Part 4: What the planning document shows

4.1
In this Part, we highlight certain aspects of the planning document, including:

• the significant effect of the reorganisation and amendment of the former councils' financial information in arriving at the financial forecasts included in the planning document;
• the trend in rates, including an estimated effective increase of 3.9% for 2011/12;
• Auckland Council's substantial opening balance sheet, showing assets of $29 billion, net assets of $24.9 billion, which includes borrowings of $3 billion (forecast borrowings peak at $3.7 billion in the period covered by the planning document and remain within the limits imposed by the liability management policy); and
• the substantial financial scale of Auckland Council's council-controlled organisations.

4.2
Auckland Council did not decide the rates for 2010/11 but will do so from 2011/12 (forecast at around $1.4 billion). The 3.9% increase assumes the achievement of an efficiency target of $47.7 million annually, equivalent to around 3.4% of rates.

Forecast rates trends

4.3
The rates included in the planning document for 1 November 2010 to 30 June 2011, amounting to $0.9 billion, were set by the former councils. These rates amounted to $1.4 billion for the full 2010/11 financial year and include general rates, uniform annual general charges, and targeted rates set in keeping with the former councils' respective policies.

4.4
The planning document includes estimated transition rates to be set by Auckland Council for 2011/12. These transition rates replace all rates previously set by the former councils. They are forecast at $1.4 billion, after allowing for Watercare Services Limited progressively taking over the charging for water services.

4.5
This gives an effective estimated rates increase for 2011/12 of 3.9%, compared to an average increase of 6% forecast in the former councils' long-term plans, representing a reduction of about $30 million. The effective rates increase of 3.9% is after allowing for the assumed efficiency savings of $47.7 million referred to in Part 3.

4.6
The planning document shows estimated effective rates increases in the following seven years of between 2.5% and 5.0% a year.

Borrowings

4.7
The planning document includes estimated opening borrowings at 1 November 2010 of $3 billion, together with cash and cash equivalents of $0.4 billion. These balances follow debt-raising by the former councils in the period just before their dissolution. The opening borrowings include funding for additional costs of transition that were not funded by the former councils – for example, the funding provided by the Crown to the Auckland Transition Agency.

4.8
Auckland Council's borrowings are forecast to reduce during 2010/11, reflecting significant utilisation of cash balances at transition and allocations of debt to council-controlled organisations. After that, they are forecast to increase for six years to fund capital expenditure and peak at about $3.7 billion, before declining as a result of lower capital expenditure in the final two years covered by the planning document.

4.9
The planning document shows the limits relating to borrowing under the liability management policy. The Auckland Council is expected to remain well within the limits.

4.10
The planning document discloses the interest rate assumptions that relate to borrowing. The rates applied are 6.10% in 2010/11, rising to 7.10% by 2018/19. It also shows the sensitivity of interest charges to changes in interest rates. If interest rates change by 1%, the interest charges change by about $30 million each year.

4.11
Auckland Council will borrow mainly to fund capital expenditure both for itself and on behalf of its council-controlled organisations. About $1 billion of Auckland Council's estimated opening borrowings relate to its council-controlled organisations.

The effect of transition

4.12
Volume 5 of the planning document includes a note to the prospective financial statements that shows the effect of transition.²⁷

4.13
This note explains the overall effect of the transition on funding for 2010/11 and for 2011/12, and on the opening balance sheet at 1 November 2010. The explanation is in the form of a reconciliation of (that is, adjustments made to) the financial information of the former councils on which the planning document is based and the equivalent financial information in Auckland Council's own forecasts.

4.14
The note highlights the significant reorganisation and amendment of information from the former councils in Auckland Council's planning document. The major changes relate to:

• the reorganisation of the group, including the transfer of assets and liabilities to Auckland Council's council-controlled organisations, together with associated revenue and expenditure;
• the net effect of transition costs and efficiency savings; and
• additional provisions to cover the estimated costs of dealing with leaky buildings.

Auckland Council's opening balance sheet

4.15
The planning document shows an estimated opening balance sheet at 1 November 2010, and discloses this in the Prospective Statement of Financial Position within the financial forecasts in Volume 5.

4.16
Auckland Council starts its operations with estimated total assets of $29 billion and estimated total liabilities of $4.1 billion. Its total net assets are therefore $24.9 billion.²⁸

4.17
Figure 4 provides context for these numbers in relation to the whole of the local government²⁹ and central government³⁰ sectors.

Figure 4
Estimated value of Auckland Council assets and liabilities compared with the local government and central government sectors

4.18
The actual opening balance sheet for Auckland Council will be finalised only once the final annual reports of the former councils have been completed.

Council-controlled organisations

4.19
Auckland Council's council-controlled organisations – in particular, Auckland Transport Limited and Watercare Services Limited – are of a scale and nature not matched elsewhere in New Zealand local government.

4.20
Auckland Transport is a new organisation created by the reform. It takes over the public transport operations of the former Auckland Regional Transport Authority and the other transport operations, principally roading, of the former councils. For 2018/19, the planning document shows total income of $1.2 billion and total net assets of $16 billion.

4.21
Watercare Services is a continuing organisation that has assumed all water operations, except stormwater, from the former councils and, where applicable, their water-related council-controlled organisations. For 2018/19, the planning document shows it will have total income of $0.7 billion and total net assets of $6.6 billion.

4.22
Figure 5 indicates the financial significance of these subsidiaries within Auckland Council's group.³¹

Figure 5
Percentage share of assets/transactions between Auckland Council and its financially significant subsidiaries

* Based on averages over the term of the planning document, adjusted for group funding where applicable.

4.23
The prospective financial statements included in the planning document are for Auckland Council only and do not consolidate the prospective financial information of its council-controlled organisations. Volume 4 usefully sets out prospective information about the subsidiaries in Auckland Council's group.

4.24
We note in Part 3 how the planning document deals with the non-financial performance aspects of services delivered by Auckland Council's council-controlled organisations, including Auckland Transport and Watercare Services, on an integrated basis.

4.25
The planning document's disclosures about Auckland Council's council-controlled organisations confirm the integral part they will play in maintaining and managing core infrastructural assets and services in the Auckland region.

27: Pages 35 to 40.

28: These amounts are before the consolidation of council-controlled organisations. The amounts do, however, include investments in subsidiaries that reflect their net asset values.

29: See www.localcouncils.govt.nz – the numbers include the former Auckland councils.

30: Summary Financial Statements of the Government of New Zealand for the year ended 30 June 2010, page 4.

31: Percentages represent averages over the period covered by the planning document.