Financial health and affordability

Inflation and global events have pushed costs up, we have started repaying rates smoothing loans, and the impacts from Cyclone Gabrielle and other weather events since 2023 have been significant.

Our Financial Strategy included in the Three-Year Plan 2024-2027 detailed how our focus has shifted to adapt to this changed landscape and our commitment to the North Island Weather Event (NIWE) Flood Resilience Programme.

Repaying borrowing

Over the last four years we have borrowed $22.7 million to help cover a step-change in activities in the Long Term Plan 2021-2031 and cover a Covid-related, zero-rate increase the Regional Council adopted in 2020-21. Repayments for this will continue for 20 years.

Impact of Cyclone Gabrielle

The Regional Council continues to feel the significant financial impacts from Cyclone Gabrielle in February 2023. The initial response, rapid rebuild, and recovery phases incurred more than $67 million in costs. We continue to work to recover these as much as possible through insurance claims and the National Emergency Management Agency, but there will still be a balance to be covered by ratepayers.

To support impacted communities, in particular Category 2 areas, the Regional Council agreed to a cost-share agreement with the Crown enabling around $256 million of work across our rohi. Around $47 million of this will be paid for by ratepayers. Contractually this work is required to be completed by June 2027.

The Regional Council is limited to a debt headroom of 250% of total revenue as required under our Treasury Policy. By 2027, because of NIWE commitments, we expect to come close to full debt capacity. We need to be disciplined in what we chose to commit future funds to and ensure they align with core priorities of this Council. This will lead to some hard choices in the future.

Climate change

With a changing climate we know extreme weather events are going to happen more often. The cost of recovery, as we’ve experienced with Cyclone Gabrielle, is significant and there are no guarantees of any similar cost-share arrangements with the Crown following future adverse events.

There are engineering solutions such as spillways and seawalls to manage growing climate-related risks. For flood risk alone, if we delivered today all identified engineering solutions an early estimate of the cost $600 million. The size and scale of this proactive investment would need central government support to reduce the burden on ratepayers.

Low ratepayer base

The Regional Council has a relatively low ratepayer base but still needs to do similar levels of activity as more populated regional councils. To keep rate increases affordable we need to maximise our non-rate funding through well managed and structured investment portfolios, and our ability to leverage income from alternative avenues.

What we have done

In 2023 the Regional Council undertook a full review of its Revenue and Financing Policy to ensure rates are fair, transparent, and simple to administer.
We have reviewed our Investment Strategy and given guidance to our investment company HBRIC (Hawke’s Bay Regional Investment Company) to actively grow our investment portfolio while meeting the minimum cash returns to offset rates and protect our long-term capital.
Last year we applied for and received our first ever credit rating, AA, from Fitch Ratings. This reduces our interest rate charge by the Local Government Funding Agency (LGFA) and, along with using green sustainable loans as much as we can, we are reducing our borrowing costs.

We reduced our forecast Annual Plan 2025-26 budget by $4 million through cutting operational costs and staff numbers.

What we are doing

The Regional Council is currently undergoing an efficiency and effectiveness review to ensure that we are doing the right things at the right level, to deliver the best value for money to the ratepayer.

This includes making comparisons with other similar regional councils and engaging with a wide range of staff and stakeholders. The results of this review will help ensure we are fit for the future.
We will also continue to seek to maximise investment returns and minimise borrowing costs as mentioned earlier.