Explaining our borrowing position

We borrow to fund upgrades to our assets or to invest in new infrastructure. We do this as it allows us to spread the cost of funding this expenditure over the multiple generations that will benefit from the investment.

Our policies also allow us to use debt to fund operating expenditure where the benefits are received over several years. This avoids ratepayers having to fund the whole cost in one year. We were due to start paying for costs for Let’s Get Wellington Moving, temporary library services and additional water resilience in 2020/21, but have deferred this to keep the rates increase as low as possible – but it does mean the rates increase will be higher next year once we start rate funding these costs.

Due to the abnormal situation created by COVID-19 we are also planning a variation from our Revenue and Finance Policy and the balanced budget requirement this year. This means we are proposing to fund the gap caused by lower fee and user charges and dividend income through borrowing. This is prudent so long as the revenue recovers in future years. But it does have to be paid for eventually, so we are planning to spread this cost over the following 10 years.

$860m Total borrowings are forecast to be $860 million at the end of 2020/21, this equates to 158 percent of operating income.

$3,970 per resident The forecast average borrowings per resident at the end of 2020/21 are $3,970.

For 2020/21 total borrowings are forecast to increase by $195m. Of this increase, $111m is due to borrowing for capital expenditure (capital programme budget minus depreciation and repayments), $42m due to debt funding of operating expenditure and $42m of revenue losses and cash flow assistance to CCOs caused by the COVID-19 pandemic. Borrowing is forecast to be $860m at the end of the year, this equates to 158 percent of our operating income compared to the Council imposed cap of 175 percent. This compares to $849.4m forecast for June 2021 in our 2018-2028 Long-term Plan.

In Wellington the average household earns $143,577 a year. Our debt is the equivalent of our average household having a mortgage of about $227,000. By the end of the 2020/21 year, the average borrowing per resident is forecast to be $3,970.