2020/2021
Te Pūrongo ā-Tau Annual Report
Huinga 2 | Volume 2
Ngā Tauākī Pūtea | Financial Statements

Ihirangi | Contents
Statement of Compliance and Responsibility
Council and Group Structure
Basis of Consolidation
Other Significant Accounting Policies
COVID-19 Financial impact
Statement of Comprehensive Revenue and Expense
Note 1: Rates revenue
Note 2: Revenue from operating activities
Note 3: Investment revenue
Note 4: Vested assets and other revenue
Note 5: Fair value movements
Note 6: Finance revenue and expense
Note 7: Expenditure on operating activities
Note 8: Depreciation and amortisation
Note 9: Share of associates’ and joint venture’s surplus or deficit
Note 10: Income tax
Statement of Financial Position
Note 11: Cash and cash equivalents
Note 12: Derivative financial instruments
Note 13: Receivables and recoverables
Note 14: Other financial assets
Note 15: Non-current assets classified as held for sale
Note 16: Intangibles
Note 17: Investment properties
Note 18: Property, plant and equipment
Note 19: Investment in controlled entities
Note 20: Investment in associates and joint venture
Note 21: Exchange transactions, transfers and taxes payable
Note 22: Revenue in advance
Note 23: Borrowings
Note 24: Employee benefit liabilities and provisions
Note 25: Provisions for other liabilities
Note 26: Deferred tax
Statement of changes in equity
Equity
Note 27: Revaluation reserves
Note 28: Hedging reserve
Note 29: Fair value through other comprehensive revenue and expense reserve
Note 30: Restricted funds
Statement of cash flows
Note 31: Reconciliation of cash flows
Other disclosures
Note 32: Financial instruments
Note 33: Commitments
Note 34: Contingencies
Note 35: Joint Operations
Note 36: Related party disclosures
Note 37: Remuneration and staffing
Note 38: Events after the end of the reporting period
Financial prudence
Annual report disclosure statement for year ended 30 June 2021
Rates affordability benchmark
Debt affordability benchmark
Balanced budget benchmark
Essential services benchmark
Debt servicing benchmark
Debt control benchmark
Operations control benchmark
Funding impact statements
Annual report disclosure statement for year ended 30 June 2021
Independent Auditor’s Report

Tauākī Tūtohu me te Takohanga | Statement of Compliance and Responsibility
Reporting entity
Wellington City Council is a territorial local authority governed by the Local Government Act 2002.
The primary purpose of the Council and Group is to provide goods or services for community or social benefits rather than making a financial return. As a defined public entity under the Public Audit Act 2001, the Council is audited by the Office of the Auditor General and is classed as a Public Sector Public Benefit Entity for financial reporting purposes.
The reported Council figures includes the results and operations of Wellington City Council and the Council’s interests as disclosed in Note 35: Joint operations (pg 102).
The reported Group figures includes the Council (as defined above), its controlled entities as disclosed in Note 19 (pg 54) and the Council’s equity accounted interest in the associates and a joint venture as disclosed in Note 20 (pg 55).  A structural diagram of the Council and Group is included on the following page. 
Compliance
The Council and management of Wellington City Council confirm that all the statutory requirements in relation to the Annual Report, as outlined in Schedule 10 of the Local Government Act 2002, including the requirement to comply with New Zealand Generally Accepted Accounting Practice (NZ GAAP) have been complied with.
The financial statements have been prepared to comply with Public Sector Public Benefit Entity Accounting Standards (PBE accounting standards) for a Tier 1 entity and were authorised for issue by the Council on 28 October 2021
Responsibility
The Council and management accept responsibility for the preparation of the annual financial statements and judgements used in them. They also accept responsibility for establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting.
In the opinion of the Council and management, the Annual Report for the year ended 30 June 2021 fairly reflect the financial position, results of operations and service performance achievements of Wellington City Council and Group.
			
Andy Foster
Mayor	Barbara McKerrow
Chief Executive	Sara Hay
Chief Financial Officer	
28 October 2021	28 October 2021	28 October 2021	
Council and Group Structure 
Figure 1: Reporting entity structures
Wellington City Council Reporting Entity (Council)

Spicer Valley Landfill 
21.5%

21.50%

Wellington City Council

Porirua City Council
Joint Ventures

Let’s Get Wellington Moving Projects
 20%

20%

	++				

Wastewater Treatment Plant
27.60%

=	+	+

Wellington City Council Group Reporting Entity (Group)

All entities included within the Group are domiciled and operate in the Wellington region, New Zealand.
The percentages in the figures above, represent the Council’s interest and/or ownership (for accounting purposes) in each of the entities in the Group. Refer to Notes 19, 20 and 35 (pg 54, 55, and 102) for more information.

Basis of Consolidation
Joint arrangements
Joint arrangements are arrangements where two or more parties have joint control. The accounting treatment can vary according to the structure of the arrangement. There are two types of joint arrangements, either a joint operation or a joint venture.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the agreed sharing of control of an arrangement by way of a binding arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. 
In the Council financial statements, the investments in joint ventures are carried at cost. In the Group financial statements, the Council’s share of the assets, liabilities, revenue and expenditure of joint ventures is included on an equity accounting basis as a single line. 
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. For a joint operation the Council has a liability in respect of its share of joint ventures’ operational deficits and liabilities, and shares in any operational surpluses and assets. 
The Council’s proportionate interest in the assets, liabilities, revenue and expenditure of joint operations is included in the financial statements of the Council and Group on a line-by-line basis.
Controlled entities
Controlled entities are entities that are controlled by the Council. Control exists where the Council is exposed, or has rights, to variable benefits (either financial or non-financial) and has the ability to affect the nature and amount of those benefits from its power over the entity. Power can exist over an entity if, by virtue of its purpose and design, the relevant activities and the way in which the relevant activities of the entity can be directed has been predetermined by the Council.
In the Council financial statements, the investment in controlled entities is carried at cost. In the Group financial statements, controlled entities are accounted for using the purchase method where assets, liabilities, revenue and expenditure are added on a line-by-line basis. Where a non-controlling interest is held by another party in a Council controlled entity, the controlled entity is consolidated as if it was fully controlled and the share of any surplus or deficit attributable to the non-controlling interest is disclosed within the Statement of Comprehensive Revenue and Expense. 
All significant transactions between Group entities, other than rates, are eliminated on consolidation. Rates are charged on an arm’s length basis and are not eliminated to ensure that reported costs and revenues are consistent with the Council’s Annual Plan.
Associates
Associates are entities where the Council has significant influence over their operating and financial policies, but they are not controlled entities or joint ventures. In the Council financial statements, the investments in associates are carried at cost. In the Group financial statements, the Council’s share of the assets, liabilities, revenue and expenditure of associates is included on an equity accounting basis as a single line.
Council Controlled Organisations
The Council has established several Council Controlled Organisations (CCO’s) and Council Controlled Trading Organisations (CCTO’s) to help it achieve its goals for Wellington. These organisations were set up to independently manage Council facilities or deliver specific services and developments on behalf of Wellington residents. The performance of each CCO is reported on in Volume 1 of the report in Section 2: Our performance in detail on pg 26-137. Council has made appointments to other organisations, which make them Council Organisations (as defined in the Local Government Act 2002), but they are not Council controlled or part of the Group.
Other Significant Accounting Policies
The following accounting policies are additional to the disclosures and accounting policies that are included within the relevant specific Notes forming part of the financial statements. 
Basis of preparation
Measurement base
The measurement basis applied is historical cost, modified by the revaluation of certain assets and liabilities as identified in the accounting policies. The accrual basis of accounting has been used unless otherwise stated.
For the assets and liabilities recorded at fair value, fair value is defined as the amount for which an item could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s-length transaction. For investment property, non-current assets classified as held for sale and items of property, plant and equipment which are revalued, the fair value is determined by reference to market value. The market value of a property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction.
Amounts expected to be recovered or settled more than one year after the end of the reporting period are recognised at their present value. The present value of the estimated future cash flows is calculated using applicable inflation factors and a discount rate. 
The financial statements are presented in New Zealand dollars, rounded to the nearest thousand ($000), unless otherwise stated.
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. 
Exchange and non-exchange transactions
Revenue from exchange transactions
Revenue from exchange transactions arises where the Council provides goods or services to another entity or individual and directly receives approximately equal value in a willing arm’s length transaction (primarily in the form of cash in exchange). 
Revenue from non-exchange transactions
Revenue from non-exchange transactions arises from transactions that are not exchange transactions. Revenue from non-exchange transaction arises when the Council receives value from another party without giving approximately equal value directly in exchange for the value received. 
An inflow of resources from a non-exchange transaction recognised as an asset, is recognised as revenue, except to the extent that a liability is also recognised in respect of the same inflow. 
As Council satisfies a present obligation recognised as a liability in respect of an inflow of resources from a non-exchange transaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an amount of revenue equal to that reduction
Approximately equal value
Approximately equal value is considered to reflect a fair or market value, which is normally considered as an arm’s length commercial transaction between a willing buyer and willing seller.  Some goods or services that Council provides (eg. the sale of goods at market rates) are defined as being exchange transactions. Only a few services provided by Council operate on a full user pays (eg. Parking), cost recovery or breakeven basis and these are considered to be exchange transactions unless they are provided at less than active and open market prices.
Most of the services that Council provides, for a fee, are subsidised by rates (eg. The cost to swim in a Council pool) and therefore do not constitute an approximately equal exchange. Accordingly, most of Council’s revenue is categorised as non-exchange.
Change of accounting policies
There have been no elected changes in accounting policies during the financial period. 
Changes to PBE accounting standards
The following new accounting standards have been issued with mandatory effect for the accounting period. 
•	In November 2018, the XRB issued 2018 Omnibus amendments to PBE standards. These amendments were largely effective for periods beginning on or after 1 January 2019. Included in the Omnibus were amendments to PBE IPSAS 2 Cash Flow Statements effective for annual financial statements covering periods beginning on or after 1 January 2021 and these amendments have been adopted in this report resulting in additional disclosure regarding the Cash Flow statement. There are no significant accounting implications for Council and the Group.
•	In May 2019, the XRB issued 2019 Amendments to XRB A1 Appendix A – When is an Entity a Public Benefit Entity effective for periods beginning on or after 1 January 2020. As the Council is already a PBE, being a local authority, there is no impact on adoption.
•	In August 2019, the XRB issued Uncertainty over Income Tax Treatments (Amendments to PBE IAS 12, effective for periods beginning on or after 1 January 2020. As a local authority WCC is only subject to income tax for a very limited amount of its income. There is no uncertainty over income tax treatments for WCC so there is no impact on the Council.
•	In February 2020, the XRB issued PBE Interest rate benchmark reform, effective for periods beginning on or after 1 January 2020. There is no impact on the Council or Group as all of our contracts are in NZD, so we are unlikely to be affected, as BKBM is untouched at this stage. Even if the NZ benchmarks changed from BKBM to an overnight indexed benchmark curve, both our hedges and the underlying debt would reference the same curve, so there would be no effect on hedge accounting.
•	In August 2020, the XRB issued Going concern disclosures (Amendments to PBE IPSAS 1), effective for periods ending on or after 30 September 2020. There is no impact on Council, as being a local authority with rating powers, Council is assumed to be a going concern and no additional disclosures are required. 
Significant standards, amendments and interpretations issued but not yet effective and not early adopted

Significant standards, amendments and interpretations issued but not yet effective and not early adopted which are relevant to the Group are:
•	In January 2017, the XRB also issued PBE IFRS 9 Financial Instruments to replace PBE IPSAS 29 Financial Instruments: Recognition and Measurement. With an effective date for annual periods beginning on or after 1 January 2021, but with early adoption permitted, the intention is not to adopt at this stage while the effects on Council and the Group are more thoroughly assessed. The main changes under PBE IFRS 9 are:
o	New financial asset classifications requirements for determining whether an asset is measured at fair value or amortised cost.
o	A new impairment model for financial assets based on expected losses, which may result in the earlier recognition of impairment losses.
o	Revised hedge accounting requirements to better reflect the management of risks.
•	In March 2019, the XRB subsequently issued Effective date of PBE IFRS 9, which delayed the effective date out to 1 January 2022.
•	In March 2019, the XRB issued PBE IPSAS 41 Financial Instruments, with an effective date for reporting periods after 1 Jan 2022. This new standard supersedes most of PBE IPSAS 29 Financial Instruments: Recognition and Measurement. PBE IPSAS 41 also supersedes PBE IFRS 9 Financial Instruments above.
•	In November 2019, the XRB issued PBE FRS 48 Service Performance Reporting, with an effective date of 30 June 2022, for periods beginning on or after 1 January 2021. The objective of this Standard is to establish principles and requirements for an entity to present service performance information that is useful for accountability and decision-making purposes in a general-purpose financial report. 
The Council and group have not yet fully assessed the effects of the new standards.
Judgements and estimations
The preparation of financial statements using PBE accounting standards requires the use of judgements, estimates and assumptions. Where material, information on the main assumptions is provided in the relevant accounting policy or in the relevant note.
The estimates and assumptions are based on historical experience as well as other factors that are believed to be reasonable under the circumstances. Subsequent actual results may differ from these estimates.
The estimates and assumptions are reviewed on an ongoing basis and adjustments are made where necessary.
Judgements that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in the relevant notes. Significant judgements and estimations include landfill post-closure costs, asset revaluations, impairments, certain fair value calculations and provisions.
Goods and Services Tax (GST)
All items in the financial statements are exclusive of GST, with the exception of receivables, recoverables and payables, which are stated as GST inclusive. Where GST is not recoverable as an input tax, it is recognised as part of the related asset or expense.
Budget figures
The Annual Plan budget figures included in these financial statements are for the Council as a separate entity. The Annual Plan figures do not include budget information relating to controlled entities or associates. These figures are those approved by the Council at the beginning of each financial year following a period of consultation with the public as part of the Annual Plan process. These figures do not include any additional expenditure subsequently approved by the Council outside the Annual Plan process. The Annual Plan figures have been prepared in accordance with GAAP and are consistent with the accounting policies adopted by the Council for the preparation of these financial statements.
Comparatives
To ensure consistency with the current year, certain comparative information has been reclassified where appropriate. This has occurred:
•	where classifications have changed between periods
•	where the Council has made additional disclosure in the current year, and where a greater degree of disaggregation of prior year amounts and balances is therefore required; and 
•	​where there has been a change of accounting policy (There has been no change in the 2020/21 year).

COVID-19 Financial impact
An assessment of the main impacts of COVID-19 on the Council’s financial statements for the year ending 30 June 2021 is outlined in Table 1 below with reference to the relevant Note to the financial statements for more detailed information.
Table 1: COVID-19 Financial impact Assessment 
Item	Financial impact	2021
$000	2020
$000	Total
$000	Note	
Revenue	Lost revenue for facilities being unable to operate under varying alert levels and uncertain times for planning events, particularly operations of the Wellington Venues facilities.	5,592	13,577	19,169	2	
Revenue	Wellington International Airport Limited - approximate dividend not declared for distribution, although already not included in the Annual Plan for 2020/21 	14,000	-	14,000	3	
Rates postponement	Deferral of Quarter 1 rates instalment payments for 2020/21 and Quarter 4 instalment for 2019/20	1,908	2,182	4,090	1	
Expenditure	Net reduction in costs, particularly the costs of sales relating to events not held	3,140	257	3,397	7	
Remuneration	Teams unable to work during lockdown	-	1,958	1,958		
Employee liabilities	Increase in annual leave liability	-	1,529	1,529		
Payment terms	Reduction in payment timeframes from 20 to 5 working days maintained	N/A	N/A	N/A	21	
CCO support	Drawdown on the joint loan facility agreed between Council and Greater Wellington Regional Council for the Wellington Regional Stadium Trust	900	-	900	34	
CCO support	Provision of shareholder support to Wellington International Airport Limited if required, extended for another year	25,758	25,758	25,758	34	
CCO support	Budgeted additional grant funding to Council controlled entities (unbudgeted in 2020)	2,318	504	2,822	34	
Other entity support
	Funding agreement with WOW to provide access to financial relief in the event of a Government announced COVID-19 lockdown up to a maximum of $5.000m	5,000
	-
	5,000	34	
City recovery fund	Utilisation of the of City Recovery Fund (CRF) 	2,940	-	2,940	30	
Revaluations	Valuation reports for investment property and operational land and building assets contain statements around the heightened uncertainty relating to COVID-19 	N/A	N/A	N/A	18	

Tauākī o ngā Moni Whiwhi me ngā Whakapaunga Whānui | Statement of Comprehensive Revenue and Expense

The notes on pg 15 to 115 form part of and should be read in conjunction with the financial statements
Statement of Comprehensive Revenue and Expense – continued

1.	Other comprehensive revenue or expense is non-cash in nature and only reflects changes in equity.
2.	Statement of Changes in Equity – see pg 74

The notes on pg 15 to 115 form part of and should be read in conjunction with the financial statements
Statement of Comprehensive Revenue and Expense - Major budget variations
Significant variations from budgeted revenues and expenses are as follows:
Revenues were $31.530m higher than budgeted with major variances included of:
•	$14.421m of higher-than-expected investment property revaluations due to significant market growth   
•	$11.203m of unbudgeted vested assets ($9.411m) and higher other revenue ($1.792m) – see Note 4
•	$2.101m of higher interest revenue 
•	$6.514m of overall higher revenue from operating activities, mainly Development Contributions ($1.689m), Grants and subsidies ($7.138m), but greatly reduced contributions from venues due to COVID-19 restrictions offsetting increases across most other operating activities for a reduction of $2.313m – see Note 2
Offset by:
•	$2.074m of lower rates, particularly water rates due to lower than budgeted consumption
•	$0.640m of lower investment revenue
Expenses were $25.451m lower than budgeted with major variances included of:
•	$24.041m less expenditure on operating activities, particularly due to savings achieved, the costs of events not occurring, changes to IT delivery and a project grant not paid due to delays. One offset additional expense was the utilisation of the unbudgeted $4.730m of the Government stimulus funding package for Three Water reforms
•	$1.234m of higher depreciation expense reflecting the higher than budgeted infrastructure revaluations in 2019/20
Net finance expense was $2.329m lower than budgeted reflecting higher interest revenue arising from a higher level of cash held to cover COVID-19 impacts.
Other comprehensive revenue and expense was $258.345m higher than budgeted with major variances included of:
•	$60.019m of unbudgeted positive fair value movements in cash flow hedges due to higher swap interest rates in comparison to swap rates held.
•	$284.092m higher increase in the revaluation of operational land and buildings

•	

Note 1: Rates revenue

The total amount of rates charged on Council owned properties that have not been eliminated from revenue and expenditure is $14.926m (2020: $14.364m). For the Group, rates of $15.009m (2020: $14.448m) have not been eliminated. 
The revenue from rates for Wellington City Council was billed on the following rating information held as at 22 July 2020 due to COVID-19 delays.
The number of rating units:  79,811 (30 June 2019: 79,211).

Rates remissions    
Revenue from rates is shown net of rates remissions. The Council’s Rates Remission and Postponement Policies provide for general rates to be partially remitted for rural open space; land used principally for games or sport and in special circumstances (where the rating policy is deemed to unfairly disadvantage an individual ratepayer). A remission of the Downtown targeted rate may also be granted to provide rates relief for downtown commercial property temporarily not fit for the purpose due to the property undergoing development and therefore not receiving the benefits derived by contributing to the Downtown targeted rate. The Council committed itself at the start of the year to certain remissions, which for the reporting period ended 30 June 2021 totalled $1.246m (2020: $1.278m).
Non-rateable land 
Under the Local Government (Rating) Act 2002 certain properties are non-rateable. This includes schools, churches, public gardens and certain land vested in the Crown. This land is non-rateable in respect of general rates but, where applicable, is rateable in respect of sewerage and water. Non-rateable land does not constitute a remission under the Council’s Rates Remission and Postponement Policies.
COVID-19: On 9 April 2020 Council agreed to support both residential and commercial ratepayers by providing the ability to defer the 2019/20 fourth quarter rates instalment, due 1 June 2020, and the 2020/21 first quarter rates instalment, due 1 September 2020, without penalty for six months, provided that the ratepayer was able to meet certain criteria. Table 5 below details the breakdown of the deferments. 

Relevant significant accounting policies
Rates are set annually by resolution from the Council and relate to a particular financial year. All ratepayers are invoiced within the financial year for which the rates have been set. Rates revenue is recognised in full as at the date when rate assessment notices are sent to the ratepayers. Rates are a tax as they are payable under the Local Government Ratings Act 2002 and therefore meet the definition of non-exchange.
Water rates by meter are regulated in the same way as other rates and are taxes that use a specific charging mechanism to collect the rate. However, as the rates charged are primarily based on a per unit of consumption basis, water rates by meter are considered to be more in the nature of an exchange transaction. Revenue from water rates by meter is recognised on an accrual basis based on usage.

Note 2: Revenue from operating activities

For the Council, the principal grants and reimbursements are from Waka Kotahi - New Zealand Transport Agency (NZTA), which reimburses part of the Council’s costs for maintaining the local roading and cycling infrastructure. The capital reimbursements recognised from NZTA of $28.173m (2020: $25.414m) and operating reimbursements of $8.111m (2020: $7.616m) are for costs already incurred and there are no unfulfilled conditions or other contingencies relating to the reimbursements. 
Council applied for and received $10.100m of Government stimulus funding in relation to the Three Waters reform package. $4.730 million has been recognised above based on costs already incurred.
For revenue from other operating activities of Council, the five major contributors were:
•	City housing - $25.553m (2020: $26.470m)
•	Parking fees and permits - $23.293m (2020: $20.326m)
•	Landfill operations and recycling - $19.089m (2020: $16.328m) – including unbudgeted revenue from the joint operation with Porirua City Council $1.758m (2020: $1.693m).
•	Consents and licensing services - $16.116m (2020 $13.551m)
•	Convention and conferences centres – $8.259m (2020: $8.460m)
see Figure 2 for a five-year trend analysis of these major revenue streams.
Figure 2: 5-year trend for major revenue streams ($000)

5-year Trend analysis commentary
City Housing
Annual rent increases in line with market movements drive the increases in earlier years however there is a reduction in the 2020/21 year owing to the disposal of Arlington to Kainga Ora. For further information – refer to the Statement of service performance strategy area 5.2 – Community support (Volume 1, pg 75).
Parking fees and permits
Parking revenue was higher in 2020/21, as it was not impacted by COVID-19 in the way it was in 2019/20, when there was a Level 4 lockdown, during which no metering and minimal enforcement revenue was received.  There were periods during 2020/21 when COVID-19 restrictions did impact on revenue, but not to the extent of the severe lockdown levels in 2019/20. For further information – refer to the Statement of service performance strategy area 7.2 – Parking (Volume 1, pg 97).
Landfill Operations
The revenue increase in 2020/21 is due to fee increases and an increase in the tonnage for both Domestic general and Commercial general waste.  The year was also not affected to the same extent by COVID-19 as in 2019/20.  Contaminated soil and special waste volumes have in recent years been cause for a major boost to revenue levels and while lower in this past year, were still significant. For further information – refer to the Statement of service performance strategy 2.2 – Waste reduction and energy conservation (Volume 1, pg 43-45).
Consents and Licensing Services
Revenues were relatively consistent over previous years except where COVID-19 impacted on 2019/20.  Consent volumes have been restored to pre-COVID levels in 2020/21 and revenues have similarly returned to those levels. For further information – refer to the Statement of service performance strategy area 6.2 – Building and development control (Volume 1, pg 85-86).
Convention and Conference centres
The ongoing effects of COVID-19 with significantly reduced numbers of performances and events has had a severe impact on revenues in 2020/21, as it did in 2019/20. The on-going redevelopment and therefore unavailability of the St James Theatre is also a contributing factor. For further information – refer to the Statement of service performance strategy 3.1 – City promotions and business support (Volume 1, pg 54).
Relevant significant accounting policies
Revenue from operating activities is generally measured at the fair value of consideration received or receivable.
The Council undertakes various activities as part of its normal operations which generates revenue, but generally at below market prices or at fees and user charges subsidised by rates. The following categories (except where noted) are classified as transfers, which are non-exchange transactions other than taxes. 
See Note 13: Receivables and recoverables (pg 34), for an explanation of exchange and non-exchange transactions, transfers and taxes.
Development contributions
Development contributions are recognised as revenue when the Council provides, or is able to provide, the service for which the contribution was charged. Until such time as the Council provides, or is able to provide the service, development contributions are recognised as liabilities.
Grants, subsidies and reimbursements
Grants, subsidies and reimbursements are initially recognised at their fair value where there is reasonable assurance that the monies will be received and all attaching conditions will be complied with. Grants and subsidies received in relation to the provision of services are recognised on a percentage of completion basis. Reimbursements (e.g. NZTA roading claim payments) are recognised upon entitlement, which is when conditions pertaining to eligible expenditure have been fulfilled.
Fines and penalties
Revenue from fines and penalties (eg. traffic and parking infringements and library overdue book fines) is recognised when infringement notices are issued or when the fines/penalties are otherwise imposed. In particular the fair value of parking related fines is determined based on the probability of collecting fines considering previous collection history and a discount for the time value of money.
Rendering of services
Revenue from the rendering of services (eg. building consent fees) is recognised by reference to the stage of completion of the transaction, based on the actual service provided as a percentage of the total services to be provided. Under this method, revenue is recognised in the accounting periods in which the services are provided. Some rendering of services are provided at a market rate or on a full cost recovery basis (eg. Parking fees) and these are classified as exchange. 
Sale of goods
The sale of goods is classified as exchange revenue. Sale of goods is recognised when products are sold to the customer and all risks and rewards of ownership have transferred to the customer.
Note 3: Investment revenue

Dividends
The normally expected annual dividend from Council’s 34 percent holding in Wellington International Airport Limited was not declared for distribution to shareholders in 2020/21 due to the ongoing effect of COVID-19. The annual plan budget for 2020/21 did not include this revenue as the financial impact from COVID-19 was well forecasted. A dividend is also not budgeted for the 2021/22 financial year.
The Council continues to maintain its current level of investment as it considers the dividend stream adds diversity to normal rates revenue. The investment portfolio is presently maintained as it is strategically, financially and economically prudent to do so. 
For further information refer to Note 20: Investment in associates and joint venture (pg 55).
Investment properties
The revenues from investment properties are primarily from ground leases around the CBD and on the waterfront.  The Council periodically reviews its continued ownership of investment properties by assessing the benefits against other arrangements that could deliver similar benefits. Any assessment is based on both the strategic benefit of the investment/ownership and in terms of the most financially viable method of achieving the delivery of Council services. 
For further information refer to Note 17: Investment properties (pg 42).
Relevant significant accounting policies
Dividends
Dividends from equity investments are recognised when the Council’s right to receive payment has been established.  
Investment property lease rentals
Lease rentals (net of any incentives given) are recognised on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which benefits derived from the leased asset is diminished 
Note 4: Vested assets and other revenue

Vested assets are principally infrastructural assets such as roading, drainage, waste and water assets that have been constructed by developers. As part of the consents process, ownership of these assets is transferred to the Council, and on completion they become part of the city’s network. Although vested assets are non-cash in nature and represent a future obligation to the Council, as the Council will have the on-going costs associated with maintaining the assets, they are recognised as revenue in accordance with the applicable accounting standard.
The breakdown of principal vested assets received is:
•	Drainage, waste and water - $4.891m (2020: $4.362m). 
•	Roading - $4.430m (2020: $2.453m)
Other revenue consisted mainly of:
•	Gains on disposal of assets - $0.959m (2020: $1.431m)
•	Restricted funds - $0.992m (2020: $0.175m)
•	Fuel tax - $1.116m (2020: $0.999m)    
Relevant significant accounting policies
Donated, subsidised or vested assets 
Where a physical asset is acquired for nil or nominal consideration, with no conditions attached, the fair value of the asset received, as determined by active market prices, is recognised as non-exchange revenue when the control of the asset is transferred to the Council.
Gains
Gains include additional earnings (ie. Sale proceeds in excess of the book value) on the disposal of property, plant and equipment. 
Donated services
The Council benefits from the voluntary service of many Wellingtonians in the delivery of its activities and services (eg. beach cleaning and Otari-Wilton’s Bush guiding and planting). Due to the difficulty in determining the precise value of these donated services with sufficient reliability, donated services are not recognised in these financial statements.
Note 5: Fair value movements

Investment properties, which are revalued annually, are held primarily to earn lease revenue and/or for capital growth. These properties include the Council’s ground leases and certain land and buildings, including the Wellington Waterfront investment properties. For more information refer to Note 17: Investment properties (pg 42).
In May 2021, Wellington Regional Stadium Trust made a partial drawdown of a Joint loan facility, between Wellington City Council and GWRC, which was made available as part of a COVID-19 response. As the initial 2-year period is interest free an adjustment to reflect fair value is required. The value of this adjustment is $0.052m, which is non-cash in nature, has no effect on rates and will be amortised back up to full value over the next two years. The loan will become interest bearing in year 3, with annual principal repayments and the final repayment by the end of 2030/31.
Relevant significant accounting policies
Gains
Gains include increases on the revaluation of investment property and in the fair value of financial assets and liabilities.
Investment properties
Investment properties are measured initially at cost and subsequently measured at fair value, determined annually by an independent registered valuer. Any gain or loss arising is recognised within surplus or deficit. Investment properties are not depreciated.
Derivatives
Movements on derivatives at fair value through surplus or deficit represents the fair value movements on interest rate swaps that do not meet the criteria for hedge accounting. Movements in the Group's other derivatives that meet the criteria for hedge accounting, are taken to the cash flow hedge reserve and have no impact on the net surplus / (deficit) for the year.
Note 6: Finance revenue and expense

Council’s policy is to have the majority of borrowings on fixed interest rates to avoid volatility in its interest expense as interest rates change. To achieve this, it uses interest rate swaps, which effectively changes floating rate debt to fixed rate debt.
Returns on investment deposits are also market related so have reduced accordingly as interest rates have fallen.
Relevant significant accounting policies
Interest on borrowings
Interest expense is recognised using the effective interest rate method. All borrowing costs are expensed in the period in which they are incurred.
Re-discounting of interest
Re-discounting of interest on provisions is the Council’s funding cost for non-current provisions (where the cash flows will not occur until a future date). For further information refer to Note 24: Employee benefit liabilities and provisions (pg 65) and Note 25: Provision for other liabilities (pg 67).
Interest earned
Interest earned is recognised using the effective interest rate method.	
Note 7: Expenditure on operating activities

Governance and employment
Governance costs relate to the remuneration made to all elected members, comprising the Mayor, Councillors and Community Board members and also to directors appointed to boards of controlled entities. 
Employment costs relate to the remuneration paid directly to staff, other employee benefits such as KiwiSaver and other associated costs such as recruitment and training. 
During the year $0.462m (2020: $0.947m) of termination benefits were incurred by the Council and $0.753m (2020: $0.995m) for the Group. Termination benefits include all payments relating to the end of employment other than unpaid salary and leave entitlements. Termination benefits include both contractual (eg redundancy, in lieu of notice) and non-contractual (eg severance) payments.
For further information refer to Note 37: Remuneration and staffing levels (pg 109)
General 

During the period Audit New Zealand provided other services to the Council, namely assurance services relating to the Clifton Terrace Carpark managed by the Council on behalf of the New Zealand Transport Agency and assurance services relating to Council’s debenture trust deed compliance (see Table 12 above). Probity assurance over the Central Library Project (Te Matapihi) for $0.006m was also provided and was capitalised.
Direct costs are costs directly attributable to the rendering of Council services, including contracts, maintenance, management fees, materials and services.
Grants include the operating grants to Council’s controlled entities (refer to Note 36: Related Party disclosures, for a breakdown (pg 103). Other major grants include the funding to the Museum of New Zealand, Te Papa Tongarewa $2.250m (2020: $2.250m). 
Operating lease minimum lease payments are for non-cancellable agreements for the use of office or other spaces in buildings. 
For further information in relation to the Weathertight homes provision. Refer to Note 25: Provisions for other liabilities (pg 67).
Utility costs are those relating to the use of electricity, gas, and water. It also includes the payment of rates and water meter charges of $14.926m (2020: $14.364m) on Council owned properties. 
COVID-19: Expenditure impacts
The effect on expenditure related mainly to additional grant support for Council controlled entities namely, Wellington Cable Car Limited and Wellington Museums Trust. (refer to Note 36 – Related party disclosures (pg 103)). This higher expenditure, although less than budgeted, was offset by a significant reduction in costs relating to events not being held, due to either the prevailing Alert Level or the uncertainty of future level changes.
Relevant significant accounting policies
Grants and sponsorships
Expenditure is classified as a grant or sponsorship if it results in a transfer of resources (eg. cash or physical assets) to another entity or individual in return for compliance with certain conditions relating to the operating activities of that entity. It includes any expenditure arising from a funding arrangement with another entity that has been entered into to achieve the objectives of the Council. Grants and sponsorships are distinct from donations which are discretionary or charitable gifts. Where grants and sponsorships are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the specified criteria have been fulfilled.
Cost allocation
The Council has derived the cost of service for each significant activity (as reported within the Statements of Service Performance). Direct costs are expensed directly to the activity. Indirect costs relate to the overall costs of running the organisation and include staff time, office space and information technology costs. These indirect costs are allocated as overheads across all activities
Research and Development
Research costs are expensed as incurred. Development expenditure on individual projects is capitalised and recognised as an asset when it meets the definition and criteria for capitalisation as an asset and it is probable that the Council will receive future economic benefits from the asset. Assets which have finite lives are stated at cost less accumulated amortisation and are amortised on a straight-line basis over their useful lives.
Note 8: Depreciation and amortisation

Depreciation (amortisation) is an expense charged each year to reflect the estimated cost of using our assets over their lives. Amortisation relates to ‘intangible’ assets such as software (as distinct from physical assets, which are covered by the term depreciation).
Relevant significant accounting policies
Depreciation
Depreciation is provided on all property, plant and equipment, with certain exceptions. The exceptions are land, restricted assets other than buildings, and assets under construction (work in progress). Depreciation is calculated on a straight-line basis, to allocate the cost or value of the asset (less any assessed residual value) over its estimated useful life. (See Table 14).
The landfill post closure asset is depreciated over the life of the landfill based on the capacity of the landfill.

The variation in the range of lives for infrastructural assets is due to these assets being managed and depreciated by individual component rather than as a whole asset.
Amortisation
The amortisation of intangible assets is charged on a straight-line basis over the estimated useful life of the associated assets. (See Table 15)

Computer software has a finite economic life and amortisation is charged to surplus or deficit on a straight-line basis over the estimated useful life of the asset. 
Note 9: Share of associates’ and joint venture’s surplus or deficit
The Council’s share of the results of the Chaffers Marina Holdings Limited, Wellington International Airport Limited and Wellington Water Limited is as shown in Table 16.

Further information on the cost and value of the above investments is found in Note 20: Investments in Associates and Joint Venture (pg 55).
COVID-19: Due to the balance date of Wellington International Airport Limited (WIAL) being 31 March 2020, no significant financial impacts due to COVID-19 were reflected in Council’s share of their 2019/20 surplus. For 2020/21 the financial impacts for Council were primarily that no dividend was declared for distribution to Council and the 34% share of the deficit in Table 16 above reducing the Group surplus.
Council also agreed in 2019/20 to underwrite its share of a potential equity raising. For more information refer to Note 34: Contingencies (pg 99).
Relevant significant accounting policies
Associates are entities where the Council has significant influence over their operating and financial policies, but they are not controlled entities or joint ventures. In the Council financial statements, the investments in associates are carried at cost. In the Group financial statements, the Council’s share of the assets, liabilities, revenue and expenditure of associates is included on an equity accounting basis as a single line.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint control is the agreed sharing of control of an arrangement by way of a binding arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. In the Council financial statements, the investments in joint ventures are carried at cost. In the Group financial statements, the Council’s share of the assets, liabilities, revenue and expenditure of joint ventures is included on an equity accounting basis as a single line. 
Note 10: Income tax 

Relevant significant accounting policies
Council, as a local authority is only liable for income tax on the surplus or deficit for the year derived from any council-controlled trading organisations. Other members of the Group are subject to normal taxation unless they have tax exempt status as charitable trusts.
Income tax expense includes components relating to both current tax and deferred tax.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, plus any adjustment to tax payable in respect of previous periods.

Tauākī o te Tūnga Pūtea | Statement of Financial Position 

Statement of Financial Position – continued

The notes on pg 15 to 115 form part of and should be read in conjunction with the financial statements

Statement of Financial Position - Major budget variations
Significant variations from budget are as follows:
Current assets are $43.083m higher than budgeted with major variances included of:
•	$79.582m of cash held for liquidity purposes
•	$14.703m land and buildings re-classified as held for sale
•	$4.158m higher prepayments largely due to the unbudgeted $5.730m of the $10.100m of Government stimulus funding for Three Waters reform passed to Wellington Water.
Offset by:
•	$57.316m lower term deposits now held as cash 
Non-current assets are $522.338m higher than budget with major variances included of:
•	$197.382m higher revaluations of operational land and buildings
•	$299.130m higher Property, plant and equipment assets than budgeted largely due to lower budgeted values resulting from the delayed timing of the 2019/20 infrastructure assets revaluation. Included in this amount is $32.377m lower than budgeted capital expenditure.
•	$7.821m of unbudgeted derivative financial assets due to increased swap interest rates
•	$3.400m for a long-term receivable relating to a disposed investment property
•	$14.426m higher revaluation of investment properties 
•	
Total liabilities are $41.789m lower than budget, with major variances included of:
•	$22.523m of higher current borrowings, due to timing of maturities
•	$14.742m of higher current payables, partly due to timing of invoicing for work completed
•	$12.890m of higher net provisions for other liabilities, due to timing of settlements
•	$7.135m of higher revenue in advance, including the unrecognised $5.370m of Government Stimulus funding for Three Waters reform.
Offset by:
•	$93.316m of lower non-current borrowings, due to lower capital expenditure
•	$14.108m of lower derivative financial liabilities due to increased swap interest rates
Note 11: Cash and cash equivalents

Bank balances that are interest bearing earn interest based on current floating bank deposit rates.
Council holds short term deposits as part of its overall liquidity risk management programme. This programme enables Council to maintain its regular commercial paper programme and to pre-fund upcoming debt maturities. The combination of the commercial paper programme and holding short term deposits reduces Council’s cost of funds.
Note 12: Derivative financial instruments

Derivative financial instruments are used by the Group in the normal course of business to hedge exposure to cash flow and fair value interest rate risk. The amounts shown above represent the fair values of these derivative financial instruments. Although these are managed as a portfolio, the Group has no rights to offset assets and liabilities and must present these figures separately.
Interest rate swaps (Cash flow hedges) are used to fix interest rates on floating rate debt (floating rate notes or commercial paper). The swaps are held until maturity and have no cash impact or effect on the rates requirements.
For further information on the Council’s interest rate swaps please refer to Note 28: Hedging Reserve (pg 79) and Note 32: Financial instruments (pg 87).
Relevant significant accounting policies
Derivative financial instruments include interest rate swaps used to hedge exposure to interest rate risk on borrowings. Derivatives are initially recognised at fair value, based on quoted market prices, and subsequently remeasured to fair value at the end of each reporting period. Fair value is determined by reference to quoted prices for similar instruments in active markets. Derivatives that do not qualify for hedge accounting are classified as non-hedged and fair value gains or losses are recognised within surplus or deficit.
Recognition of fair value gains or losses on derivatives that qualify for hedge accounting depends on the nature of the item being hedged. Where a derivative is used to hedge variability of cash flows (cash flow hedge), the effective part of any gain or loss is recognised within other comprehensive revenue and expense while the ineffective part is recognised within surplus or deficit. Gains or losses recognised in other comprehensive revenue and expense transfer to surplus or deficit in the same periods as when the hedged item affects the surplus or deficit. 
As per the International Swap Dealers’ Association (ISDA) master agreements, all swap payments or receipts are settled net.
Note 13: Receivables and recoverables

Current trade, rates and sundry receivables and recoverables are non-interest bearing and receipt is generally on 30-day terms, therefore the carrying value approximates their fair value. The higher value of Sundry receivables for 2019/20 relates to the $33.000m of insurance proceeds. 

The movement in the provision for impairment of total receivables and recoverables is analysed as follows in Table 24.

The ageing profile of total net receivables and recoverables at the reporting date is as follows in Table 25

The net receivables and recoverables past due for more than six months primarily relate to fines, which after initial det recovery attempts, are passed to the Courts to further pursue. Due to their nature, the collection pattern for such fines is longer than for trade debtors.
Relevant significant accounting policies
Receivables from exchange transactions
Receivables from exchange transactions arise when the Council is owed by another entity or individual for goods or services provided directly by Council and will receive approximately equal value in a willing arm’s length transaction (primarily in the form of cash in exchange). Examples of exchange transactions include parking services and metered water rates.
Recoverables from non-exchange transactions
Recoverables from non-exchange transactions arise when the Council is owed value from another party without giving approximately equal value directly in exchange for the value received.  Most of the goods or services that Council provide are subsidised by rates revenue and therefore the exchange is unequal. Examples of non-exchange transactions include social housing rentals, parking fines and recreational centre activities. Non-exchange transactions are comprised of either taxes or transfers. Transfers also include grants that do not have specific conditions attached which require return of the grant for non-performance.
An inflow of resources from a non-exchange transaction recognised as an asset is recognised as revenue, except to the extent that a liability is also recognised in respect of the same inflow. As Council satisfies a present obligation recognised as a liability in respect of an inflow of resources from a non-exchange transaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an amount of revenue equal to that reduction.
Note 14: Other financial assets

Equity investments
Civic Financial Services Limited is the trading name for the New Zealand Local Government Insurance Corporation Limited. The Council holds a 4.78 percent (2020: 4.78 percent) shareholding in this entity and has no present intention to sell. 
The New Zealand Local Government Funding Agency Limited (LGFA), is an alternative debt provider majority owned by and operated for local authorities. The Council holds an 8 percent shareholding of the paid-up capital and as a shareholder will benefit from a return on its investment and as a borrower from lower borrowing costs. Refer to Note 36: Related party disclosures, for more information (pg 103).
Creative HQ, a controlled entity of Wellington Regional Economic Development Agency Limited (WREDA), has small shareholdings in various incubator and accelerator programme companies. These shares are held until the companies mature or cease operations. 
Deposits and loans
Bank deposits
Bank term deposits with maturities greater than 3 months are categorised as investments. These longer-term deposits are largely due to the early borrowing (pre-funding) for future debt repayments and mature in less than 12 months.
Borrower notes
As part of the borrowing arrangements through the LGFA, Council is required to leave 2.5 percent of any debt drawdown with the LGFA, as an investment, in the form of a borrower note. Borrower notes are subordinated convertible debt instruments, which will be repaid with interest to Council, once the related borrowing is repaid or no longer owed to the LGFA. The maturity profile of these notes matches the related debt maturity profile (16 November 2021 to 16 April 2033).
Loans to related parties
The loans to related parties are concessionary in nature, since the loans have been granted on interest free terms for all or part of the life of the loan. The movements in the loans are shown in Table 27.

The fair value movement on loans reflects the timing of their expected repayments and the interest free or other nature of the loan. Over the remaining life of the loans their fair value will be amortised back up to their full nominal value. 
Wellington Regional Stadium Trust
Council holds a $15.000m limited recourse loan to WRST, which is unsecured, with no specified maturity and at no interest. The loan is not repayable until all other debts are extinguished 
The amortisation rate applicable to the WRST loan is 12.710 percent. 
On maturity of the initial WRST membership underwrite, the unpaid interest was converted to a $0.395m advance repayable after all other advances made by the Council and Greater Wellington Regional Council. The current expected repayment of the loan and the advance back to the Council, as advised by WRST, is in 2070. 
COVID-19:  A new joint loan facility between Council and Greater Wellington Regional Council agreed in 2019/20, was partially drawn down ($0.900m) during 2020/21. The loan facility is to fund operating deficits resulting from the impact of COVID-19 and to provide funding for the capital works required to continue with the strengthening of the Fran Wilde walkway. The loan is an unsecured facility of up to $4.2m divided equally between the lenders with a fixed interest rate of 3.0 percent and is interest free for the first two years upon being drawn down. 
Note 15: Non-current assets classified as held for sale

Site 9, part of the Kumutoto area, on the Waterfront, was sold for redevelopment during the year. Other properties still unsold or expected to sell within the next 12 months are either as a result of road stopping or housing stock that will be re-invested in better suited social housing developments.
After 30 June 2020, as part of the Portfolio Alignment Strategy, a workstream of the Strategic Housing Investment Plan (SHIP), Council has approved divestment of 20 City Housing properties that are surplus to operational requirements. The proceeds from the sale of these underperforming properties will go towards the SHIP development programme. It is expected that these properties will be fully divested during 2021/22.
Relevant significant accounting policies
Non-current assets held for sale are valued at the lower of the carrying amount and fair value less costs to sell at the time of reclassification. 
Non-current assets held for sale are separately classified as their carrying amount will be recovered through a sale transaction rather than through continuing use. A non-current asset is classified as held for sale where:
•	the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets. 
•	a plan to sell the asset is in place and an active programme to locate a buyer has been initiated. 
•	the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value. 
•	the sale is expected to occur within one year or beyond one year where a delay has occurred which is caused by events beyond the Group’s control and there is sufficient evidence the Group remains committed to sell the asset; and 
•	actions required to complete the sale indicate it is unlikely that significant changes to the plan will be made or the plan will be withdrawn.
A non-current asset classified as held for sale is recognised at the lower of its carrying amount or fair value less costs to sell. Impairment losses on initial classification are included within surplus or deficit.
Note 16: Intangibles

Disposals and transfers are reported net of accumulated amortisation.
Carbon credits
As part of the Emissions Trading Scheme (ETS) the Council receives carbon credits from Central Government in recognition of the carbon absorbed by a portion of the Council’s green belt. For the year ending 30 June 2021 the Council received no units (2020: 28,367 units). 
The Council purchased 215,347 units (2020: 62,103 units) in the market to cover the expected liabilities associated with landfill operations. The Council surrendered no units (2020: 85,000 units) for the 2020 calendar year liability as this liability was paid with a fixed price payment.
During the period ending 30 June 2021, 3,000 units (2020: 27,000 units) were sold to Air New Zealand.
At 30 June 2021 the total liability relating to landfill carbon emissions is $1.053m (2020:  $1.234m).
More information on carbon credits can be found in the Statements of Service Provision under activity 2.2: Waste reduction and energy conservation (pg 43-45).
The movement in units held are shown in Table 30.

Relevant significant accounting policies
Computer software 
Acquired computer software is measured on initial recognition at the costs to acquire and bring to use and subsequently less any amortisation and impairment losses.
Typically, the estimated useful life of these assets is between 2 to 11 years. 
Carbon Credits
Carbon credits comprise either allocations of emission allowances granted by the Government related to forestry assets or units purchased in the market to cover liabilities associated with landfill operations. Carbon credits allocated as a non-exchange transaction are initially recognised at fair value, which then becomes the deemed cost.  Carbon credits that are purchased are recognised at cost.
Gains and losses arising from disposal of intangible assets are recognised within surplus or deficit in the period in which the transaction occurs. Intangible assets are reviewed at least annually to determine if there is any indication of impairment. Where an intangible asset’s recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported within surplus or deficit.
Note 17: Investment properties

Wellington City Council’s investment properties including the waterfront investment properties were valued as at 30 June 2021 by an independent valuer, William Bunt (FNZIV, FPINZ), registered valuer and Director of Valuation Services for CBRE Limited.  

Investment properties are properties which are held primarily to earn lease revenue and/or for capital growth. These properties include the Council’s ground leases and certain land and buildings.
Ground leases are parcels of land owned by the Council in the central city or on the waterfront that are leased to other parties who own the buildings situated on the land. The leases are generally based on 21-year perpetually renewable terms. As these parcels of land are held for investment purposes the leases are charged on a commercial market basis.
Investment properties exclude those properties held for strategic purposes or to provide a social service. This includes properties which generate cash inflows as the lease revenue is incidental to the purpose for holding the property. Such properties include the Council’s social housing assets, which are held within operational assets in property, plant and equipment.
Relevant significant accounting policies
The basis of valuation varies depending on the nature of the lease. For sites that are subject to a terminating lease the approach is to assess the value of the lease revenue over the remaining term of the lease and add the residual value of the land at lease expiry. 
For sites subject to perpetually renewable leases values have been assessed utilising a discounted cash flow and arriving at a net present value of all future anticipated gross lease payments.
Borrowing costs incurred during the construction of investment property are not capitalised.
Investment properties are measured initially at cost and subsequently measured at fair value, determined annually by an independent registered valuer. Any gain or loss arising is recognised within surplus or deficit. Investment properties are not depreciated.
Certain ground leases on the waterfront and within the CBD have, for accounting purposes, been treated as sold assets due to the very long-term nature of the lease and peppercorn rentals. 
At a future point in time, prior to the asset being returned to Council ownership, Council will begin to incrementally re-recognise the value of the asset. The amortisation of the estimated future value will reflect the prevalent economic situation and will be more relevant in terms of both the estimated value and materiality.
Note 18: Property, plant and equipment 

Relevant significant accounting policies
Property, plant and equipment consists of operational assets, restricted assets and infrastructure assets.
Operational assets include land, the landfill post-closure asset, buildings, the Civic Precinct, the library collection, and plant and equipment.
Restricted assets include art and cultural assets, zoo animals, restricted buildings, parks and reserves and the Town Belt. These assets provide a benefit or service to the community and in most cases cannot be disposed of because of legal or other restrictions (for example, land declared as a reserve under the Reserves Act 1977.) The use of the asset may also be restricted such as the donated Basin Reserve land which must be retained for the purposes of providing a cricket and recreation ground with no permitted thoroughfare.
Infrastructure assets include the roading network, water, waste and drainage reticulation networks, service concession arrangement assets and infrastructure land (including land under roads). Each asset type includes all items that are required for the network to function.
Vested assets are those assets where ownership and control is transferred to the Council from a third party (eg. infrastructure assets constructed by developers and transferred to the Council on completion of a subdivision). Vested assets are recognised within their respective asset classes as above.
Heritage assets are tangible assets with historical, artistic, scientific, technological, geophysical or environmental qualities that are held and maintained principally for their contribution to knowledge and culture. The Council and Group recognises these assets within these financial statements to the extent their value can be reliably measured. 
Recognition
Expenditure is capitalised as property, plant and equipment when it creates a new asset or increases the economic benefits of an existing asset. Costs that do not meet the criteria for capitalisation are expensed.
Measurement
Property, plant and equipment is recognised initially at cost, unless acquired for nil or nominal cost (eg. vested assets), in which case the asset is recognised at fair value at the date of transfer. The initial cost of property, plant and equipment includes the purchase consideration (or the fair value in the case of vested assets), and those costs that are directly attributable to bringing the asset into the location and condition necessary for its intended purpose. Subsequent expenditure that extends or expands the asset’s service potential is capitalised.
Borrowing costs incurred during the construction of property, plant and equipment are not capitalised.
After initial recognition, certain classes of property, plant and equipment are revalued to fair value. Where there is no active market for an asset, fair value is determined by optimised depreciated replacement cost.
Optimised depreciated replacement cost is a valuation methodology where the value of an asset is based on the cost of replacement with an efficient modern equivalent making allowance for obsolesce or surplus capacity. The remaining life is of the asset is estimated and straight-line depreciation applied to bring the replacement cost to a fair value.
Specific measurement policies for categories of property, plant and equipment are shown below:
Library Collections
Library collections are valued at depreciated replacement cost on a three-year cycle by the Council’s library staff in accordance with guidelines outlined in Valuation Guidance for Cultural and Heritage Assets, published by the Treasury Accounting Team, November 2002.
Operational Land & Buildings
Operational land and buildings are valued at fair value on a regular basis or, whenever the carrying amount differs materially to fair value, by independent registered valuers. Where the information is available, land and buildings are valued based on market evidence. The majority of Councils land and buildings are of a ‘non-tradeable’ or specialist nature and the value is based on the fair value of the land plus the optimised depreciated replacement cost of the buildings.
For earthquake prone buildings that are expected to be strengthened, the estimated cost to strengthen the building has been deducted from the optimised depreciated replacement cost.
Buildings that comprise the Social Housing portfolio have been valued on market-based approach with the associated land value being established through analysis of sales and market evidence.
Restricted assets
Art and cultural assets (artworks, sculptures and statues) are valued at historical cost. Zoo animals are stated at estimated replacement cost. All other restricted assets (buildings, parks and reserves and the Town Belt) were valued at fair value as at 30 June 2005 by an independent registered valuer. The Council has elected to use the fair value of other restricted assets at 30 June 2005 as the deemed cost of the assets. These assets are no longer revalued. Subsequent additions have been recorded at cost.
Infrastructure assets
Infrastructure assets (the roading network, water, waste and drainage reticulation networks including service concession arrangement assets (wastewater treatment plants)) are valued at optimised depreciated replacement cost on a regular basis or, whenever the carrying amount differs materially to fair value, by an independent registered valuer. Infrastructure valuations are based on the physical attributes of the assets, their condition and their remaining lives based on Council’s best information reflected in its asset management plans. The costs are based on current quotes from actual suppliers. As such, they include ancillary costs such as breaking through seal, traffic control and rehabilitation. Between valuations, expenditure on asset improvements is capitalised at cost.
Infrastructure land (excluding land under roads) is valued on a regular basis or, whenever the carrying amount differs materially to fair value, by an independent registered valuer. 
Land under roads, which represents the corridor of land directly under and adjacent to the Council’s roading network, was valued as at 30 June 2005 at the average value of surrounding adjacent land discounted by 50 percent to reflect its restricted nature. The Council elected to use the fair value of land under roads at 30 June 2005 as the deemed cost of the asset. Land under roads is no longer revalued. Subsequent additions have been recorded at cost.
The carrying values of revalued property, plant and equipment are reviewed at the end of each reporting period to ensure that those values are not materially different to fair value.
Other Assets
Plant and equipment and the Civic Precinct are measured at historical cost and not revalued.
Impairment
The Council’s assets are defined as cash generating if the primary purpose of the asset is to provide a commercial return. Non-cash generating assets are assets other than cash generating assets. Property, plant and equipment assets, measured at fair value, are not required to be reviewed and tested for impairment.
The carrying amounts of cash generating property, plant and equipment assets are reviewed at least annually to determine if there is any indication of impairment. Where an asset’s, or class of assets’, recoverable amount is less than its carrying amount it will be reported at its recoverable amount and an impairment loss will be recognised. The recoverable amount is the higher of an item’s fair value less costs to sell and value in use. Losses resulting from impairment are reported within surplus or deficit, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease and recorded within other comprehensive revenue and expense. 
The carrying amounts of non-cash generating property, plant and equipment assets are reviewed at least annually to determine if there is any indication of impairment. Where an asset’s, or class of assets’, recoverable service amount is less than its carrying amount it will be reported at its recoverable service amount and an impairment loss will be recognised.
The recoverable service amount is the higher of an item’s fair value less costs to sell and value in use. A non-cash generating asset’s value in use is the present value of the asset’s remaining service potential. Losses resulting from impairment are reported within surplus or deficit, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease and recorded within other comprehensive revenue and expense. 
Disposal
Gains and losses arising from the disposal of property, plant and equipment are recognised within surplus or deficit in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings.
Work in progress
Work in progress represents the cost of capital expenditure projects that are not financially complete. The cost of projects within work in progress is transferred to the relevant asset class when the project is completed and is then subject to depreciation.
The movements according to the individual classes of assets are as follows in Table 34

1.	The Council’s share of the joint venture with Porirua City Council relating to the Spicer Valley landfill is included in this asset class.

Disposals and transfers are reported net of accumulated depreciation.

Disposals and transfers are reported net of accumulated depreciation.

Disposals and transfers are reported net of accumulated depreciation.

2.	For restricted assets, valuation at cost means they are not subject to revaluation. Please refer to the relevant significant accounting policies above for a more detailed explanation.

Disposals and transfers are reported net of accumulated depreciation

Revaluation of property, plant and equipment
The Council’s operational land and buildings were valued as at 30 June 2021, and infrastructural land as at 30 June 2020 by William Bunt (FNZIV, FPINZI), registered valuer and Director of Valuation Services for CBRE Limited.
Library collections were valued as at 30 June 2020 by the Council’s library staff.  The revaluation was carried out in accordance with guidelines outlined in Valuation Guidance for Cultural and Heritage Assets published by the Treasury Accounting Team, November 2002.  
The drainage, waste and water infrastructure and roading networks and the service concession assets were valued with effect from 30 June 2020 by John Vessey (MIPENZ), Partner of WSP New Zealand Limited. 
The valuation reports for the revaluations performed as at 30 June 2021 for investment properties and operational land and building assets contain statements around the risks relating to COVID-19. While the immediate impact of COVID-19 on both the real estate market and construction costs appears to have been limited, the longer-term impact is unknown which has resulted in heightened uncertainty within the valuations.
Assets are valued at regular intervals by an independent registered valuer or whenever the carrying amount differs materially to fair value. In the years which an asset class is not revalued, the Group assesses whether there has been any material change in the value of that asset class. The movement in asset values between 30 June 2020 and 30 June 2021 for infrastructure assets was assessed using appropriate indices. The increase in asset value of total property, plant and equipment assets was not considered material by management and accordingly the assets were not revalued for 30 June 2021.
Further information on revaluation reserves and movements is contained in Note 27: Revaluation reserves (pg 77).
Significant acquisitions and replacements of assets
In accordance with the provisions of Schedule 10 of the Local Government Act 2002, information in respect of significant acquisitions and replacements of assets is reported within the Statements of Service Provision.
Core Assets
Included within the infrastructure assets above (Table 34) are the core Council assets shown in Table 35

Drainage, waste, water and roads assets were revalued for the year ending 30 June 2020 by WSP New Zealand Limited as part of the normal revaluation cycle.
Service concession arrangements
The Council’s service concession assets consist of the Moa Point treatment plant, including the sludge dewatering plant at Carey’s Gully, and Western (Karori) wastewater treatment plant. These facilities are owned by the Council, and included within infrastructure assets, but operated by Veolia Water under a contract with Wellington Water Limited. The contract also covers the Porirua wastewater treatment plant which is operating under a joint operation with Porirua City Council.
The Council incurs all associated operating expenses through the on-charged costs paid to Wellington Water Limited.
The Council has a contract with Veolia Water, which covers the wastewater treatment plants of Wellington, Porirua and Hutt City councils. The contract expires 30 June 2030 with two rights of renewal for further subsequent terms of three and two years respectively. 
The carrying value of these service concession assets for the Council and Group is $121.584m (2020: $127.446m). 
Insurance of assets

In addition to Council’s insurance, in the event of natural disaster it is assumed that Central Government will contribute 60 percent towards the rebuild or repair of essential Council owned infrastructure (drainage, waste and water assets) subject to eligibility considerations. Also, the NZTA will contribute approximately 55 percent towards the restoration of qualifying roading assets.
The Council is not covered by any financial risk sharing arrangements in relation to its assets.
An insurance reserve of $12.979m (2020: $12.491m) exists to meet the cost of claims that fall below deductible limits under Council insurance policies. The reserve is funded annually through rates. For the year ending 30 June 2021 an amount of $1.505m (2020: $1.981m) was added to the reserve. The net cost of claims applied to the reserve during the year amounted to $1.017m (2020: $0.688m).

Note 19: Investment in controlled entities
The cost of the Council’s investment in controlled entities is reflected in the Council’s financial statements as follows in Table 37.

The equity investment represents the cost of the investment to the Council and includes all capital contributions made by the Council to controlled entities. The Council has only made equity investments as shareholders as noted in Table 37 above.  Nominal settlement amounts (i.e. $100) made in respect of Trusts, for which Council is the settlor, have not been recognised due to their materiality and are not considered as equity investments.
Information on inter-company transactions is included in the Note 36: Related party disclosures (pg 103).
The controlled entities of Council are listed as shown in Table 38.
Table 38: Controlled entities	Accounting Interest
2021	Accounting Interest
2020	Nature of business	
Karori Sanctuary Trust 
(Trading as Zealandia)	100%	100%	Owns and manages the activities of the urban eco-sanctuary in Karori. 	
Wellington Cable Car Limited	100%	100%	Owns and operates the Cable Car.	
Wellington Museums Trust (Trading as Experience Wellington)	100%	100%	Administers the Cable Car Museum, Capital E, the City Gallery, the Nairn Street Cottage, the Space Place (Carter Observatory), the
Wellington Museum and the NZ Cricket Museum	
Wellington Regional Economic Development Agency Limited (WREDA) 
(Trading as WellingtonNZ)	80%	80%	Manages the Wellington Venues Project and creates economic and social benefit by marketing the city with the private sector as a tourism destination. 	
    - Creative HQ Limited	    80%	    80%	Business incubators	
Wellington Waterfront Limited	100%	100%	Acts as bare trustee for the Waterfront project	
Wellington Zoo Trust	100%	100%	Manages and guides the future direction of 
the Wellington Zoo.	
The reporting period end date for all controlled entities is 30 June. Full copies of their financial statements can be obtained directly from their offices. Further information on the structure, objectives, the nature and scope of activities, and the performance measures and targets of the entities can be found in the relevant sections of the Statements of Service Provision. 
Note 20: Investment in associates and joint venture
The cost of the Council’s investment in associates and the joint venture is reflected in the Council financial statements as follows in Table 39.

The Council has significant influence over the following entities as listed in Table 40. All of these are domiciled and operate in New Zealand:
Table 40: Associates and Joint venture	Accounting Interest
2021	Accounting Interest
2020	Nature of business	
Chaffers Marina Holdings Limited	10.72%	10.72%	Holding company for Chaffers Marina Limited.	
    - Chaffers Marina Limited	10.72%	10.72%	Owns and manages the marina.	
Wellington International Airport Limited	34%	34%	Owns and manages Wellington International Airport facilities and services.	
Wellington Water Limited
	40.00%	40.00%	Manages all water services for Wellington, Lower Hutt, Upper Hutt and Porirua city councils, the South Wairarapa District Council and the Greater Wellington Regional Council.	
Full copies of the separately prepared financial statements can be obtained directly from their respective offices.
Associates 
Chaffers Marina
Chaffers Marina Holdings Limited and Chaffers Marina Limited have a reporting period end date of 30 June. The shares in Chaffers Marina Holdings Limited are held by Wellington Waterfront Limited in a fiduciary capacity. As at 30 June 2021 Council held a 10.72 percent (2020: 10.72 percent) interest in Chaffers Marina Holdings Limited which has been recognised in the Group financial statements on an equity accounting basis, reflecting the special rights (as set out in Chaffers Marina Limited’s Constitution), which attach to the golden share that it holds in Chaffers Marina Limited. 
Wellington International Airport Limited
Wellington International Airport Limited has a reporting period end date of 31 March. The ultimate majority owner, Infratil Limited, has determined a different end of reporting period to Council, which is legislatively required to use 30 June. The Council owns 34 percent of the company, with the remaining 66 percent owned by NZ Airports Limited (which is wholly owned by Infratil Limited). Council agreed on 23 April 2020 to underwrite additional equity, if required. For more information refer to Note 34: Contingencies (pg 99).
Joint venture
Wellington Water Limited
Wellington Water Limited was jointly created with Hutt City Council on 9 July 2003 to manage the drinking water, wastewater and stormwater assets of the councils. Since its inception it has gradually expanded its operations and now covers six councils in the Wellington region.
The company has a reporting period ending 30 June and has a dual share structure as shown in Table 41.

The Council classifies this entity as a joint venture because of the equal sharing of voting rights conferred through the Class A shares and the shareholder’s agreement, which constitutes a binding arrangement.
The Class B shares confer the level of contributions and ownership benefits of each council. The Council uses equity accounting to recognise its 40 percent (2020: 40 percent) ownership interest. 

Value of the investments
The investment in associates and the joint venture in the Group financial statements represents the Council’s share of the net assets of the associates and the joint venture. This is reflected in the Group financial statements as follows in Table 42:

The Council’s share of the operating surplus or deficit results of the Chaffers Marina Holdings Limited, Wellington International Airport Limited and Wellington Water Limited is outlined in Note 9: Share of Associates’ and Joint Venture’s surplus or deficit (pg 27).
Summary of Financial Position and Performance of associates 
Financial information relating to the Council’s associates is provided in Tables 43 and 44 below:

Summary of Financial Position and Performance of joint venture
Financial information relating to the Council’s joint venture is provided in Table 45 below:

Note 21: Exchange transactions, transfers and taxes payable

Comprised of:

COVID-19: On 9 April 2020, Council agreed to proactively support business cashflows by temporarily changing its terms of trade payment dates. This reduced the payment timeframes for payments to suppliers who provide goods and services to the Council down from 20 to 5 working days for valid authorised invoices. This practice was still in place as at 30 June 2021 to ensure that suppliers were able to maintain their own cashflows by receiving prompt payment.

Payables under exchange transactions, transfers and taxes payable are non-interest bearing and are normally settled on terms varying between seven days and the 20th of the month following the invoice date. Most of Council’s payables are exchange transactions as they are directly with another party on an arm’s length basis and are of approximately equal value. Non-exchange payables are classified as either transfers payable (eg. Council grants) or taxes (eg. PAYE). 
Note 22: Revenue in advance

Relevant significant accounting policies
Liabilities recognised under conditional transfer agreements
Council and the Group have received non-exchange transfer monies for specific purposes, which apply to periods beyond the current year, with conditions that would require the return of the monies if they are not able to fulfil the agreement. The revenue from these agreements will only be recognised as the conditions are fulfilled over time.
These liabilities relate to:
- various naming rights agreements that Council has with third parties for buildings.
- $5.370m of Government Stimulus funding in relation to Three Waters reform.
Note 23: Borrowings
The Council maintains a prudent borrowings position in relation to our equity and annual revenue. Borrowings are primarily used to fund the purchase of new assets or upgrades to existing assets that are approved through the Annual Plan and Long-Term Plan processes.
Gross Borrowings
The gross borrowings are comprised as follows in Table 51 below:

Net Borrowings
When the cash position of Council and the Group is taken into account the net borrowings position is comprised as follows in Table 52 below.

The Council's borrowing strategy is to minimise liquidity risk by avoiding concentration of debt maturity dates and to ensure there is long term access to funds. Further information on the liquidity and market risks associated with borrowings is contained in Note 32: Financial instruments (pg 87).
Table 53, as follows, shows the utilisation of the borrowing facilities available to the Group at the end of the reporting period. The table also indicates the current applicable maturity and interest rate ranges.

•	The bank overdraft facilities are $1.500m for Council and $0.400m for WREDA.
•	In addition to the above facilities, Council operates purchase cards to efficiently facilitate the purchase of goods and services. The cards are paid in full on a monthly basis. An aggregate bank limit of $2.000m for all cards applies across Council.
Security 
Borrowings are secured by way of a Debenture Trust Deed over the Council’s rates revenue.
Internal Borrowings
Council borrows on a consolidated level and as such does not use internal borrowing and therefore does not prepare internal borrowing statements.
Ring fenced funds
The Council holds $63.399m (2020: $52.537m) of funds that may only be used for a specified purpose. These funds are not held in cash but are utilised against borrowings until required. The main specified uses for these funds are as follows:
Housing upgrade project
As part of the agreement with the Crown for the Housing Upgrade Project an amount of $53.632m (2020: $44.390m), representing the accumulated surpluses and deficits from the Housing activity, has been ring fenced for future investment in the Council's social housing assets. 
Waste reduction and energy
An amount of $12.964m (2020: $11.344m) related to accumulated surpluses and deficits from the Waste Reduction and Energy Conservation activity which, under the Waste Minimisation Act 2008, must be ring fenced for future investment in waste activities. Council is committed to a number of waste minimisation projects that will utilise these funds.
Note 24: Employee benefit liabilities and provisions

Relevant significant accounting policies - general
A provision for employee benefit liabilities (holiday leave, long service leave and retirement gratuities) is recognised as a liability when benefits are earned but not paid.
Holiday leave
Holiday leave includes annual leave, long service leave, statutory time off in lieu and ordinary time off in lieu. Annual leave is calculated on an actual entitlement basis in accordance with section 21(2) of the Holidays Act 2003. Please refer to Note 34 – Contingencies (pg 99) for more information on an unquantified contingent liability relating to holiday pay.
Movements in specific employee benefit provisions above are analysed in Tables 55 and 56 below.

Background to Other contractual provisions
The above provision is to cover estimated redundancy costs, if any, as at 30 June 2021 resulting from current restructuring within the Council. 
Relevant significant accounting policies – Other contractual provisions specific
Other contractual provisions include termination benefits, which are recognised within surplus or deficit only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.

Background to the retirement gratuity provision
The Council’s retirement gratuities provision is a contractual entitlement for a reducing number of employees who, having qualified with 10 years’ service will, on retirement, be entitled to a payment based on years of service and current salary. This entitlement has not been offered to Council employees since 1991. Based on the age of remaining participants the provision may not be extinguished until 2037, assuming retirement at age 65.
Relevant significant accounting policies – retirement gratuities provision specific
Retirement gratuities are calculated on an actuarial basis based on the likely future entitlements accruing to employees, after taking into account years of service, years to entitlement, the likelihood that employees will reach the point of entitlement, and other contractual entitlements information.
Estimation
The gross retirement gratuities provision (inflation adjusted at 1.85 percent) as at 30 June 2021, before discounting, is $0.770m (2020: $0.820m). The discount factor of 2.51 percent is based on the Treasury risk-free rate. 
Note 25: Provisions for other liabilities

Relevant significant accounting policies - general
Provisions are recognised for future liabilities of uncertain timing or amount when there is a present obligation as a result of a past event, it is probable that expenditure will be required to settle the obligation and a reliable estimate of the obligation can be made. Provisions are measured at the expenditure expected to be required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.
Movements in material provisions above are analysed in the Tables 58 and 59 below. 

Background to the Landfill post-closure provision
The Council operates the Southern Landfill (Stage 3) and has a 21.5 percent joint venture interest in the Spicer Valley Landfill. It also manages a number of closed landfill sites around Wellington. The Council has responsibility for the closure of its landfills and to provide ongoing maintenance and monitoring of the landfills after they are closed.
As part of the closure of landfills, or landfill stages, the Council’s responsibilities include:
•	final cover application and vegetation.
•	incremental drainage control features; and
•	completing facilities for post closure responsibilities.
Post closure responsibilities include:
•	treatment and monitoring of leachate.
•	ground water and surface monitoring. 
•	gas monitoring and recovery. 
•	implementation of remedial measures such as needed for cover and control systems; and
•	on-going site maintenance for drainage systems, final cover and vegetation. 
The management of the landfill will influence the timing of recognition of some liabilities – for example, the Southern Landfill operates in stages. A liability relating to any future stages will only be created when the stage is commissioned and when refuse begins to accumulate in this stage.
The Council, as operator of the Southern Landfill, has a legal obligation to apply for resource consents when the landfill or landfill stages reach the end of their operating life and are to be closed. These resource consents will set out the closure requirements and the requirements for ongoing maintenance and monitoring services at the landfill site after closure. 
Relevant significant accounting policies – Landfill post-closure specific
A provision for post-closure costs is recognised as a liability when the obligation for post-closure arises, which is when each stage of the landfill is commissioned, and refuse begins to accumulate.
The provision is measured based on the present value of future cash flows expected to be incurred, taking into account future events including known changes to legal requirements and known improvements in technology. 
Amounts provided for landfill post-closure are capitalised to the landfill asset. The capitalised landfill asset is depreciated over the life of the landfill based on the capacity used.
Estimations
The long-term nature of the liability means there are inherent uncertainties in estimating costs that will be incurred. The provision has been estimated using known improvements in technology and known changes to legal requirements. Future cash flows are discounted using the Treasury risk free rate of 3.39 percent and 1.91 percent for open and closed landfills respectively. The gross provision (inflation adjusted at 1.97 percent) before discounting, is $22.905m (2020: $23.528m). This represents the Council’s projection of the amount required to settle the obligation at the estimated time of the cash outflow.
Stage 3 of the Southern Landfill has an estimated remaining capacity of 435,094m3 (2020: 525,714 m3) and is expected to close in 2026. These estimates have been made by the Council’s engineers based on expected future and historical volume information.
The Council’s provision includes a proportionate share of the Spicer Valley Landfill provision for post closure costs. The Spicer Valley Landfill has a remaining life out to 2053. 

Background to the Weathertight homes provision
This provision represents the Council’s estimated liability relating to the settlement of claims arising in relation to the Weathertight Homes Resolution Services (WHRS) Act 2006 and civil proceedings for weathertightness. 
A provision has been recognised for the potential net settlement of all known claims, including those claims that are being actively managed by the Council as well as claims lodged with WHRS but not yet being actively managed. The provision also includes an amount of $11.649m (2020: $13.254m) as a provision for future claims relating to weathertightness issues not yet identified or not yet reported. 
Movement in the provision
During the year $6.869m was paid as either part or full settlement of claims.  An additional $0.669m was added to the provision after an actuarial re-assessment of the likely future costs to be incurred as explained below. The current / non-current split above reflects the expected timing of payments but is reassessed each year to take account of delays in claim negotiations and any mediation outcomes.
Estimation
The Council has provided for the expected future costs of reported claims. The provision for active claims is based on the best estimate of the Council’s expected future costs to settle these claims and is reviewed on a case-by-case basis. The estimate for claims which have been notified and are not yet actively managed and unreported claims is based on actuarial assessments and other information on these claims. The nature of the liability means there are significant inherent uncertainties in estimating the likely costs that will be incurred in the future. This represents the Council’s best estimate of the amount required to settle the obligation at the estimated time of the cash outflow. Future cash flows are inflation adjusted and discounted using the Treasury’s risk-free rate. The provision is net of any third-party contributions including insurance, where applicable. 
The provision is based on best estimates and actuarial assessments and therefore actual costs incurred may vary significantly from those included in this provision, especially for future claims relating to weathertightness issues not yet identified or not yet reported.
The significant assumptions used in the calculation of the weathertight homes provision are as follows:
Amount claimed
Represents the expected amount claimed by the homeowner and is based on the actual amounts for claims already settled.
Settlement amount
Represents the expected amount of awarded settlement and is based on the actual amounts for claims already settled.
Amount expected to be paid by the Council
Represents the amount expected to be paid by the Council out of any awarded settlement amount and is based on the actual amounts for claims already settled. This figure has been increasing over the last few years as it is becoming more common for the other parties involved in a claim to be either in liquidation or bankrupt or have limited funds and be unable to contribute to settlement. 
Percentage of homeowners who will make a successful claim
Historical data collected on the number of claims lodged has enabled assumptions to be made on the percentage of homes built in the last 10 years which may experience weathertightness problems and therefore the percentage of homeowner who may make a successful claim.
Sensitivity
Table 60 below illustrates the potential impact on surplus or deficit of changes in some of the assumptions listed above.

Funding of weathertight homes settlements
Council uses borrowings in the first instance to meet the cost of settlements with the associated borrowings subsequently being repaid through rates funding. To ensure that the funding of weathertight homes is fully transparent the associated settlement costs, borrowings and rates funding is reported annually.

Note 26: Deferred tax 
Recognised temporary differences and tax losses

Unrecognised tax losses
Under current income tax legislation, the unrecognised tax losses do not expire.
There is an unrecognised deferred tax asset in respect of the tax losses for the Council of $0.184m (2020: $0.053m).
Deferred tax assets have not been recognised in respect of these items as it is not probable that future taxable profits will be available against which the benefit of the losses can be utilised.
Relevant significant accounting policies
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the assets and liabilities, and the unused tax losses using tax rates enacted or substantively enacted at the end of the reporting period. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which they can be utilised.
Tauākī o ngā panoni tūnga pūtea | Statement of changes in equity 

The notes on pg 15 to 115 form part of and should be read in conjunction with the financial statements
Statement of changes in equity – Major budget variations
Significant variations from budgeted changes in equity are as follows:
Opening equity is $286.514m over budget. This is largely due to:
•	a $34.308m higher net surplus mainly due to the $33.000m Civic Administration Building (CAB) insurance recovery resulting from the 2016 Kaikoura earthquake
•	$288.997m higher than expected revaluation reserves primarily due to the timing of the 2019/20 infrastructure revaluations which were delayed by COVID-19
Offset by:
•	a $38.903m more unfavourable closing balance in the Hedging reserve following negative movements in the swap interest rates
Changes in equity were $315.326m higher than budget with major variances of:
•	$56.981m higher net surplus mainly due to the better-than-expected revenue post the first COVID-19 lockdown and lower costs, unbudgeted vested assets ($9.411m), and higher than expected fair value revaluations of investment properties ($14.421m).
•	$197.382m higher revaluations of land and building assets
•	a $60.019m favourable movement in swap interest rates.
Closing equity is $601.840m higher than budget with major variances of:
•	a $90.222m higher retained earnings from the higher net surplus above and the flow on effect of the $33.000m CAB insurance proceeds.
•	$485.432m higher revaluation reserves due to the $197.382m higher valuations and the flow-on-effect of the $288.997m higher opening reserve balance.
•	a $21.116m less unfavourable Hedging reserve following a $60.019m favourable movement in swap interest rates.
Equity
Equity is the community’s interest in the Council and Group and is measured as the difference between total assets and total liabilities. Equity is broken down and classified into a number of components:
•	accumulated funds and retained earnings
•	revaluation reserves
•	hedging reserve
•	fair value through other comprehensive revenue and expense reserve; and
•	restricted funds.
Restricted funds are those reserves that are subject to specific conditions of use, whether under statute or accepted as binding by the Council, and that may not be revised without reference to the Courts or third parties. Transfers from these reserves may be made only for specified purposes or when certain specified conditions are met.
Equity management
The Local Government Act 2002 (the Act) requires the Council to manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community. Ratepayer funds are largely managed as a by-product of managing revenues, expenses, assets, liabilities, investments, and general financial dealings.
The objective of managing these items is to achieve intergenerational equity, which is a principle promoted in the Act and applied by the Council. Intergenerational equity requires today’s ratepayers to meet the costs of utilising the Council’s assets but does not expect them to meet the full cost of long-term assets that will benefit ratepayers in future generations. Additionally, the Council has asset management plans in place for major classes of assets, detailing renewal and programmed maintenance. These plans ensure ratepayers in future generations are not required to meet the costs of deferred renewals and maintenance.
The Act requires the Council to make adequate and effective provision in its Long-Term Plan (LTP) and in its Annual Plan (where applicable) to meet the expenditure needs identified in those plans. The Act sets out the factors that the Council is required to consider when determining the most appropriate sources of funding for each of its activities. The sources and levels of funding are set out in the funding and financial policies in the Council’s LTP.

Note 27: Revaluation reserves  

These revaluation reserve movements are represented by:

The revaluation reserves are used to record accumulated increases and decreases in the fair value of certain asset classes.
For the period ending 30 June 2021 Council has revalued its investment properties, which are revalued annually – refer to Note 17 – Investment properties, for more information (pg 42).
Council also revalued its operational land and buildings – refer to Note 18 – Property, Plant and Equipment, for more information (pg 43). 
Revaluation movements are non-cash in nature and represent the restating of the Council’s assets, subject to revaluation, into current dollar values after taking into account the condition and remaining lives of the assets.
Relevant significant accounting policies
The result of any revaluation of the Group’s property, plant and equipment is recognised within other comprehensive revenue and expense and taken to the asset revaluation reserve. Where this results in a debit balance in the reserve for a class of property, plant and equipment, the balance is included in the surplus or deficit. Any subsequent increase on revaluation that offsets a previous decrease in value recognised within surplus or deficit will be recognised firstly, within surplus or deficit up to the amount previously expensed, and with any remaining increase recognised within other comprehensive revenue and expense and in the revaluation reserve for that class of property, plant and equipment.
Any impairment in a revalued class of asset is recognised within other comprehensive revenue and expense and taken to the asset revaluation reserve.
Accumulated depreciation at the revaluation date is eliminated so that the carrying amount after revaluation equals the revalued amount.
While assumptions are used in all revaluations, the most significant of these are in infrastructure. For example, where stormwater, wastewater and water supply pipes are underground, the physical deterioration and condition of assets are not visible and must therefore be estimated. Any revaluation risk is minimised by performing a combination of physical inspections and condition modelling assessments
Note 28: Hedging reserve

The hedging reserve shows accumulated fair value changes for interest rate swaps which satisfy the criteria for hedge accounting and have operated as effective hedges during the period. 
The Council uses interest rate swaps to fix interest rates on floating rate debt (floating rate notes and commercial paper) to give it certainty over interest costs.  
The Council uses hedge accounting to recognise any fair value fluctuations in these swaps through this reserve within equity. Using hedge accounting prevents any significant movement in interest rate exposure significantly affecting the Council’s ability to meet its balanced budget requirements
The Group movement reflects the hedging related to Wellington International Airport Limited but adjusted to align with the Groups’ accounting policies.
Note 29: Fair value through other comprehensive revenue and expense reserve

This reserve reflects the accumulated fair value movement in the Council’s investment in Civic Financial Services Limited (Civic) and the Local Government Funding Agency. 
In the Group, Creative HQ, a controlled entity of WREDA, has small shareholdings in incubator and accelerator programme companies. These shareholdings are fair valued annually and any movement is held within this reserve until the disposal of the shares.

Note 30: Restricted funds
Restricted funds are comprised of special reserves and funds that Council holds for specific purposes and trusts and bequests that have been bestowed upon the Council for the benefit of all Wellingtonians.

Nature and purpose, funding and utilisation
City Recovery Fund (previously the City Growth fund) 
COVID-19: Council initially agreed on 9 April 2020 to the establishment of a City Recovery Fund (CRF) as part of Council’s pandemic response plan. On 27 May 2020, Council further agreed to a framework which saw the aggregation of three existing funds (City Growth Fund, the Capital of Culture activity and Destination Wellington) for the specific purpose of supporting and boosting the economic recovery in response to the impacts of COVID-19.  
The City Recovery Fund has a closing balance of $4.742m with combined funding for the year of $5.241m (2020: $1.787m) provided from rates. During the year $2.940m (2020: $2.107m) was utilised. 
Under the LTP 2021-31 this fund will revert back to the City Growth Fund for 2021/22.
Reserve purchase and development fund
This fund is used to purchase and develop reserve areas within the city. During the year no purchases were made.
Insurance reserve
This reserve came into effect in 2001 and allows the Council to meet the cost of claims that fall below deductible limits under Council’s insurance policies. Additions to the reserve of $1.505m (2020: $1.981m) were funded through rates as identified in the Annual Plan. During the year $1.017m (2020: $0.668m) was used to meet under-excess insurance costs. 
Controlled entities’ reserve funds
The restricted funds of the controlled entities relate to the Wellington Museums Trust and the Wellington Zoo Trust:
•	The Wellington Museums Trust has six reserves: a Capital reserve, a Capital E reserve, a Nairn Street Cottage collection reserve, a Wellington Museums collection reserve, a City Gallery reserve and a Wellington Museum Plimmer reserve.  The two collection reserves are for the purpose of future museum acquisitions.
•	The Wellington Zoo Trust has two reserves; an Animal Transfer Fund specifically for the transfer of animals and a Conservation Fund to specifically support field conservation.
Analysis of movements in trusts and bequests
Additional funds and utilisation
Trusts and bequests receiving additional funds during the year were only those where interest totalling $0.014m (2020: $0.017m) has been applied in accordance with the original terms and conditions. 
Nature and purpose
The Council’s bequests and trusts have been generally provided for library, educational or environmental purposes.
The Wellington Zoo Trust has a number of bequests, trusts and capital grants made to it for specific purposes, which are held as restricted funds until utilised. Further information on these can be found in the Wellington Zoo Trust annual report published on their website – https://wellingtonzoo.com/about-us/about-our-zoo/
Charles Plimmer Bequest
This bequest is held and administered by the Public Trust and is primarily used for major beautification projects. As the sole beneficiary, Wellington City Council applies for distribution of available funds for particular projects after consultation with the Plimmer family. The receipt and use of these funds are disclosed separately to record the generous contribution the bequest makes to the benefit of the city. 
As at 31 August 2020, the value of the estate held by the Public Trust was $18.639m (31 August 2019: $18.441m), but the distributions to the beneficiary are only available from an agreed percentage of revenue generated. The distributions are only drawn down as required.
During the year:
•	Distributions recognised as revenue - $0.979m
•	Funds utilised towards the Pukehuia Park (Newlands) upgrade - $0.979m, with $0.495m expected to be spent in 2021/22.

Tauākī o ngā rerenga moni | Statement of cash flows

The notes on pg 15 to 115 form part of and should be read in conjunction with the financial statements.
The cash and cash equivalents balance above equates to the cash and cash equivalents balance in the Statement of Financial Position.
Wellington City Council acts as a collection agency for Greater Wellington Regional Council (GWRC) by including additional rates and levies in its own billing process. Once collected, the monies are passed to GWRC. The budget assumes that the inflows and outflows will offset each other and are shown accordingly.
The Council has ring fenced funds of $63.399m (2020: $52.537m) mainly relating to the housing upgrade project and waste activities. For more information see Note 23: Borrowings (pg 63).
Cash and cash equivalents for the purposes of the cash flow statement comprises bank balances, cash on hand and short-term deposits with a maturity of three months or less. The statement of cash flows has been prepared using the direct approach subject to the netting of certain cash flows. Cash flows in respect of investments and borrowings that have been rolled over under arranged finance facilities have been netted in order to provide more meaningful disclosures.
Operating activities include cash received from all non-financial revenue sources of the Council and Group and record the cash payments made for the supply of goods and services.
Investing activities relate to the acquisition and disposal of assets and investment revenue.
Financing activities relate to activities that change the equity and debt capital structure of the Council and Group and financing costs.

Statement of cash flows – Major budget variations
Cash flow budgeting is performed using various assumptions around the timing of events and any departure from these timings will affect the outcome against budget.
Significant variations from the cash flow budgets are as follows:
Net cash flows from operating activities were $16.618m higher than budget, including main variances of:
•	$33.000m relating to the insurance proceeds recognised in 2019/20 but received in 2020/21
•	$8.638m of higher total grants and subsidies received largely due to the unbudgeted $10.100m Government Stimulus funding package for Three Waters reform
•	$6.584m lower grants paid including $2.691m less paid for CCO support.
•	$5.128m relating to the timing of a GST refund
Offset by:
•	$37.175 of higher payments made to suppliers including an unbudgeted $10.100m paid in relation to the Government Stimulus funding package for Three Waters reform
Net cash flows from investing activities were $8.793m higher than budget, including main variances of:
•	$36.690m relating to increases in investments, principally term deposits of $31.500m
•	$2.163m from the unbudgeted proceeds from the disposal of assets
•	$2.101m higher than budgeted interest revenue
Offset by:
•	$34.627m of lower purchases of Property, plant and equipment assets resulting from less than budgeted capital expenditure
Net cash flows from financing activities were $18.640m lower than budget, including main variances of:
•	$19.428m of a lower net movement in borrowings resulting from lower capital expenditure
     Offset by:
•	$0.788m of lower net interest paid due to lower borrowings and lower interest rates.

Note 31: Reconciliation of cash flows 

1.	Excluding non-cash items

Ētahi atu whākitanga | Other disclosures
Note 32: Financial instruments
Financial instruments include financial assets (loans and receivables or recoverables and financial assets at fair value through other comprehensive revenue and expense), financial liabilities (payables and borrowings) and derivative financial instruments. Financial instruments are classified into the categories outlined below based on the purpose for which they were acquired. The classification is determined at initial recognition and re-evaluated at the end of each reporting period.
Relevant significant accounting policies
Financial instruments are initially recognised on trade-date at their fair value plus transaction costs. Subsequent measurement of financial instruments depends on the classification determined by the Group. 
Financial Assets
Financial assets are classified as loans and receivables or financial assets at fair value through other comprehensive revenue and expense.
Loans and receivables comprise cash and cash equivalents, receivables or recoverables and loans and deposits.
•	Cash and cash equivalents comprise cash balances and bank deposits with maturity dates of three months or less.
•	Receivables and recoverables have fixed or determinable payments. They arise when the Group provides money, goods or services directly to a debtor, and has no intention of trading the receivable or recoverable.
•	Loans and deposits include loans to other entities (including controlled entities and associates), and bank deposits with maturity dates of more than three months.
Financial assets in this category are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method. Fair value is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date for assets of a similar maturity and credit risk. Receivables or recoverables due in less than 12 months are recognised at their nominal value. A provision for impairment is recognised when there is objective evidence that the asset is impaired. As there are statutory remedies to recover unpaid rates, rates penalties and water meter charges, no provision has been made for impairment in respect of these receivables or recoverables.
Financial assets at fair value through other comprehensive revenue and expense primarily relate to equity investments that are held by the Group for long-term strategic purposes and therefore are not intended to be sold. Within the Group, small shareholdings are held in start-up companies, which are available for sale, until the companies mature or cease operations. Financial assets at fair value through other comprehensive revenue and expense are initially recorded at fair value plus transaction costs. They are subsequently measured at fair value and changes, other than impairment losses, are recognised directly in a reserve within equity. On disposal, the cumulative fair value gain or loss previously recognised directly in other comprehensive revenue and expense is recognised within surplus or deficit.
Financial assets are derecognised when the rights to receive cash flows have expired or have been transferred and the Group has transferred substantially all of the risks and rewards of ownership.
Financial Liabilities
Financial liabilities include payables under exchange transactions, taxes, transfers and borrowings. Financial liabilities with duration of more than 12 months are recognised initially at fair value plus transaction costs and subsequently measured at amortised cost using the effective interest rate method. Amortisation is recognised within surplus or deficit. Financial liabilities with duration of less than 12 months are recognised at their nominal value.
On disposal any gains or losses are recognised within surplus or deficit. 
Table 73 below, provides an analysis of the Group’s financial assets and financial liabilities by reporting category as described in the accounting policies:

Fair value
The fair values of all financial instruments equate or are approximate to the carrying amount recognised in the Statement of Financial Position.
Fair value hierarchy
For those financial instruments recognised at fair value in the Statement of Financial Position, the fair values are determined according to the following hierarchy:
•	Level 1 - Quoted market price - Financial instruments with quoted prices for identical instruments in active     markets.
•	Level 2 - Valuation technique using observable inputs – Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
•	Level 3 - Valuation techniques with significant non-observable inputs – Financial instruments valued using models where one or more significant inputs are not observable.

The level 3 equity investments comprise the Group’s shareholdings in the Local Government Funding Agency $7.865m (2020: $6.938m), Civic Assurance $0.507m (2020: $0.490m), the Creative HQ shareholdings $1.490m (2020: $1.570m) and a legacy investment by Wellington Museum’s Trust of $0.260m (2020: $0.260m).  Refer to Note 14: Other financial assets (pg 37) for more details.
Financial risk management
As part of its normal operations, the Group is exposed to a number of risks. The most significant are credit risk, liquidity risk and market risk, which includes interest rate risk. The Group’s exposure to these risks and the action that the Group has taken to minimise the impact of these risks is outlined below:
Credit risk
Credit risk is the risk that a third party will default on its obligations to the Group, thereby causing a financial loss. The Group is not exposed to any material concentrations of credit risk other than its exposure within the Wellington region.  The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the Statement of Financial Position and the face value of financial guarantees to related parties (refer Note 34: Contingencies (pg 99). There is currently no liability recognised for these guarantees as the Group does not expect to be called upon for payment.
The Group’s maximum exposure to credit risk at the end of the reporting period is detailed in Table 76 below.

Receivables and recoverables balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. 
The Group is exposed to credit risk as a guarantor of the LGFA’s borrowings. Further information about this exposure is explained in Note 34: Contingencies (pg 99).
Credit quality of financial assets
The credit quality of financial assets that are neither past due or impaired can be assessed by reference to Standard and Poor’s credit ratings in Table 77 below.

Liquidity risk
Liquidity risk refers to the situation where the Group may encounter difficulty in meeting obligations associated with financial liabilities. The Group maintains sufficient funds to cover all obligations as they fall due. Facilities are maintained in accordance with the Council’s Liability Management Policy to ensure the Group is able to access required funds.
Contractual maturity
The following maturity analysis in Table 78 sets out the contractual cash flows for all financial liabilities that are settled on a gross cash flow basis. Contractual cash flows for financial liabilities include the nominal amount and interest payable.

The following maturity analysis in Table 79, sets out the contractual cash flows for all financial liabilities that are settled on a net cash flow basis. Contractual cash flows for derivative financial liabilities are the future interest payable.

In addition to cash to be received in 2021/22 the Group currently has $130.000m (2020: $120.000m) in unutilised committed bank facilities available to settle obligations as well as $162.460m (2020: $210.173m) of cash, cash equivalents and receivables and is expected to have sufficient cash to meet all contractual liabilities as they fall due.
The Group is exposed to liquidity risk as a guarantor of all of LGFA’s borrowings. This guarantee becomes callable in the event of the LGFA failing to pay its obligations when they fall due. Information about this exposure is explained in Note 34: Contingencies (pg 99). 
The Group mitigates exposure to liquidity risk by managing the maturity of its borrowings programme within the following maturity limits as shown in Table 80.

Market risk
Market risk is the risk that the value of an investment will decrease, or a liability will increase due to changes in market conditions. The Group uses interest rate swaps in the ordinary course of business to manage interest rate risks. A Treasury Committee, headed by senior management personnel and the Council’s treasury management advisors (presently PwC), provides oversight for financial risk management and derivative activities and ensures any activities are in line with the Liability Management Policy which is formally approved by the Council as part of the Long-Term Plan (LTP).
Cash flow and fair value interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the Group’s financial instruments will decrease due to changes in market interest rates. The Group is exposed to interest rate risk from its interest-earning financial assets and interest-bearing financial liabilities. The Group is risk averse and seeks to minimise exposure arising from its borrowing activities primarily by entering into interest rate swap arrangements to fix interest rates on its borrowings.
The Group manages its cash flow interest rate risk by using interest rate swaps. These have the economic effect of converting borrowings from floating rates to fixed rates. The Group uses interest rate swaps to maintain a required proportion of borrowing between fixed and floating interest rates, using a corridor policy, as specified in the liability management policy. 
The proportion of gross borrowing at a fixed interest rate for the period ending 30 June 2021 is 73 percent.
Table 81 below shows the effect of the interest rate swaps at reducing the Council’s and Group’s exposure to interest rate risk:

These interest rate swaps have a nominal value which represents the value of the debt that they are covering (included above). This amount is not recorded in the financial statements; instead, the fair value of these interest rate swaps is recognised. This represents the difference between the forecast current floating interest rate and the fixed swap interest rate discounted back to present value. At 30 June 2021 the fair value of the interest rate swaps was -$47.022m (2020:           -$107.041m). The liability represents the forecast extra cash flows the Council is expected to pay from locking in fixed interest rates higher than current market rates.
Given that the interest rate swaps have terms that match with the borrowings (short term bank facilities, commercial paper and debt securities), it is appropriate to include the effect of the interest rate swaps on the borrowings interest rate and present the net effective interest rates for the underlying borrowings in Table 82 as follows.

The original related party loan to the Wellington Regional Stadium Trust (WRST) for the Stadium construction and membership underwrite is on interest free terms.
The new loan facility to WRST for COVID-19 support and further upgrade of the Fran Wilde walkway will be at an interest rate of 3% p.a. but will only be applied two years after the initial drawdown in 2020/21.
Sensitivity analysis 
While the Group has significantly reduced the impact of short-term fluctuations on the Group’s earnings through interest rate swap arrangements, there is still some exposure to changes in interest rates. 
Table 83 below illustrates the potential surplus or deficit impact of a 1 percent change in interest rates based on the Group’s exposures at the end of the reporting period:

a. Cash and cash equivalents
Group funds are in a number of different registered bank accounts with interest payable on the aggregation of all accounts. While most of the funds are held on short-term deposit, they are subject to interest rate movement on any subsequent reinvestment. A movement in interest rates of plus or minus 1 percent has an effect on interest revenue of $0.843m accordingly.
b. LGFA borrower notes
The Group holds $14.902m of borrower notes which are investments held by LGFA as part of their lending policy. They are subject to quarterly interest rate resetting. A movement in interest rates of plus or minus 1 percent has an effect on interest revenue of $0.149m accordingly.
c. Bank term deposits > than 3 months
Bank deposits greater with bank maturities greater than 3 months are subject to interest rate movement on any subsequent reinvestment. A movement in interest rates of plus or minus 1 percent has an effect on interest revenue of $0.615m accordingly.
d. Derivatives - hedged interest rate swaps
Derivatives include hedged interest rate swaps with a fair value totalling -$47.022m. A movement in interest rates of plus 1 percent has an effect on increasing the unrealised value of the hedged interest rate swaps by $41.720m.  A movement in interest rates of minus 1 percent has an effect on reducing the unrealised value of the hedged interest rate swaps by $46.143m. 
e. Debt securities – floating rate notes
Debt securities at floating rates total $728.500m. The full exposure to changes in interest rates has been reduced because the Group has $398.000m of this debt at fixed rates through interest rate swaps. A movement in interest rates of plus or minus 1 percent has an effect on the interest expense of $3.305m accordingly.
f. Bank Loans
The Group, through the Council’s joint operations with Porirua City Council has a bank term loans of $7.152m. This loan consists of various loans provided to the joint operations through Porirua City Council borrowing. A movement in interest rates of plus or minus 1 percent has an effect on the interest expense of $0.072m accordingly.
g. Commercial paper
The Group has a Commercial Paper programme which is subject to floating rates and totals $100.000m of which only $68.000m is presently utilised. The full exposure to changes in interest rates has been reduced because the Group has $51.000m of this debt at fixed rates through interest rate swaps. A movement in interest rates of plus or minus 1 percent has an effect on the interest expense of $0.170m accordingly.
Note 33: Commitments

The capital commitments in Table 84 above, represent signed contracts in place at the end of the reporting period.
The contracts will often span more than one financial year and may include capital expenditure carried forward from 2020/21 to future years.
Lease commitments
Operating leases – Group as lessee
The Group leases certain items of plant, equipment, land and buildings under various non-cancellable operating lease agreements. 
The lease terms are between 2 and 21 years and the majority of the lease agreements are generally renewable at the end of the lease period at market rates.   
The value of minimum payments for non-cancellable operating leases is recognised as an expense in Note 7: Expenditure on operating activities (pg 23).
Relevant significant accounting policies
Leases where the lessor retains substantially all the risks and rewards of ownership of the leased items are classified as operating leases. Payments made under operating leases are recognised within surplus or deficit on a straight-line basis over the term of the lease. Lease incentives received are recognised within surplus or deficit over the term of the lease as they form an integral part of the total lease payment.
The future expenditure committed by these leases is analysed as follows in Table 85.

Operating leases – Group as lessor
The Group has also entered into commercial property leases of its investment property portfolio and other land and buildings. 
The land and buildings held for investment purposes are properties which are not held for operational purposes and are leased to external parties. 
Ground leases are parcels of land owned by the Group in the central city or on the waterfront that are leased to other parties who own the buildings situated on the land. The leases are generally based on 21-year perpetually renewable terms. As these parcels of land are held for investment purposes the leases are charged on a commercial market basis.
The land and buildings not held for investment purposes are either used to accommodate the Group’s operational activities or are held for purposes such as road widening, heritage, or are being monitored for compliance reasons. In some cases, parts of these assets are leased to external parties on a commercial basis. The terms of these commercial leases generally range from 1 to 15 years.
Relevant significant accounting policies
Rental revenue is recognised on a straight-line basis over the lease term.
The committed revenues expected from these lease portfolios are analysed as follows in Table 86.

Commitments to related parties
The Council and Group have no commitments to key management personnel beyond normal employment obligations.
Note 34: Contingencies

NZ Local Government Funding Agency Limited (LGFA)
Council is one of 30 local authority shareholder, borrower and guarantor councils of the LGFA.  Any non-shareholder council that borrows in aggregate NZ$20m or more from LGFA must be a guarantor. There are now 63 guarantor Councils in total. In this regard Council has uncalled capital of $1.866m. When aggregated with the uncalled capital of other shareholders, $20m is available in the event that an imminent default is identified. Also, together with the other shareholders and guarantors, Council is a guarantor of all of LGFA’s borrowings. At 30 June 2021, LGFA had borrowings totalling $13,609m (2020: $11,908m).
Financial reporting standards require Council to recognise the guarantee liability at fair value. However, the Council has been unable to determine a sufficiently reliable fair value for the guarantee, and therefore has not recognised a liability. The Council considers the risk of LGFA defaulting on repayment of interest or capital to be very low on the basis that we are not aware of any local authority, which is a member of the LGFA, that has had debt default events in New Zealand; and local government legislation would enable local authorities to levy a rate to recover sufficient funds to meet any debt obligations if further funds were required. Council considers that even if it was called upon to contribute the cost would not be material.
Other legal proceedings
Other legal proceedings are current claims against the Council and Group as a result of past events which are currently being contested. The amounts shown reflect potential liability for financial reporting purposes only and do not represent an admission that any claim is valid. The outcome of these remains uncertain at the end of the reporting period. The maximum exposure to the Group is anticipated to be less than $0.585m.
Structural defect claim
A large and novel claim alleging a breach of duty to a tenant of a commercial building was filed in August 2019.  The claim is at an early stage. Council’s current estimated financial exposure for this claim is $0.050m being the insurance excess payable, which is included in the total above. 
COVID-19 support for related parties and other entities
Wellington International Airport Limited
As part of its COVID-19 pandemic response, Council agreed on 23 April 2020 to provide financial support to Wellington International Airport Limited in proportion to its 34 percent equity holding, if required. Along with Infratil Limited, who own the remaining 66 percent, the two shareholders will jointly provide an equity underwrite of up to nearly $75.76 million. Council's share would be up to $25.76m and Infratil’s $50m. The facility will be able to be drawn by WIAL, if required, through the issue of redeemable preference shares.
The actions of the shareholders ensure the Airport is soundly financed to meet all of its obligations and maintain the support of its lenders as it recovers from the significant impacts of COVID-19 on the airline industry.  
Wellington Regional Stadium Trust (WRST)
As a direct response to the COVID-19 pandemic, Council agreed, on 21 July 2020, to a joint loan facility between Council and Greater Wellington Regional Council to be made available to WRST. The loan facility to be used, if required, to fund operating deficits resulting from the impact of COVID-19 and to provide funding for the capital works required to continue with the strengthening of the Fran Wilde walkway. This loan is an unsecured facility of up to $4.200m divided equally between the lenders with a fixed interest rate of 3.0 percent and is interest free for the first two years upon being drawn down. $0.900m was drawn down from Council during the period ending 30 June 2021.
World of Wearable Art (WOW)
As a result of the COVID-19 pandemic, on 4 February 2021 the Council agreed to and subsequently entered into a funding agreement with WOW to provide access to financial relief should their 2021 World of WearableArt Awards Show be disrupted due to the COVID-19 pandemic and any related NZ Government restrictions, up to a maximum of $5.000m. This funding agreement allowed the board to continue with their planning and investment in the 2021 WOW Awards Show. At 30 June 2021 this funding agreement had not been called on. However, following the re-emergence of COVID-19 in the community on 17 August 2021 the Government announced that all New Zealand would be moving to alert level 4. The 2021 WOW Awards Show, which was set to run from 30 September to 17 October 2021, was initially postponed on 30 August 2021 and then a decision was made to cancel it on 9 September 2021. The amount that the Council is required to pay under the terms of the funding agreement is still being finalised.
Unquantified contingent liabilities
Holiday Pay remediation
A number of New Zealand’s public and private organisations have identified issues with the calculation of leave entitlements under the Holidays Act 2003 (“the Act”). During 2019/20, Council completed its own review of payroll processes which identified instances of non-compliance with the Act.  This review resulted in Council establishing a project team to further look at system configuration and business processes to better understand the areas of non-compliance with the Act, this work has continued into 2020/21.  This is a significant undertaking and due to this Council has decided that the project will be split into two phases; phase one is the rectification of known system configuration and business process issues while phase two will be the remediation.  Council is partway through phase one of the project with a completion date estimated to be early 2022.  
Following this, Council will commence phase two of the project.  The outcome of this phase cannot be determined at this time given the current level of reliability of this information.  Due to this we are unable to quantify our liability at 30 June 2021. Council acknowledges that the potential liability could be significant as the issue affects current and past employees and covers a period going back six years plus one from October 2020.
Other claims
There are various other claims that the Council and Group are currently contesting which have not been quantified due to the nature of the issues, the uncertainty of the outcome and/or the extent to which the Council and Group have a responsibility to the claimant. The possibility of any outflow in settlement in these cases is assessed as remote.
Contingent assets
The Council and Group have no contingent assets as at 30 June 2021 (2020: $Nil).
Relevant significant accounting policies
Contingent liabilities and contingent assets
Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident. Contingent liabilities are disclosed if the possibility they will crystallise is not remote. Contingent assets are disclosed if it is probable the benefits will be realised.
Note 35: Joint Operations
The Council has significant interests in the following joint operations. These are domiciled and operate in New Zealand. Porirua City Council operates two of the joint operations under an agreement which provides that all assets of the joint operation are owned by the two councils as tenants in common. The remaining joint operations are part of Let’s Get Wellington Moving (LGWM) which is a joint initiative between Wellington City Council, Greater Wellington Regional Council, and Waka Kotahi NZ Transport Agency.
Table 88: Joint Operations	Interest
2021	Interest
2020	Nature of business	
Wastewater treatment plant – Porirua City Council	27.60%	27.60%	Owns and operates a wastewater treatment plant and associated trunk sewers and pumping stations that provide services to Wellington City’s northern suburbs. Ownership of the assets is in proportion to the capacity of the plant allocated to the two councils.	
Spicer Valley Landfill – Porirua City Council	21.50%	21.50%	Owns and operates a sanitary landfill that provides services to Wellington City’s northern suburbs. Ownership of the assets is in proportion to the ratio of the populations of Porirua City and the area of the former Tawa Borough.	

LGWM Projects
-	State Highway improvement
-	Mass Rapid Transport
-	City Streets
-	Early Delivery
-	Travel Demand Management
	20.00%	20.00%	Joint initiative to develop a transport system that supports future aspirations for the look, feel, and function of Wellington City. These will support Wellington’s growth while making it safer and easier to get around.	
The end of the reporting period for the joint operations is 30 June.
Relevant significant accounting policies
For joint operations the Council has a liability in respect of its share of joint operational deficits and liabilities, and shares in any operational surpluses and assets. The Council’s proportionate interest (eg. 21.5 percent of the Spicer Valley landfill) in the assets, liabilities, revenue and expenditure is included in the financial statements of the Council and Group on a line-by-line basis.
The Council’s and Group’s share of the joint operations’ capital commitments is $Nil (2020: $Nil) and contingent liabilities is $Nil (2020: $Nil).
Note 36: Related party disclosures
Relevant significant accounting policies
Related parties arise where one entity has the ability to affect the financial and operating policies of another through the presence of control or significant influence. Related parties include all members of the Group (controlled entities, associates and joint ventures) and key management personnel. 
Key management personnel include the Mayor and Councillors as elected members of the governing body of the Council reporting entity, the Chief Executive and all members of the Executive Leadership Team, being key advisors to the Council and Chief Executive.
Key management personnel
In this section, the Council discloses the remuneration and related party transactions of key management personnel. The remuneration payable to key management personnel of the Group’s other entities is disclosed separately within their individual financial statements and is not included in Table 89 below.

As at 30 June 2021 key management personnel comprised of 23 individuals: 15 elected members or 15 fulltime equivalents (2020: 15) and 8 executive leaders or 8 fulltime equivalents (2020: 8). There was no increase in the number of executive leadership roles over the period to 30 June 2021.
During the year period we continued the recruitment into vacant Executive Leadership roles which had carried over from the prior financial year and made appointments into these roles.  During this period of recruitment, we had a number of senior managers acting in executive leadership roles to provide cover.   
Following the Covid-19 crisis, ELT members, in order to collectively demonstrate their commitment to the city’s pandemic response, voluntarily agreed to a 10% salary sacrifice, this covered the period of 1 July to 31 December 2020 of this financial year. For further disclosure of the remuneration payable to the Mayor, Councillors and the Chief Executive refer to Note 37: Remuneration and staffing (pg 109).
Material related party transactions – key management personnel
During the year key management personnel, as part of normal local authority relationships, were involved in transactions with the Council such as payment of rates and purchases of rubbish bags or other Council services. These transactions were on normal commercial terms. 
A related party of an Executive Leadership Team member provided training services, through a company, to Council during the year. These services valued at $12,153 were procured as arm’s length transactions on normal commercial terms. Except for these transactions no key management personnel have entered into related party transactions with the Group.
The Mayor and Councillor’s disclose their personal interests in a register available on the Council website.
There are no commitments from Council to key management personnel.
Material related party transactions – structured entities
NZ Local Government Funding Agency Limited (LGFA)
The LGFA was incorporated on 1 December 2011 and was established to facilitate the efficient, and cost effective, raising of debt funding for local government authorities. There are currently 30 regional, district and city councils throughout New Zealand that own 80 percent of the issued capital, with the Government holding the remaining 20 percent. The Council became an establishment shareholder in this Council Controlled Trading Organisation (CCTO) and currently has an investment of $1.866m representing 8.3 percent of paid-up capital. 
During the year ending 30 June 2021 Council drew down new borrowings of $249.500m and repaid $93.000m. Interest expense was paid quarterly in arrears on all borrowings and interest revenue of $0.130m was received on $1.488m of borrower notes on maturity. Council borrowings from the LGFA are comprised of $100m of Fixed Rates Bonds and $691m of Floating Rate Notes. 
Council holds $14.902m of investment borrower notes and during the year Council received a shareholder dividend of $0.066m.
Wellington International Airport Limited    
COVID-19: Support for an underwrite of additional equity, if required. For more information refer to Note 34: Contingencies (pg 99).  
Material related party transactions – unstructured entities
Financial information relating to the Council’s interests in unstructured entities is provided in Tables 90 and 91 below:
Basin Reserve Trust (BRT)  
The Basin Reserve Trust was established on 24 February 2005 to manage, operate and maintain the Basin Reserve. The Trust was jointly created with Cricket Wellington Incorporated (CWI). Wellington City Council and CWI each appoint two of the four trustees. Wellington City Council does not have an equity investment in the Trust but has influence over the Trust through the appointment of trustees and receives benefits from the complementary activities of the Trust in alignment with the Council’s objectives.
During the year ending 30 June 2021 Council contributed $0.695m (2020: $0.680m) to fund the core operations of the Trust. 

Wellington Regional Stadium Trust (WRST)        
Wellington Regional Stadium Trust was jointly created by Wellington City Council and Greater Wellington Regional Council. Wellington City Council does not have an equity investment in the Trust but has influence over the Trust through the appointment of trustees and receives benefits from the complementary activities of the Trust in alignment with the Council’s objectives.
Council holds a $15m limited recourse loan to WRST which, is unsecured, with no specified maturity and at no interest. The loan is not repayable until all other debts are extinguished. On maturity of the initial WRST membership underwrite, the unpaid interest was converted to a $0.395m advance repayable after all other advances made by the Council and Greater Wellington Regional Council. 
During the year ending 30 June 2021 Council transacted directly with WRST to the amount of $2.954mm (2020: $0.373m) as part of the original $5.000m funding grant recognised in 2016/17 for the upgrade of the concourse. This grant is now fully paid.
In addition, WRST made an initial drawdown on the new joint loan facility (WCC and GWRC) for the amount of $0.900m. This loan facility was made available for COVID-19 impact support and additional concourse works. A further $1.200m remains undrawn from Council for this facility. Refer to Note 14: Other Financial assets (pg 37), for more information on this loan.

Intra group transactions and balances – Joint Operations
During the year the Council has entered into transactions with its joint operations partners Porirua City Council and Let’s Get Wellington Moving. These transactions disclosed are within the normal course of business. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows in Table 92.

Intra group transactions and balances – Controlled entities
During the year the Council has entered into transactions with its controlled entities. These transactions disclosed are within the normal course of business. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows in Table 93.

Current receivables, recoverables and payables
The receivable, recoverable and payable balances are non-interest bearing and are to be settled with the relevant entities on normal trading terms and conditions.
Payments to controlled entities
The total payments to controlled entities were $35.242m (2020: $33.469m) when the grant funding of $26.421m (2020: $26.348m), COVID-19 Support of $2.318m (2020: $0.504m) and expenditure for services provided to Council of $6.503m (2020: $6.617m) are combined.
Intra group transactions and balances – Associates and Joint Venture
During the year the Council has entered into several transactions with its associates and joint venture. These transactions disclosed are within the normal course of business. The nature of these intra-group transactions and the outstanding balances at the year-end are as follows in Table 94.

Current receivables, recoverables and payables
The receivable, recoverable and payable balances are non-interest bearing and are to be settled with the relevant entities on normal trading terms and conditions.

Note 37: Remuneration and staffing
Mayoral and Councillor remuneration
Remuneration
The following people held office as elected members of the Council’s governing body, during the reporting period. The total remuneration attributed to the Mayor and Councillors during the year from 1 July 2020 to 30 June 2021 was $1,846,046 (2020: $1,789,623) and is broken down and classified as follows in Table 95.

In April 2021 Councillors took a voluntary pay cut of 10% due to COVID-19. At the time there was no legal way for elected members to take reduced pay directly and so they donated this 10% to charitable organisations in Wellington. The Government subsequently introduced a mechanism for elected members to take a direct pay cut and the Mayor and five Councillors used this mechanism (*as represented above). The other Councillors continued to make charitable donations of 10% of their pay.
Salary 
The Remuneration Authority is responsible for setting the remuneration levels for elected members (Clause 6, Schedule 7 of the Local Government Act 2002). The Council’s monetary remuneration (salary) detailed above was determined by the Remuneration Authority. As permitted under the Authority’s guidelines the Council has chosen for its elected members to receive an annual salary for the 2020/21 financial year rather than the alternative option of a combination of meeting fee payments and annual salary. 
Mayoral car
The Remuneration Authority does permit Council to provide the Mayor with a vehicle for full private use, which is a taxable benefit and the current Mayor has taken up this option.
Non-monetary
In addition, the Mayor and Councillors receive non-monetary remuneration (benefit) in relation to on-site car parking spaces provided, regardless of whether they elect to use these or not. 
The Councillors have shared office and working space available for use, and access to phones and computers. Professional indemnity and trustee liability insurance is also provided to Councillors against any potential legal litigation which may occur while undertaking Council business. 
Relevant significant accounting policies
Remuneration of elected members comprises any money, consideration or benefit received or receivable or otherwise made available, directly or indirectly, during the reporting period but does not include reimbursement of authorised work expenses or the provision of work-related equipment such as cell phones and laptops. 
Community Boards
The Council has two community boards – the Tawa Community Board and the Makara/Ohariu Community Board. Remuneration paid to the elected members of these boards is as follows in Table 96.

A technology allowance of $45 per month is available to the chair of both the Tawa and Makara/Ohariu Community Boards. This allowance can be taken as either an allowance or as an actual expense reimbursement. 
Chief Executive’s remuneration
The Chief Executive of the Council was appointed in accordance with section 42 of the Local Government Act 2002. 
Table 97 below, shows the total remuneration of the Chief Executive paid or payable for the year ended 30 June 2021. 
Under the terms of the agreement, the Chief Executive of the Council chooses how they wish to take their remuneration package (salary only or a combination of salary and benefits). 
The total remuneration package for the Chief Executive is $436,664 (2020: $436,664). 
Note that during the period of 1 July to 31 December 2020 the Chief Executive, along with the member of the Executive Leadership team took a 10% voluntary salary sacrifice, as a COVID-19 response, which meant her actual remuneration for the year ending 30 June 2021 was $414,651

Severances 
In accordance with Schedule 10, section 33 of the Local Government Act 2002, the Council is required to disclose the number of employees who received severance payments during the year and the amount of each severance payment made.
Severance payments include any consideration (monetary and non-monetary) provided to any employee in respect of the employee’s agreement to the termination of their employment with the Council. Severance payments exclude any final payment of salary, holiday pay and superannuation contributions or other contractual entitlement. 
For the year ending 30 June 2021 the Council made severance payments to 11 employees totalling $203,351 (2020: 13 employees, $405,662).
The individual values of each of these severance payments are: $22,055; $28,207; $6,418; $26,527; $29,454; $7,965; $8,125; $27,417; $25,932; $3,589; $17,662.
Employee numbers and remuneration bands
Table 98 below, identifies the number of full-time employees as at the of the reporting period and the full-time equivalent number of all other part-time, fixed term and casual employees. 

Table 99 further identifies the breakdown of remuneration levels of those employees into various bands.

Of the 1833 (2020: 1,815) individual employees, 677 (2020: 687) work part-time or casually.

Total annual remuneration has been calculated to include any non-financial benefits and other payments in excess of normal remuneration such as the employer KiwiSaver contribution.
*If the number of employees for any band was 5 or less then we are legally required to combine it with the next highest band. This means that some rows span different bands across the two years shown.
Council has resolved that in addition to legislative requirements to disclose the above bandings it has also included the 2 lowest remuneration grades as shown in Table 101.

The current living wage rate for Council was $22.10 per hour for the period to 30 June 2021. Each year the living wage rate for Council will be reviewed in accordance with the latest Living Wage rate announced/published by Living Wage Aotearoa.
Note 38: Events after the end of the reporting period
Three Waters Reform
In July 2020, the Government launched the Three Waters Reform Programme – a three-year programme to reform local government three waters service delivery arrangements. Currently 67 different councils own and operate the majority of the drinking water, wastewater and stormwater services across New Zealand. The proposed reform programme is being progressed through a partnership-basis approach with the local government sector, alongside iwi/Maori as the Crown’s Treaty Partner.
Following the Government announcement on the 27 October 2021 on three waters reform, there is increased certainty with the proposal to transfer the three-water delivery and infrastructure from the 67 councils to four Water Service Entities (WSEs). In June 2021, the Government proposed regional boundaries for each entity A, B, C and D, which would manage water assets for the country. Council would belong to WSE ‘C’, along with 22 other Councils. Based upon the current proposals, the WSE would be independent with a separate Board of Directors and Councils would have no shareholding and no financial interest. 
At the date of this Annual Report being approved for issue there is, due to this announcement, increased certainty that should the legalisation be enacted, Council will not be responsible for the delivery and infrastructure of three water services from 1 July 2024.
COVID-19
The financial impact of COVID-19 to Council in 2020/21 is outlined in the separate disclosure on pg 11. During the financial year the impact was largely limited to Venues, and Council Controlled entities, with all other Council services able to operate relatively normally. Following the re-emergence of COVID-19 in the community on 17 August 2021 New Zealand moved to alert level 4. The Wellington region subsequently moved to alert level 3 on 1 September 2021. At alert levels 3 and 4 the Council is unable to operate many of its community facilities such as gyms, swimming pools, libraries, recreation centres, parks, playgrounds and sports fields. There is expected to be an impact on revenue during the 2021/22 financial year. A decision was made to extend the due date of the rates quarter 1 instalment from 1 September 2021 to 1 October 2021 to allow people more time to pay if required.
World of WearableArt (WOW)
On 4 February 2021, the Council agreed to and subsequently entered into a funding agreement with WOW to provide access to financial relief should their 2021 World of WearableArt Awards Show be disrupted due to the COVID-19 pandemic and any related NZ Government restrictions, up to a maximum of $5.000m. The 2021 WOW Awards Show was cancelled on 9 September 2021 triggering a payment under this funding agreement. The amount that the Council is required to pay is still being finalised.

Ētahi atu whākitanga | Financial prudence 
The government has introduced the Local Government (Financial Reporting and Prudence) Regulations 2014 which has a series of measures and benchmarks, disclosed in the following pages. 
Readers are urged to read the commentary and explanations provided to give context to the information, as it is not always possible to compare Wellington City Council’s results with other councils due to their size, location and provision of services.
During the 2018-28 Long-Term Plan process and with consultation with ratepayers, the Council revised the number of benchmarks and removed measures that were similar in nature and added no value in understanding of the measures to readers.
Annual report disclosure statement for year ended 30 June 2021
What is the purpose of this statement?
The purpose of this statement is to disclose the council's financial performance in relation to various benchmarks to enable the assessment of whether the council is prudently managing its revenues, expenses, assets, liabilities, and general financial dealings.
The council is required to include this statement in its annual report in accordance with the Local Government (Financial Reporting and Prudence) Regulations 2014 (the regulations). Refer to the regulations for more information, including definitions of some of the terms used in this statement.
Unless prescribed by the regulations the quantified limit for each benchmark is 

Rates affordability benchmark
The council meets the rates affordability benchmark if –
•	Its actual rates revenue equals or is less than each quantified limit on rates; and 
•	Its actual rates increases equal or are less than each quantified limit on rates increases.
Rates (revenue) affordability
The following graph compares the council's actual rates revenue with a quantified dollar limit on rates revenue included in the financial strategy included in the council's long-term plan. The quantified limit for the first three years of the 2018-28 LTP, which encompasses the financial years 2018/19; 2019/20 and 2020/21 is $350,000,000. This means rates revenue should remain below this limit for each of these years. 

Rates (increases) affordability
The following graph compares the council's actual rates increases with a quantified limit on rates increases included in the financial strategy in the council's long-term plan. 
The quantified limit for 2020/21 is 7.6 percent although the actual rates increase set for the 2020/21 year was lower than this limit. The rates increase proposed in the 2018-28 LTP is equivalent to an average rates increase of 3.5 percent over the first three years, which encompasses the financial years 2018/19; 2019/20 and 2020/21. 

Debt affordability benchmark
The council meets the debt affordability benchmark if its actual borrowing is within each quantified limit on borrowing. The Council has seven measures for debt affordability and these are set out below. The suitability of these measures has been assessed by Council’s professional advisers, PwC Wellington.
Net borrowing as a percentage of revenue
The following graph compares the council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's long-term plan. The quantified limit is net borrowings, comprised of borrowings less cash and cash equivalents, being less than or equal to 175 percent of revenue. For this measure revenue is defined as total revenue less vested assets and development contribution revenue. 

Net interest as a percentage of revenue
The following graph compares the council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's long-term plan. The quantified limit is net interest, defined as interest expense less interest revenue, being less than or equal to 15 percent of revenue.  For this measure revenue is defined as total revenue less vested assets and development contribution revenue. 

Net interest as a percentage of annual rates revenue
The following graph compares the council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's long-term plan. The quantified limit is net interest, defined as interest expense less interest revenue, being less than or equal to 20 percent of annual rates revenue. 

Liquidity (term borrowing + committed loan facilities to existing external net debt)
The following graph compares the council's actual borrowing with a quantified limit on borrowing stated in the financial strategy included in the council's long-term plan. The quantified limit is liquidity being greater than or equal to 115 percent. For debt affordability, liquidity is the total of Councils existing external net debt. Net borrowings for debt affordability are defined as borrowings less cash and cash equivalents. 

Balanced budget benchmark
The following graph displays the council's revenue (excluding development contributions, financial contributions, vested assets, gains on derivative financial instruments, and revaluations of property, plant, or equipment) as a proportion of operating expenses (excluding losses on derivative financial instruments and revaluations of property, plant, or equipment).
The council meets this benchmark if its revenue equals or is greater than its operating expenses. 
For the purposes of this benchmark, impairments, which represent a non-cash movement in the valuation of assets, were included in the calculation. These unbudgeted impairments represent asset valuation movements relating to Civic Precinct buildings as disclosed in the financial statements. For 2017, 2019, 2020 and 2021 impairments of $11.446m, $50.603m, $10.183m and $1.848m were included in the calculation. If these were excluded, the benchmarks for these four years would be 107%, 102%, 103% and 99% respectively. 

Essential services benchmark
The following graph displays the council's capital expenditure on network services as a proportion of depreciation on network services.
The council meets this benchmark if its capital expenditure on network services equals or is greater than depreciation on network services.

Debt servicing benchmark
The following graph displays the council's borrowing costs as a proportion of revenue (excluding development contributions, financial contributions, vested assets, gains on derivative financial instruments, and revaluations of property, plant, or equipment).
Because Statistics New Zealand projects the council's population will grow as fast as the national population growth rate, it meets the debt servicing benchmark if its borrowing costs equal or are less than 10 percent of its revenue. 

Debt control benchmark
The following graph displays the council's actual net debt as a proportion of planned net debt. In this statement, net debt means financial liabilities less financial assets (excluding trade and other receivables).
The council meets the debt control benchmark if its actual net debt equals or is less than its planned net debt. 
The calculation of net debt in this benchmark includes derivative (non-cash) financial instruments, predominantly cash flow hedges. The 2019/20 net debt was impacted by the valuation of the Council’s cash flow hedge liabilities being higher than planned as a result of interest rate volatility during the financial year. 

Operations control benchmark
This graph displays the council's actual net cash flow from operations as a proportion of its planned net cash flow from operations.
The council meets the operations control benchmark if its actual net cash flow from operations equals or is greater than its planned net cash flow from operations.
A number of assumptions are made around the timing of events. Any departure from these assumptions can affect the outcome of this measure. The Council is satisfied that it is prudently managing operational cash flow, with variances in the 2017/18, 2018/19 and 2019/20 years explained by the timing difference in the receipt of revenues compared to budget that lead to the “not met” outcome for this measure. In 2019/20 there were also significant revenue losses due to the COVID-19 lockdown which would have impacted this measure.

Tauākī pānga ā-pūtea | Funding impact statements 
Annual report disclosure statement for year ended 30 June 2021
What is the purpose of these statements?
An annual report must include an audited funding impact statement for the financial year to which the report relates. The purpose of the Funding impact statements is to disclose the amount of funds produced from each source of funding, identify how the funds were applied and compare this information against the information included in the LTP.
One statement is prepared for the whole of Council’s activities and individual statements are prepared for each strategic activity.
The application of capital funding is summarised in an additional table on pg 147.

 

Independent Auditor’s Report

To the readers of Wellington City Council’s annual report for the year ended 30 June 2021
The Auditor-General is the auditor of Wellington City Council (the City Council) and its subsidiaries and controlled entities (the Group). The Auditor-General has appointed me, Karen Young, using the staff and resources of Audit New Zealand, to report on the information in the City Council’s annual report that we are required to audit under the Local Government Act 2002 (the Act). We refer to this information as “the audited information” in our report.
We are also required to report on:
•	whether the City Council has complied with the requirements of Schedule 10 of the Act that apply to the annual report; and
•	the completeness and accuracy of the City Council’s disclosures about its performance against benchmarks that are required by the Local Government (Financial Reporting and Prudence) Regulations 2014.
We refer to this information as “the disclosure requirements” in our report.
We completed our work on 28 October 2021. This is the date on which we give our report. 
Opinion 
Unmodified opinion on the audited information, excluding the statements of service provision
In our opinion: 
•	the financial statements on pages … to …:
•	present fairly, in all material respects:
•	the City Council and Group’s financial position as at 30 June 2021;
•	the results of the operations and cash flows for the year ended on that date; and
•	comply with generally accepted accounting practice in New Zealand in accordance with Public Benefit Entity Reporting Standards; 
•	the funding impact statement on page …, presents fairly, in all material respects, the amount of funds produced from each source of funding and how the funds were applied as compared to the information included in the City Council’s annual plan;
•	the statement about capital expenditure for each group of activities on page …, presents fairly, in all material respects, actual capital expenditure as compared to the budgeted capital expenditure included in the City Council’s Long-term plan; and
•	the funding impact statement for each group of activities on pages … to …, presents fairly, in all material respects, the amount of funds produced from each source of funding and how the funds were applied as compared to the information included in the City Council’s Long-term plan. 
Qualified opinion on the statements of service provision 
In our opinion, except for the possible effects of the matters described in the “Basis for our qualified opinion” section of our report, the statements of service provision on pages … to …:
•	presents fairly, in all material respects, the levels of service for each group of activities for the year ended 30 June 2021, including:
•	the levels of service achieved compared with the intended levels of service and whether any intended changes to levels of service were achieved;
•	the reasons for any significant variation between the levels of service achieved and the intended levels of service; and
•	complies with generally accepted accounting practice in New Zealand.
Report on the disclosure requirements 
We report that the City Council has:
•	complied with the requirements of Schedule 10 of the Act that apply to the annual report; and
•	made the disclosures about performance against benchmarks as required by the Local Government (Financial Reporting and Prudence Regulations 2014) on pages … to …, which represent a complete list of required disclosures and accurately reflects the information drawn from the City Council’s audited information and, where applicable, the City Council’s Long-term plan and annual plans.
Basis for our opinion
Six councils, including the City Council, are joint shareholders in Wellington Water Limited (Wellington Water). Wellington Water manages the six councils’ water assets and services on their behalf. A Committee represented by a member of each shareholding council monitors the performance of Wellington Water. Wellington Water reports its performance in respect of water services to the six councils, which are required to report thereon in their respective statements of service provision.
We identified significant issues with some of these performance measures as described below. As a result of these issues, our work was limited and there were no practicable audit procedures we could apply to obtain assurance over the reported results for these performance measures. Our opinion on these performance measures was also qualified for the 2020 performance year. 
Maintenance of the reticulation network – Water supply
Wellington Water was unable to report a reliable water loss percentage for each shareholding council. This is because the water loss percentage is estimated using information obtained from water meters across the reticulation network. The limited number of water meters across the City Council’s reticulation network significantly impacts the reliability of the results.
Total number of complaints received – Water supply, Wastewater, and Stormwater
Wellington Water was unable to accurately report the number of complaints for each of the three waters services. Complete records of all complaints were not available, and the complaints system used also did not classify complaints between water supply, wastewater, and stormwater. 
Reliability of other performance measures in the prior year
The City Council’s activity statements include performance measures on water supply, wastewater, and stormwater fault response times, and the number of dry weather wastewater overflows. In respect of the 30 June 2020 comparative information only, as explained on pages [… and …], Wellington Water was unable to accurately report on these measures as the information produced from system was unreliable. There were no satisfactory audit procedures that we could perform to independently confirm whether the reported information was materially correct and our audit opinion on these performance measures for the year ended 30 June 2020 was modified accordingly.
This issue has been resolved for the 30 June 2021 year. As the limitation on our work cannot be resolved for the 30 June 2020 year, the City Council’s performance information reported for these performance measures for the 30 June 2021 year may not be directly comparable to the 30 June 2020 performance information.
We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the Professional and Ethical Standards and the International Standards on Auditing (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board. We describe our responsibilities under those standards further in the “Responsibilities of the auditor for the audited information” section of this report. 
We have fulfilled our responsibilities in accordance with the Auditor-General’s Auditing Standards.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on the audited information.
Emphasis of matter – The Government’s three waters reform programme announcement
Without further modifying our opinion, we draw attention to note … on page …, which outlines that subsequent to year-end, the Government announced it will introduce legislation to establish four publicly owned water services entities to take over responsibilities for service delivery and infrastructure from local authorities from 1 July 2024. The impact of these reforms, once legislated, will mean that the City Council will no longer deliver three waters services.
Responsibilities of the Council for the audited information
The Council is responsible for meeting all legal requirements that apply to its annual report.
The Council’s responsibilities arise under the Local Government Act 2002 and the Local Government (Financial Reporting and Prudence) Regulations 2014.
The Council is responsible for such internal control as it determines is necessary to enable it to prepare the information we audit that is free from material misstatement, whether due to fraud or error. 
In preparing the information we audit the Council is responsible for assessing its ability to continue as a going concern. The Council is also responsible for disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless there is an intention to amalgamate or cease all of the functions of the City Council and the Group or there is no realistic alternative but to do so.
Responsibilities of the auditor for the audited information
Our objectives are to obtain reasonable assurance about whether the audited information, as a whole, is free from material misstatement, whether due to fraud or error, and to issue an audit report that includes our opinion. 
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit carried out in accordance with the Auditor General’s Auditing Standards will always detect a material misstatement when it exists. Misstatements are differences or omissions of amounts or disclosures, and can arise from fraud or error. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decisions of readers taken on the basis of this audited information.
For the budget information reported in the audited information, our procedures were limited to checking that the budget information agreed to the City Council’s Long-term plan. 
We did not evaluate the security and controls over the electronic publication of the audited information.
As part of an audit in accordance with the Auditor-General’s Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. Also: 
•	We identify and assess the risks of material misstatement of the audited information, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
•	We obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City Council and Group’s internal control.
•	We evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Council.
•	We determine the appropriateness of the reported intended levels of service in the activity statements, as a reasonable basis for assessing the levels of service achieved and reported by the City Council.
•	We conclude on the appropriateness of the use of the going concern basis of accounting by the Council and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast a significant doubt on the City Council and Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our audit report to the related disclosures in the audited information or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our audit report. However, future events or conditions may cause the City Council and the Group to cease to continue as a going concern.
•	We evaluate the overall presentation, structure and content of the audited information, including the disclosures, and whether the audited information represents, where applicable, the underlying transactions and events in a manner that achieves fair presentation. 
•	We obtain sufficient appropriate audit evidence regarding the entities or business activities within the Group to express an opinion on the consolidated audited information.
We communicate with the Council regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.  
Other Information
The Council is responsible for the other information included in the annual report. The other information comprises the information included on pages … to …, … to … and … to … and … to …, but does not include the audited information and the disclosure requirements. 
Our opinion on the audited information and our report on the disclosure requirements do not cover the other information. 
Our responsibility is to read the other information. In doing so, we consider whether the other information is materially inconsistent with the audited information and the disclosure requirements, or our knowledge obtained during our work, or otherwise appears to be materially misstated. If, based on our work, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Independence
We are independent of the City Council and Group in accordance with the independence requirements of the Auditor-General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1: International Code of Ethics for Assurance Practitioners issued by the New Zealand Auditing and Assurance Standards Board. 
In addition to our audit and the report on the disclosure requirements, we have audited the City Council’s 2021-2031 Long-term plan, carried out a limited assurance engagement related to the City Council’s debenture trust deed, provided probity assurance over the Central Library Project, and performed a review of the revenue and expenditure of the Clifton Terrace Car Park managed by the City Council on behalf of Waka Kotahi NZ Transport Agency. These engagements are compatible with those independence requirements. 
Other than these engagements, we have no relationship with or interests in the City Council or its subsidiaries and controlled entities.

Karen Young
Audit New Zealand
On behalf of the Auditor-General
Wellington, New Zealand