Deputy Auditor-General’s overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

Long-term plans play a fundamental part in ensuring that councils are accountable to the communities they serve. Long-term planning also enables communities to have input into decisions councils make about the future.

Councils use long-term plans to set out how they intend to provide services and maintain and renew assets, how much these activities will cost, and how they will be funded – usually through a combination of rates, central government funding, and debt.

As part of the long-term planning process, councils must determine the proportion of their planned expenditure that will be funded by rates. Long-term plans must be adopted before councils are able to set rates. If there are material errors in a longterm plan, the rates a council charges to its community could be wrong.

Councils’ planned rates increases in the 2024-34 long-term plans are significantly higher than in previous long-term plans. In our view, it is more critical than ever that the assumptions underlying long-term plans are supported by evidence and form an appropriate basis for calculating the rates charged to communities.

Our audits of long-term plans provide a vital role in ensuring that the information and assumptions that councils have used are reasonable and supportable. Auditors test the assumptions and underlying information that long-term plans are based on. In doing so, we often identify errors or other matters that are corrected before the long-term plan is adopted. This helps to ensure the accuracy of the information underlying long-term plans.

Audits provide independent assurance to each community, as well as Parliament and the wider public, which in turn supports the validity of rates decisions made by councils. Without this independent view, it would be difficult for communities to know whether they could rely on their council’s long-term planning and how it will affect them.

In this report, we discuss 32 consultation documents and 58 long-term plans that were audited between June and October 2024. We will report later this year on councils that chose to defer adopting their long-term plans until June 2025.

Councils undertook their long-term planning during significant uncertainty about how water services will be owned, managed, and provided, how transport and roading would be funded, how the Local Government Act 2002 may change, and how they would be affected by policies for improving funding and financing for infrastructure, replacement legislation for the Resource Management At 1991, and a framework for “Regional Deals”.

Despite the uncertainty, most councils were able to meet legislative requirements and time frames. This is a significant achievement.

The uncertain operating environment for councils was reflected in our audit opinions. Of the 58 long-term plans we audited, 40 (69%) of our audit reports included emphasis of matter paragraphs or qualified audit opinions drawing attention to uncertainties in the councils’ long-term plans.

Two councils, Palmerston North City Council and Chatham Islands Council, received adverse audit opinions. An adverse audit opinion is rare. It means that in our view, the information and assumptions underlying these plans were not reasonable. This is the second consecutive time that Palmerston North City Council has received an adverse opinion for its long-term plan.

Twelve councils received a qualified audit opinion where we drew attention to uncertainties that were fundamental to their long-term plans. There were material uncertainties in council assumptions about:

• central government funding, such as transport and infrastructure projects;
• the delivery of capital programmes;
• forecast cost-savings; and
• risks associated with plans to defer three waters asset renewals outside of the long-term planning period.

We used emphasis of matter paragraphs to draw attention to common areas of uncertainty in 28 long-term plans. These matters included uncertainty about government funding (particularly for local transport projects), the risks to the delivery of capital programmes, and forecasts for renewing three waters infrastructure.

In the 2024-34 long-term plans, councils describe the significant cost pressures they have experienced in recent years. Inflation and interest rates have increased costs, and population growth in some areas has increased the demand for councils’ services. At the same time, many councils are addressing the consequences of many years of underinvestment in infrastructure.

To meet these cost pressures, councils are planning to increase rates – much higher than forecast inflation – and to borrow at historically high levels. In the first year of the 2024-34 long-terms plans, rates are planned to, on average, increase by more than 10%. In total, rates revenue is forecast to increase from $8.8 billion in 2024/25 to $15.6 billion in 2033/34.

Total debt for the 58 councils is forecast to reach a peak of $50.9 billion in 2032. Some councils are close to the Local Government Funding Agency borrowing limits in place at the time of our audits (the Local Government Funding Agency recently announced that it is increasing its debt limit for high-growth councils). Other councils are forecasting that they will be close to or exceed the debt limits they have set themselves.

Although high-growth councils may be able to extend borrowing under the new limits, there are risks that some councils will not have the headroom to borrow in response to unexpected events, such as severe weather or other natural disasters.

Special purpose vehicles, arranged through the Infrastructure Funding and Financing Act (2020), provide councils with another means of financing infrastructure. Under these arrangements, councils can raise debt for specific infrastructure projects that does not sit on the council’s balance sheet. Councils can then target rates to those residents who benefit from the infrastructure. However, only two councils – Wellington City Council and Tauranga City Council – are currently using this mechanism. We have heard from councils that setting up these arrangements can be complex and take considerable time.

The 58 councils included in this report plan to spend $91.9 billion on assets over the next 10 years (a 34% increase on the 2021-31 long-term plans). Of this, $39.5 billion is planned to be spent on renewing assets.

Councils are planning renewals expenditure to be, on average, 85% of forecast depreciation. This is an improvement to the 82% forecast in the 2021-31 longterm plans. However, with renewals expenditure still well below forecast depreciation, questions remain about whether councils are planning to reinvest enough in their assets to maintain levels of service.

There are also significant risks that councils will not be able to deliver all their planned investment. Historically, we have found that councils have not delivered their capital programmes. In 2021/22, councils spent 76% of the $7.68 billion that they had budgeted for capital expenditure. This improved in 2022/23, when councils spent 94% of the $7.5 billion that they had budgeted. However, the context of a tight labour market in the construction industry and associated cost inflation is likely to exacerbate risks to the delivery of capital programmes. We drew attention to these risks in 14 of our audit opinions.

Long-term plans are often large documents that include a significant amount of information which can be complex to the lay reader. This can make it hard for communities to access and understand the information most important to them. In previous reports, we recommended that the Department of Internal Affairs and the local government sector review the required content for long-term plans so that they focus on what matters most to communities. This would, in our view, add value to the process and reduce the investment required to both prepare and audit these documents.

New Zealand faces a wide range of long-term challenges, including adapting to the effects of climate change, changes in demographics, tackling persistent inequity, and addressing the consequences of underinvestment in infrastructure.

Councils have been required to produce 10-year long-term plans for their communities since 2006. Over that time, while some issues have persisted (such as the need for more reinvestment in infrastructure), we have seen significant improvements in asset planning, financial strategies, and engagement with communities.

Many of the issues facing the public sector require long-term responses from both local and central government. The lack of requirements for comparable long-term planning for central government agencies seems to me to be an important gap for central government to address.

We plan to publish further observations from our audits of long-term plans later this year, including those of councils that chose to defer adopting their long-term plans until 30 June 2025. We will include information about how councils are factoring climate change risks into their long-term plans and what councils know about the condition and performance of their most critical assets.

I acknowledge the dedication, time, and effort that elected members and council officers and staff put into preparing the 2024-34 long-term plans. I also acknowledge my auditors and staff in the wider office who supported our audits.

Nāku noa, nā

Andrew McConnell
Deputy Auditor-General

14 February 2025