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‘Massive’ Impact On Projected Rates After Councils Instructed To Retain Water Services

Bringing the costs of water services back into council budgets has made a dramatic change to potential rates impacts for Hamilton City Council.

In 2023 legislation was passed by the previous Government to remove the costs and responsibilityfor water services delivery from councils (and transfer to neworganisations) in stages. Hamilton City Council was to join a new entity in 2025, and legislation prevented Council fromincluding water service delivery costs beyond Year 2 of the draft Long-Term Plan.

This meant Council’s long-term draft budgets set in November excluded all water services costs from rates bills from 2025/26.

In December the new Government said it would repeal the reform legislation and instructed councils to include waterservice delivery in its Long-Term Plans, pending repeal legislation expected later this month.

This has added hundreds of millions of dollars in costs, and an urgent revision, to the previous draft budgets. It means Council will now reconsider the plan, and the consequential impacts on rates, at its meeting of 20 February.

At a briefing yesterday, staff provided detailed financial modelling which showed bringing those costs into the draft budget, with no other changes, would mean sharp increases in projected rates in Years 2 to 5 in the plan.

The rates increases originally proposed in November from Years 2 to 5 were 12.9%, 8.7% and then two years at 6.3%. Returning the costs of water services changes these figures to four consecutive years of 14.1% rises. Both sets of figures assume a 25.5% increase in Year 1.

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Hamilton Mayor Paula Southgate said the impact is massive for Council’s budgets, with water services making up around 30% of Council’s operating costs and capital investment.

“The need to include water service delivery in our Long-Term Plan beyond year 2 significantly changes our financial projections, placing further cost pressure on Council.

“I’ve said for some time that the funding model for Councils, for the huge infrastructure challenges we face, is fundamentally broken and unsustainable. Adding the cost of water services back into councils’ Long-Term Plans brings this collective challenge front and centre. Waters infrastructure is expensive, especially for a fast-growing city.”

The main driver for the rates projections is that Council is required to maintain a debt-to-revenue ratio set by the Local Government Funding Agency. Council can borrow more to fund the infrastructure investment needed but needs to increase revenue (largely from rates) to remain within the limits set by the LGFA.

“We need new ways of working between Local and Central Government to support large scale investment, drive economic development and growth, and better meet the needs of the community,” said Mayor Southgate.

“I will continue to raise this with the Minister for Local Government. In the meantime, my focus is on finding the right solution for Hamilton – this means finding a balance between affordability and providing sustainable and resilient water infrastructure for our rapidly growing city, but most importantly we need to have honest conversations with our communities.”

Council will be asked to adopt an updated draft Long-Term Plan at the 20 February 2024 Council meeting, ahead of community consultation in March-April 2024.

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