Annual Report Shows Lower Investment Returns

Annual Report Shows Lower Investment Returns

Thursday, November 01, 2012

Unrealised investment income and accounting adjustments saw the South Taranaki District Council’s books show a largely ‘paper’ deficit when it adopted its 2011/2012 Annual Report at Monday’s Special Council Meeting.

The Report showed the Council finished the year with operational savings of $737,882 however a lower than projected return on the Council’s Long Term Investment Fund (LTIF) and $4.5 million of accounting adjustments meant that the end result was a deficit of $10 million.

South Taranaki Mayor, Ross Dunlop, says the Council’s operating expenditure was well under budget and the Council’s financial position is sound.

“As a result of very good investment earnings from previous years, last year’s deficit will have no impact on rates,” he says.

Each year the Council draws $5.6 million from the Funds earnings; $3.87 million is used to subsidise rates and $1.73 million is used to repay loans for community projects (e.g. Rotokare Predator Proof Fence, the Powerco Aquatic Centre upgrade and TSB Hub). What’s left over is returned to the Fund.

“In the years when the Fund makes more than we require, the surplus earnings are reinvested back into the Fund – in years when it makes less than we need, we can draw on the Fund to meet our commitments.”

“Put simply, in good years we build the Fund so that in bad years we can still meet our priorities.”

Mr Dunlop says it is unwise to view the LTIF in the short term.

“Investment Funds fluctuate from day to day, month to month, year to year. The important thing is to look at the fund over the long term. For example over the last 3 years the average gross return has been a very strong 9.53% (2009/10 - 10.8%, 2010/11 – 14.5% and 2011/12 – 3.3%). Since its inception in 1997 (to Sept 2012) it has achieved an average gross return of 6.78%,” he says.

“Obviously the LTIF would not be sustainable if it continually earnt less than what the Council drew down each year, but historically this has not been the case.”

Mr Dunlop also says the $4.5 million loss on Derivatives the Council had to show was completely misleading. “Basically, we have to account for the potential penalties we would be charged if we paid all Council debt off tomorrow – like the mortgage penalties a bank would charge a homeowner who paid off their mortgage before the due date.  Obviously we have no intention of doing that, however we have to show it as a ‘paper’ accounting entry on our books to meet the International Financial Reporting Standards,” he says.

“Council’s operating expenditure savings ($737,882) was a very good result considering the $1.86 million of unbudgeted expenditure resulting from the extreme weather events in January and March. The fact that we were able to absorb this emergency expenditure and still have an operational surplus further demonstrates the Council ‘s prudent approach to operational spending,” he says.

“At the end of the day since the LTIF was started we have returned $72 million back to the community in the form of rates subsidies, have used it to loan fund some major community projects and managed to grow it from $88.7 to $106.5 million. I think that is a very credible result.”

For a more detailed Summary or the Full Annual Report click here - or call into your local LibraryPlus centre or the Hawera Administration Building to pick up a copy, or phone us on 0800 111 323 to arrange a copy to be sent to you.

By the numbers:

The Councils LTIF made $2.2 million over the year which was a gross 3.3% return.

Since its inception in 1997 (to Sept 2012) the LITF has achieved an average gross return of 6.78%.

In the first 3 months of the new financial year (July – September) the LTIF has already made $5 million.

In 2010/11 Council recorded a surplus of $4.1 million

Council is currently recording a surplus of $2.2 million for the first quarter (1 July – 30 Sept) of the 2012-2013 financial year.


STDC became a founding shareholder of the New Zealand Local Government Funding Agency. This body was created so Council’s can use their collective bargaining power to borrow money at lower interest margins than they would otherwise be able to do on their own.

Council acquired a credit rating (A+/A-1) from Standard and Poors. Together these two moves will result in significant savings on the cost of borrowing money and servicing debt into the future.

In June 2012, the Council opened an office in Harbin, our Chinese Sister City. This office was offered to STDC by the Harbin Municipal Government, rent free, for three years. To take advantage of this generous offer the Council entered into a partnership with a local South Taranaki company to operate the office so there is no cost to the ratepayer. The office will be used to facilitate and develop cultural and business relationships between South Taranaki, Harbin and greater China.

The TSB Hub continued to go from strength to strength with total annual attendance increasing by 9.5% on the previous year to 162,000. Numbers have steadily increased over the two years since the facility was opened as it continues to attract events and functions that would not have otherwise come to our District.

Construction of the new $1.5 million Patea Pool got underway in June with the site blessing and sod turning ceremony. The new Pool is scheduled to be open for the 2012 summer season.

2011/12 year saw a 42% increase in the number of visits by children participating in the PowerCo Aquatic Centre’s Swim and Survive Programme.  Attendance increased from just under 6,500 to over 9,000.

Patea was the focus of the Council’s water infrastructural upgrade programme with a major overhaul of the town’s water supply. Construction started on a new ‘secure’ bore, reservoir and water plant which was completed in September 2012 ($2.6 million).