Financial strategy | he rautaki pūtea

When the last 10 year plan 2021-31 was prepared, the COVID-19 pandemic had created some unique financial challenges that the 10 year plan had to deal with. Since that time, the financial landscape has changed, and the city is now facing different financial challenges. In the intervening four years, national economy has been subject to high inflation and increasing costs that have impacted the DCC’s finances. At the same time, changes to central government environment have meant there have been different challenges that Councils across the country have to deal with to carry out local government functions.

Since the adoption of the 10 year plan 2021-31, the DCC has made a substantial investment in infrastructure, both above and below ground, to build resilience and cater for the projected population growth, as set out in the last Financial Strategy. The challenges and impacts of climate change remain serious and significant for Ōtepoti Dunedin. The recent heavy rainfall and flooding in October 2024 highlighted the importance of continuing to focus on reducing emissions and improving resilience of the city to extreme weather events and long-term climatic changes. Ōtepoti Dunedin is growing, and it is still predicted to experience high population growth over the next 9 years to reach 146,100 by 2034.

Our goal is that the DCC focuses on continuing that investment to ensure the city has reliable and resilient network infrastructure for our water and transport services, while providing the infrastructure needed to cater for our growing city and looking after the assets that the DCC has. In developing work programmes and capital projects, the DCC aims to strike a balance, taking into account affordability, debt and the impact on rates.

The DCC is planning to invest $2.025 billion on capital projects over the next 9 years. Of this $1.165 billion is dedicated to renewals, $789 million will be invested in new capital projects that will improve the city, and $71 million will be used to build new 3 waters and transport infrastructure needed for the growth of our city.  The renewals spend includes $0.904 billion to replace key 3 waters and transport infrastructure, building the resilience of these essential assets.

This financial strategy achieves our goal of balancing affordability or rates and staying within our debt limits while maintaining our levels of service.

There are a number of factors that may impact on what and how much the DCC does, and how services are delivered over the next 9 years. These are discussed below.

3 Waters Reform

The delivery of three waters services (water supply, wastewater and stormwater) is undertaken within a complex system of legislative and regulatory requirements. Local government three waters sector has been undergoing a period of substantial change since July 2020 when the then Government launched the Three Waters Reform programme to change the way three waters are delivered. This legislative change would have seen the Council’s three waters services transferred to a new regional entity by July 2026.

The new Government introduced a new reform programme, called ‘Local Water Done Well’, which has required the DCC to reassess how it would intend to deliver water services. The reform programme requires all councils to prepare and adopt Water Service Delivery Plans (WSDPs) and then submit them to the Secretary for Local Government for approval by September 2025.

The WSDP must include information on several matters including Council’s proposed model for delivering water services.  As part of the WSDP process, Council consulted on two potential models for delivering water services, in a consultation document called “Local Water Done Well – Ōtepoti Dunedin”.

Consultation on the proposed model for the delivery of water services ran alongside the 9 year plan consultation. On 26  May 2025, Council decided to deliver its 3 waters services in-house.  This 9 year plan reflects this decision.

Regardless, three waters under the new settings will likely look different, given the introduction of wide reaching and comprehensive regulation.  Delivery of financially sustainable water services sits at the core of Local Water Done Well, and it will form the basis for how the Department of Internal Affairs will assess WSDPs.

As the economic regulator, the Commerce Commission will also play a key role in ensuring water services providers collect sufficient revenue and invest sufficiently in quality water infrastructure and services on an ongoing basis.

WSDPs provide a framework for councils to assess the financial sustainability of their water services and chart a course for improvements.

Financial sustainability means ensuring revenues are sufficient to fund long-term investment in water services and meet all regulatory requirements. In also means that water services are appropriately ringfenced from councils’ other revenue, functions and activities.

Government guidance suggests three components to assessing financial sustainability. How councils approach achieving financial sustainability can be different depending on local circumstances and requires councils to consider the balance between the three components:

• Revenue sufficiency - having sufficient revenue to cover the costs (including servicing debt) of water services delivery. The council meets the revenue sufficiency measures by 30 June 2028.
• Investment sufficiency - having a sufficient level of investment to meet levels of service, regulatory requirements and provide for growth. Overall, Council meets all investment sufficiency measures by the end of the 9 year plan.
• Financing sufficiency - having sufficient funding and financing arrangements to meet investment requirements. The council meets the financing sufficiency measures.

Changes to the purposes of local government

The Government has announced plans for legislative changes to the purpose of local government, calling for more focus on delivering core services. The DCC has made a substantial investment in infrastructure, both above and below ground in recent years, to build resilience and cater for the projected population growth. This places the DCC in a good position to respond to anticipated legislative changes.

Climate Change and Zero Carbon

The impacts of climate change are important risks for the DCC to consider in long-term planning for the city. The effects of climate change are already being felt, both locally and globally, increasingly posing risks to community health and wellbeing, infrastructure and the natural environment. Extreme weather events are becoming more frequent. There is a clear need to ensure city’s infrastructure and planning can meet the challenges.

To minimise the negative impacts of climate change, the DCC must work to reduce our emissions (mitigation), while also preparing for the likely impacts of climate change (adaptation). These are closely connected – successful adaptation will only be possible if emissions are also reduced to limit the severity of climate change.

The DCC has been progressing work on climate change through two work programmes to meet climate change mitigation and adaptation planning needs: Zero Carbon and South Dunedin Future, with the latter being a collaborative adaptation programme with the Otago Regional Council.

The DCC is seeking to manage and reduce emissions at two scales – DCC and the city.

At the city level, the DCC has adopted a ‘Zero Carbon 2030’ city emissions reduction target, which is in two parts:

• net zero emissions of all greenhouse gases other than biogenic methane by 2030, and
• 24% to 47% reduction below 2017 biogenic methane emissions by 2050, including 10% reduction below 2017 biogenic methane emissions by 2030.

We measure and report city emissions in line with an international standard for cities called the Global Protocol for Community-Scale GHG Inventories (GPC - BASIC+ methodology). Under this methodology, the city’s biggest emissions sources are agriculture (46%) and transport (34%). Some emissions are absorbed by the city’s forests (sequestration).

‘Net zero’ means greenhouse gases that we emit into the atmosphere (excluding biogenic methane) are in balance with the amount of carbon dioxide absorbed by forests. It would be inconsistent with GPC to purchase additional carbon offsets to achieve this target.

Biogenic methane is methane produced and released from living organisms like plants and animals.

At the DCC level, the target is to reduce emissions 42% from 2018/19 levels by 2030/31.

The DCC measures and manages organisational emissions in line with international standard ISO 14064 using the ‘operational control’ methodology. This includes emissions from activities undertaken by DCC staff when providing services, emissions from DCC assets, and emissions generated by contractors working on behalf of the DCC.

In 2024, the Office of the Auditor-General (OAG) provided recommendations related to reporting on councils’ climate work. The DCC has a well-developed emissions reduction framework in line with OAG’s reporting expectations as follows:

• A Zero Carbon Policy and associated guidance that is built into procurement processes, project management processes, and Council report templates.
• An Emissions Management and Reduction Plan (emissions reduction plan for the organisation) and associated emissions modelling for the period to 2030/31
• A Zero Carbon Plan (emissions reduction plan for Dunedin) and associated emissions modelling for the period to 2030/31

The level of DCC investment in emissions-reducing 9 year plan projects has implications for emissions at the both DCC and city-wide scales.

Zero Carbon modelling is currently being updated to reflect changes in Government policy (including the second national emissions reduction plan, adopted in December 2024), the change in DCC’s investment timing for the long-term plan, and other relevant contextual changes. This work is not complete; however, interim findings have pointed to challenges with the level of investment required to achieve the degree of change at the pace required to meet the city’s 2030 target.

Following consultation on the draft 9 year plan, Council approved further investment in emissions reducing projects, of $64.44 million for transport capital items and $3.27 million for operating items, with the transport packages to commence in the 2027/28 year.  While these investment packages will support emissions reduction and provide other benefits for the community, it is still unlikely that they will bring about a degree of change at the pace required to achieve the city’s net zero 2030 target.

At the DCC scale, the DCC is so far tracking well towards the organisation’s emissions reduction targets, having achieved a 29.7% reduction from baseline year in 2023/24. Based on modelling completed in 2023/24, it’s possible that the DCC’s organisational target can be achieved with projects that are in the draft 9 year plan budgets alone, without any additional investment.

Climate change adaptation

In terms of adapting to the impacts of climate change, Ōtepoti Dunedin faces many challenges. The city is spread across a diverse coastal and hillside landscape, which includes the reclaimed harbour edge, former coastal swamps and wetlands, steep-sided hill suburbs, and flood-prone urban water ways. This environment forms a complex hazard scape, characterised by a range of coastal, fluvial, seismic, and groundwater-related hazards. Climate change is expected to exacerbate many of these hazards, including through sea level rise, increasingly frequent and severe storm events, and rising groundwater – leading to increased flood risk for many areas.

The South Dunedin Future work programme has been progressed to develop a climate adaptation strategy for South Dunedin in partnership with mana whenua, affected communities, and other stakeholders. The South Dunedin area has been the initial focus of adaptation work, due to its location on reclaimed land, high groundwater levels, and susceptibility to sea level rise. It has around 6,500 homes, housing 13,500 people and a further 1,500 businesses.

The DCC is currently developing an approach to establishing a citywide climate resilience framework and adaptation plan for Ōtepoti Dunedin. The framework will enhance DCC’s climate adaptation and resilience work, enabling a more effective citywide response to the current and anticipated impacts of natural hazards and climate change. Council will be considering options for implementation. While no budget has been provided for in the draft 9 year plan budget for the framework development, additional resources would be required, depending on Council decisions on a preferred approach to implementation.

Changing population, land use and rating base

The DCC uses projected population growth and demographic changes for a range of forward planning activities including infrastructure planning, spatial planning, the Development Contributions Policy, and the City Profile. The last 10 year plan was prepared based on a composite high-medium growth scenario, according to Statistics New Zealand (Stats NZ) data released in December 2022.

Since then, in October 2023, Stats NZ released the 2023 provisional population estimate, indicating (if confirmed) Ōtepoti Dunedin is currently growing at a high population growth rate. To reflect this and the risks of underestimating growth, the DCC has developed and used a composite high-medium growth scenario. This scenario presumes that Dunedin’s growth rate will follow a high growth rate scenario (0.7% - 0.8% per year) over the next nine years (2025-34), when it could reach 146,100. From 2034 onwards, the population growth rate is predicted to return to a medium growth rate scenario (0.1% - 0.2% per year).

Ōtepoti Dunedin’s population is ageing, with 24% of the population projected to be 65 years or over by 2054, compared to 19% in 2024. The age group of 75 years and over is expected to grow from 8% of Dunedin’s population in 2024 to 15% in 2054.

Dwellings are projected to grow from 56,900 in 2024 to 63,600 in 2054, because of population growth, an ageing population, and the changing make-up of families and households. Dwelling growth is projected to slow down between 2034 and 2054 to mirror the projected changes in the population growth rate.

Land use changes are expected to allow for housing growth. Dunedin Future Development Strategy 2024- 54 has identified areas for growth and the investment needed in infrastructure to enable that growth. The capital budget includes investment of $71 million for essential water and transport services to address this.

The assumptions made in preparing this 9 year plan are discussed further in the Significant Forecasting Assumptions section of the 9 year plan, including our level of uncertainty of the assumptions made, and their possible impacts.

Ability to deliver on the planned capital programme

Over the last four years, there has been a significant increase in capital investment, and the DCC has demonstrated its ability to deliver its planned capital programme. Significant investment has been made in both asset renewals and new capital projects, and this has been achieved through improved forward planning, early contractor engagement, innovative procurement strategies, and strong disciplines around project and programme management, and monitoring to ensure progress is on track. Based on our improved performance over the past four years, the DCC is confident to continue to deliver the planned capital programme presented in the 9 year plan. The graph below shows comparative actual capital expenditure against budget from 2016 to 2024.

Source is Annual Report WOC FIS application of capital funding

3 Waters renewals

Like many other councils, 3 Waters has a backlog of renewals work, and this is currently estimated at $1,003 million. Our Infrastructure Strategy covers a period of 30 years. In that Strategy, we have opted to develop a renewals budget across the 30-year period to progressively complete these renewals, so that there will be no backlog by 2055.  We have planned to address the backlog over this time frame because we need a programme of works that is affordable to ratepayers.

The strategy adopted by Council to address the renewals backlog seeks to balance asset risk in a pragmatic and affordable way. The planned 30 years phased approach means that there will be a modest reduction in the total backlog (approximately 4%), over the life of this 9 year plan. However, our focus in the first nine years will be to prioritise renewals at highest risk such as at our treatment plants. Beyond this period, a reprioritisation in capital expenditure will be required to address the remaining backlog by the end of the 30-year horizon of the Infrastructure Strategy.

Whilst the risk that critical assets may fail during this period may be high, we believe that this risk is mitigated as we have significantly increased our provision for repairs and maintenance over the term of this LTP. We will also increase focus on the monitoring of critical assets and respond proactively to changes in condition and performance to ensure continued service delivery. This allows our focus to remain on planning for the renewal of critical assets before a deterioration in their condition materially impacts on service levels and the environment. Forward planning will also ensure that the capital needed to fund the work (both debt and rates), and the contractors required to do the work, are in place.

We are continually improving our knowledge about the condition of our 3 waters assets.  Some assets are in better condition than expected, given their age, and they still work well, but others need replacing sooner. Renewals are prioritised, based on their condition and performance, and not just their age - fixing those assets that need it most.  The 30-year infrastructure strategy sets out the funding to meet fixing those assets that need it most, and to address historically deferred renewals (the backlog), to ensure that levels of service are maintained in the future.

Prioritising our renewals in this way means that we will reduce the risk of having reactive responses to asset failures that would impact our levels of service.

The financial strategy aims to provide the financial framework underlying the proposed expenditure and funding of the 9 year plan. This financial strategy is underpinned by principles of:

• Financial prudence - Council services and investment in infrastructure are cost efficient and are an effective way of achieving the identified community outcomes.
• Financial sustainability – The Council’s activities must be financed and funded in a way that ensures Council’s financial sustainability over time, in the face of risks and uncertainty.
• Transparency and accountability - People who pay are aware of what they are paying for and can confirm that what is proposed has been provided.
• Affordability - Council services and infrastructure that are funded by rates, user fees or through development contributions are affordable to people wanting to access these services or to develop and build here.
• Fairness and Equity - Council considers who benefits or causes the costs when considering who should pay a share of these costs.

Inflation – the financial graphs and figures in this Financial Strategy have taken into account the price level adjustors, as outlined in our Significant Forecasting Assumptions.

Compliance with borrowing and rates limits

The 9 year plan remains compliant with the limits for borrowing and rates throughout the 9 years.

The DCC proposes to maintain existing levels of service and meet additional demands for services within the rates and borrowing limits set.

Rates and other revenue

The DCC recognises that while rates need to be at an affordable level overall, it also needs to balance affordability with increasing costs of delivering core services. Rates are key sources of funding for council services. Challenge is balancing rate increase required to deliver the services with affordability.

Alongside rates, the DCC has a range of other revenue sources. Fees and charges are one of the ways that the DCC can recover some of the costs of delivering an activity or services directly from those who use, and therefore benefit, from the activity or service. The DCC attempts to balance user pays with community good when it assesses that level of fees and charges to apply to certain services. How the DCC finds the balance is laid out in the Revenue and Financing Policy. In addition, some functions are debt- funded because of the long-term nature of the investment. Required funding is primarily reserved for capital projects.

The DCC’s activities and services provided and investment in infrastructure will be paid for using the following sources of funds over the 9 year period.

The following chart shows the forecast rate increases and the annual rate increase limits for the 9 year plan.

Residents on low incomes will continue to be encouraged to access the rates rebate scheme offered by central government as a means of offsetting the cost of rates. The DCC will also continue to maintain our rates remission and rates postponement policies.

Debt

The use of debt allows the financial burden of new capital expenditure to be spread across a number of financial years, recognising that the expenditure is on intergenerational assets, i.e., the assets have a long life and generate benefits both now and to future generations. This means that future users pay their fair share of the cost of the asset.

Council uses debt to fund one-off operating grants to community organisations constructing or upgrading a building such as a community facility that provides enduring economic and wider community benefits.

Debt is also used to fund the portion of capital renewals that is not covered by funded depreciation.

The Council has committed to developing a debt repayment policy which will be considered as part of the 2026/27 Annual Plan. In the meantime, debt raised for one-off operating grants, described above, will be repaid over 20 years.

Council’s debt limit is a variable amount that is calculated as a percentage of revenue. The gross debt limit is set as 250% of revenue, less investment property gains. This means that our debt level will be responsive to change and will move in line with the level of our activities. This debt limit allows flexibility to deliver the planned capital expenditure programme, while also having capacity to fund potential unplanned events.

The following graph shows the 9 year forecast on borrowing from 2025 to 2034.

Over the 9 year period, the debt required to fund the planned capital investment does not reach the 250% of revenue limit.

Council has a credit rating at December 2024 of AA/A-1+ with a negative outlook. Credit rating is assessed annually with our current credit rating agency being Standard & Poor’s. Credit rating agencies take into account matters relating to debt and expenditure against revenue, liquidity and credit risk. As Council borrows more, revenues will need to increase to ensure council remains financially sustainable.

In September 2022, both Council and its group company Dunedin City Treasury Limited joined the Local Government Funding Agency (LGFA) borrowing programme. The financial covenants with the LGFA are as follows:

• Debt limit - net debt for local authorities is calculated as a percentage of total revenue and must not exceed 280%. Council is required to have a minimum credit rating of A. Net debt is defined as gross debt less liquid financial assets and investments.

As at 30 June 2024, Council’s net debt as a percentage of total revenue was 110.4%. Its Standard and Poor’s credit rating was AA.

• Interest limits – net interest calculated as a percentage of total revenue must not exceed 20%. Net interest calculated as a percentage of annual rates income must not exceed 30%.

As at 30 June 2024, Council’s net interest as a percentage of total revenue was 0.3%, and Council’s net interest as a percentage of annual rates income was 0.4%.

The key limit affecting our ability to borrow from LGFA and our credit rating is the debt to revenue ratio. This limit is set at 280% and ensures that the DCC maintains debt levels of no more than 2.8 times our revenue.

In this 9 year plan, Council will remain within the borrowing limits throughout the 9 years, based on the proposed capital programme supported by ongoing increases in rates revenue. Council’s gross debt limit of 250% is considered financially prudent, as it sits well within the lending limits set by the LGFA.

The Council has significant liquid assets and investments to provide a partial offset to gross debt. As at 30 June 2024, these included the Waipori Fund of $103.2 million, an investment property portfolio of $110.4 million, and a Dunedin City Holdings Ltd interest-bearing shareholder advance of $112.0 million. Further detail on these assets is provided below.

Operating surplus
Balanced budget: Forecast total operating surplus is greater than zero from Year2 of the plan.

The Local Government Act 2002 requires councils to have a balanced budget (operating surplus) unless it is prudent to do otherwise.

The revaluation of three waters infrastructure assets in 2022/23 resulted in a significant increase in depreciation. Since this time Council has run an operating deficit budget. The 9 year plan provides for Council achieving an operating surplus by year 2 of the 9 year plan, while 3 waters achieves an operating surplus by year three of the 9 year plan. In our deficit year Council will be borrowing more. Council believes this is financially prudent because it balances affordability and delivery, and it is demonstrating that a balanced budget will be achieved early in the 9 year plan.

Council’s overall operating deficit in year 1 of the 9 year plan relates to unfunded deprecation for both the community housing and 3 waters activities. The 3 waters activities continue to have unfunded depreciation in year 2 of the 9 yar plan, and from year 3 onwards, depreciation is fully funded. Details of the funded deprecation are as follows:

• Community housing – 98% of depreciation is funded in year 1, and then depreciation is fully funded for the remainder of the 9 year period.
• Water supply – 73% of depreciation is funded in year 1, 92% of deprecation is funded in year 2, and then depreciation is fully funded for the remainder of the 9 year period.
• Wastewater – 82% of depreciation is funded in year 1, 93% of deprecation is funded in year 2, and then depreciation is fully funded for the remainder of the 9 year period.
• Stormwater - 62% of depreciation is funded in year 1, 85% of deprecation is funded in year 2, and then depreciation is fully funded for the remainder of the 9 year period.

The rates increases shown in the “Rates and other revenue" section above include both the general rate and targeted rates. They include an increase of 15% for the 3 waters targeted rates each year for the first two years of the 9 year plan, as we work towards having the cost of providing our water services being fully funded by targeted rates.

Everyday costs funded by everyday revenue: Council aims to ensure a balanced budget, meaning everyday costs of running the city can be funded from the everyday revenue (excluding any non-recurring/non-cash items) consistently by the end of Year 3.

Everyday revenue excludes some capital expenditure funding items (e.g., Development Contributions, Non-Recurring NZ Transport Agency (NZTA) Waka Kotahi capital subsidies) and any non-cash income (e.g., Vested Assets, fair values gains related to the Waipori Fund investments) as these items are not ‘everyday revenue’ and/or cash generating. The 9 year plan will aim achieve this by year 3.

Surplus funds

Surplus funds are defined as follows:

• An operating surplus arising from everyday revenue exceeding everyday costs.
• Proceeds from the sale of an asset after the repayment of any debt associated with that asset.

In general, any surplus funds will be used to repay debt, invest in new projects for the city, and/or help pay for priority projects.

In deciding to dispose of an asset, the Council may consider the option of using the proceeds to invest in an income generating asset (e.g., Waipori Fund) rather than pay down debt. The Council would elect to do this at the time of the approval to dispose, having considered the cost of borrowing compared to the potential returns on income generating assets at the time of sale.

Security for debt

Council’s policy is to give rates as security for debt. Most of our borrowing will be done through our group company Dunedin City Treasury Limited.

In our last 10 year plan, the DCC acknowledged that Dunedin’s infrastructure networks i.e., water and transport services, have been neglected in the past. Over many years there has been insufficient investment in their maintenance and renewals, and as a result, the DCC has found itself in catch up mode, where significant work is needed to ensure reliability of our basic infrastructure.

Since 2021, the DCC has increased our maintenance and renewals spend on these networks. While not increasing our levels of services, the DCC is improving the resilience of these assets to ensure that we maintain our levels of service. Increased investment in our water and transport assets must continue over the next 9 years.

The prioritisation of maintenance and renewals work is based on Council’s Asset Management Plans. These are regularly updated to reflect changing needs and emerging risks. Asset management planning focuses on asset condition, risk assessment, planning and delivery opportunities, and long-term asset solutions.

This Financial Strategy is closely linked to the Infrastructure Strategy so significant issues such as these can be properly considered. Updated information has been used to make decisions about assets that need renewing over the 9 year plan. The Infrastructure Strategy expands this timeframe out to 30 years and gives greater confidence around how this work can be paid for in the longer term.

The Infrastructure Strategy also considers capital projects that may no longer qualify for NZTA funding.  In response to this, low risk projects have been reduced so that no additional costs will be incurred by rate payers.  Projects that were improving levels of service have been discontinued until such time as co-funding may be reinstated.  The DCC funding that would have applied to discontinued projects has been redirected to priority projects that maintain our levels of service.

Over the next 9 years, the DCC is planning to invest in projects that will provide resilience for our city and enhance amenity levels. Some of the significant projects to upgrade or continue to improve services include:

• improving the resilience of Dunedin’s transport system, water supply and stormwater infrastructure
• responding to infrastructure needs for our growing population
• minimising transport disruption during and after the construction of the new Dunedin Hospital
• investing in flood alleviation in South Dunedin
• investing in reducing our carbon emissions through waste minimisation initiatives
• investing in a new modern landfill to replace the current facility at Green Island

The graph below shows planned capital investment as per the 9 year capital expenditure programme.

The Council has reviewed its levels of services and what it will deliver to the community. This plan continues to fund and deliver the services currently being offered, to maintain current levels of service over the 9 year period.

As noted above, with funding constraints through reduced government subsidies, our capital programme has been reprioritised to focus on those projects that maintain levels of service and meet additional demand for services through growth, as outlined in the capital programme.

The graphs below show our operating and capital expenditure over the 9 year period by activity group.

The Council needs to have the ability to respond to unplanned events, such as natural disasters, civil defence emergencies and pandemics. These events can result in significant unplanned operating and capital costs.

If a significant event occurs, the Council has a range of options for funding unbudgeted expenditure within the financial strategy limits, including rates, debt, insurance, Government funding for infrastructure assets, financial assets and reprioritisation of existing budgets.

The Council holds a range of investments, including Council-owned companies, investment property and the Waipori Fund. These investments are designed to provide ongoing non-rates income over the medium to long term as well as a partial offset to gross debt as discussed above. These investments are discussed below.

The DCC’s investment decisions can also support wider strategic goals. For example, the DCC excludes certain categories of investment under its Waipori Fund Statement of Investment Policies and Objectives, and DCHL is working with the DCC to identify emissions reduction opportunities through implementation of its Carbon Roadmap.

Council-owned companies

Council-owned companies are an important component in this Financial Strategy and the Investment Framework. Council owns Dunedin City Holdings Ltd (DCHL), which in turn owns Delta, Aurora, City Forests, Dunedin Airport (50%), Dunedin Stadium Property, Dunedin Venues Management and Dunedin Railways on behalf of the Council.

The companies are valuable assets in terms of their capital values, and the income some of the companies generate can be used to provide a dividend to Council. That dividend is used to reduce the levels of rates income needed to deliver core services to our community. However, stadium-related debt pressure and the need for group companies to re-invest in their own infrastructure has meant that the Council is not receiving a dividend commensurate with the level of investment it has in these companies.

Group companies are investing in their own infrastructure, and this is particularly important in the case of lines company Aurora Energy which requires ongoing significant investment in infrastructure that needs to be replaced.

The 9 year plan assumes income from its companies of $5.9 million per annum being the current interest on the shareholder advance to DCHL ($112.0 million) and a dividend of $9 million in each of the first two years and $11 million per annum from year three onwards. In the event the interest rate is renegotiated down, it is anticipated any difference to the $5.9 million would be made up by a compensating dividend stream.

Waipori Fund

Established in 1999, using proceeds from the sale of the Waipori electricity generation assets, the Waipori Fund is a diversified investment portfolio comprising both fixed interest deposits and equity investments.

The Fund is managed by Dunedin City Treasury Limited on behalf of Council, using the Statement of Investment Policy and Objectives (SIPO) approved by Council.

The Council has an expectation of receiving cash from the Fund each year. While the market value of the Fund will vary from month to month and year to year, its cash flow will not fluctuate to the same extent. In some circumstances, the Fund could have a negative operating result (arising from the requirement to “mark to market” the Fund’s investments even though there is no intention to sell them) but a positive cash flow.

The SIPO defines the primary objectives of the fund to be:

• Maximise its income, subject always to a proper consideration investment risk and;
• Grow the Fund’s capital, subject to the income distribution needs of the Council and the provisions for capital protection.

Th Council envisages a minimum return over the medium to long term, net of all fees and charges attributable to the Fund, equivalent to the weighted average Official Cash Rate plus the movement in the ‘all groups’ consumer price index.

The fund value at 30 June 2024 was $103.2 million.

Investment property portfolio

Council owns an investment property portfolio comprising a mixture of property types, including a number located outside of Dunedin.

The minimum target return from Council’s investment properties is to be greater than the weighted average cost of funds.

The portfolio value at 30 June 2024 was $110.4 million, broken down as follows:

Shareholder Advance

Council has provided an interest-bearing shareholder advance to Dunedin City Holdings Limited of

$112.0 million, which has an associated annual income stream of $5.9 million.