Replacing Our Roads, Pipes & Pumps in the Future

Making the District Tick: Replacing our Roads, Pipes and Pumps in the Future - How should we fund this?

We are currently not funding enough to replace our roads, pipes and pumps in the future.

Background

Infrastructure isn’t too exciting a word. But it is critical. Council provides heaps of it. Some examples – the footpath you walk on, the pipes under the ground carrying your sewage to the treatment plant, the road you drive on, the systems that treat water to make it drinkable and deliver it to your tap. A huge amount of this infrastructure lies unseen under the ground.

Infrastructure suffers wear and tear just like everything you own. Pipes start to leak or become brittle, roads surfaces get hammered by trucks and weather, pumps become inefficient. In making sure this infrastructure can be replaced in the future, the Council needs to ensure that sufficient funding is available to pay for this. Replacing assets can be funded through rates, user charges, depreciation reserve funds or loans. Some of the income received each year is set aside into a depreciation reserve fund to pay for these future replacements.

The Council must also consider how those who use these services pay for them over the period of time they use them. It should not fall to the next generation of ratepayers to pay for the current wear and tear on the asset. This represents sensible financial management.

If replacing existing assets is not sufficiently funded, the Council will have to pay for the replacement of these assets some other way, which will likely involve borrowing money later or not replacing these assets in the future.

The Issue

This LTP review we have prepared an Infrastructure Strategy covering the next 30 years. You can read more about that later in this document. The work carried out on the Infrastructure Strategy has highlighted that we are not currently funding enough money to replace our existing infrastructure to the same standard. In addition, the Council has historically not set aside enough money to pay for these future asset replacements. It has now decided to increase this amount to reduce our future dependence on loan funding. As a result of this decision and new analysis, we estimate that an additional $24M should be funded over the next 10 years or $2.4M annually.

The Options

1) Gradually build up to fund the full annual shortfall over the next ten years

This option would see the shortfall gradually funded over the next ten years. It would start with $0.44M funded in the first year, rising to $2.5M per annum by year 10. The impact on rates would be an increase in overall rates of 5.6% over the next 7 years. The annual $2.4M shortfall would be fully funded from Year 8. Using this approach will mean less borrowing is required in the future. The $6M remaining unfunded using this transitional approach over this period would come from existing reserve funds and loans.

2) Fund the annual shortfall over a longer period

This option would see the shortfall gradually funded but over a longer period of time. The effect on rates would depend on the approach used for funding. It would be likely that more borrowing would be required under this option.

3) Don’t fund the annual shortfall and use borrowing later

This option would mean the replacement of assets is not fully funded. Replacement of the assets would either not happen or occur through borrowing money later, with that money and interest to be repaid through rates at that time. This approach would potentially have a significant impact on the levels of service provided and place a larger financial burden on future generations.

Preferred Option

Council’s preferred option is Option 1, building up to fund the full annual shortfall over the next ten years. This will balance the impact evenly while still sensibly managing our finances and delivery of services. This represents a sustainable funding approach which will ensure these assets can be replaced in the future.

Supporting Documents and Links

TDC Infrastructure Strategy