How will we fund future growth in Wellington?

This is the fourth of five major challenges facing the capital, as laid out in Wellington City Council’s Pre-Election Report for 2022. This report is produced every three years before the local body elections to provide information and promote public discussion about the issues facing the local authority.

Animated image of a coin going into a house.

To keep pace with the growth of our city in the coming years, Wellington City Council will need to consider how it prioritises expenditure and investment.

Wellington is growing and requires more investment in infrastructure to keep up with growth on top of what is currently planned. At the same time as we increase our investment in the city and face inflationary pressures, the Council’s traditional sources of non-rates revenue are declining or becoming less secure.

The COVID-19 pandemic has brought into sharp focus the resilience of the Council’s revenue streams. Income regularly received through the Council’s shareholding of Wellington International Airport Limited, Council-Controlled Organisations, and the ground lease portfolio all experienced sharp declines and is expected to take time to recover. Added to this, as our city grows and we rebalance the streets and transport network, as well as implement the parking policy and transport hierarchy, levels of on-street parking on our connecting streets and in the central city will decrease.

This means the current ($42 million) revenue that the Council earns from parking will reduce. We will need to consider how this loss can be made up by other means, such as expanding where we collect parking revenue, investigating how we price parking, or considering other non-parking means of revenue-gathering.

To deal with the challenges

Council will need to consider recycling our investments into priority areas.
New financing tools will need to be identified and advocated for.
We need to consider how we prioritise expenditure and investment.
Manage the financial impact from the Three Waters Reform.

Cyclist on a bike and cars on the street.

Activity planned for the next three years

The Council will need to consider recycling our investments into priority areas
The incoming Council may need to consider how our commercial assets can be better utilised to support the Council’s financial requirements. This could involve, but is not limited to, divesting some assets and recycling the proceeds to other Council priorities, as well as considering how revenue can be increased from the assets the Council owns.

Long-term Plan rating review
Councils are required to review their Long-term Plans every three years. As a part of each Long-term Plan cycle, the Council reviews the rating and financing policy which decides the revenue we collect to pay for the Council’s services and investment. When Wellington City’s Long-term Plan is reviewed in 2024, the Council will consider our revenue and finance policy in detail, including what rate types will be used by the Council and the rating differential between the different types of rates.

New financing tools need to be identified and advocated for
When compared to other countries, local government in New Zealand does not have a diverse income stream and relies heavily on property rates to fund services. The Council has advocated strongly to central government, along with the rest of the sector, for a broader range of funding and financing tools to be made available through the government’s local government reform programme. Further advocacy may be required for these changes over the coming triennium if the city’s financial position does not change.

We need to consider how we prioritise expenditure and investment
For capital investment and service level decisions made by the Council, most of the costs for investing in the Council’s services and assets are likely to continue to be met by Wellingtonians. The incoming Council will need to manage affordability by making choices about the priority of capital programmes and the affordability of some Council services – this will involve considering the viability of the Council’s range of services and the level to which services are provided.

We anticipate a financial impact from the Three Waters Reform
The government’s Three Waters Reform programme is likely to affect the Council in the coming years if the reforms go ahead as planned. Most aspects of physical asset management are carried out on the Council’s behalf by Wellington Water, which means that the substantive impact on Wellington City Council is the impact on the balance sheet.

There are five key areas where the Council will experience a financial impact:

The loss of three waters assets.
The loss of three waters revenue.
The novation or retirement of three waters debt.
The impact on the Council’s debt capacity.
The impact on the 2021–31 Long-Term Plan’s proposed capital expenditure.

The most significant impact to be expected from the Three Waters Reform for the Council is the loss of revenue. On face value, the Council’s debt capacity will be reduced by $377 million due to the loss of three waters revenue. With the low value of debt allocated to three waters, there is a significant mismatch between the loss of debt capacity and the reduction in debt from participating in the reform process.

Read the full Pre-Election Report