, spending about 10% more than the Annual Plan. And overall, its expenditures were $115.6m higher than the Annual Plan, largely driven by Cyclone Gabrielle costs.
This included all funding received from government agencies relating to Cyclone Gabrielle, and all cyclone related operating expenditure. Unbudgeted Cyclone Gabrielle revenue totalled nearly $113m.
By itself, full year revenue, excluding revenues to support capital expenditure and cyclone impact, was a modest $6.1m favourable. Principal reasons: higher parking revenues, higher rent payments on Council-owned housing, higher Toitoi revenue (although offset by much higher expense), and higher water connection fees.
However, the operating surplus was offset by higher depreciation costs as various Council assets (principally roading/bridges with higher replacement costs) were revalued upwards of almost $300m. Depreciation expense was $9.1m greater than budgeted. And much higher interest costs of $7.8m, as noted earlier.
Water Services has debt levels of $220.6m as at 30 June 2024 and as a result bears the major portion of the increased interest costs. And indeed every aspect of HDC’s ‘3 Waters’ services are running at sizeable deficits, which makes quite interesting the politics of transitioning to a new regional scheme (as desired by Government). Fully 55% of HDC’s debt relates to water infrastructure.
Other operating exceedances included Heretaunga House demolition, water services (reactive and treatment costs), electricity ($474k), and insurance ($531k).
More ‘controllable’ than electricity and insurance pricing, and therefore arguably more alarming to ratepayers would be substantial overruns at Toitoi ($937k over budget) and Splash Planet ($1.1 over), Cultural facilities ($231k over) and Corporate & Governance (Admin group $508k over).
Plus, a variety of new expenditures were approved during the year (as happens!). As listed below, these totalled $12,870,707, requiring $11m more borrowing, but who’s counting?!
In adopting a 19% rate increase of 2024/25, complemented by significantly higher debt funding, Councillors and the Chief Executive promised a rigorous search for cost savings in the year ahead. It would appear they have superheavy lifting to do. It will be interesting to see how would-be mayoral and councillor candidates — incumbents and challengers — address this during next year’s election window
The detail behind all this is in the Agenda paper prepared for a 19 September HDC committee meeting.