Resource Centre

Financial Prudence Regulations 2014

Local Government (Financial Reporting and Prudence) Regulations 2014

The Local Government (Financial Reporting and Prudence) Regulations 2014 were developed to:

  • assist in identifying local authorities where further enquiry is warranted in relation to their financial management; and
  • promote prudent financial management by local authorities.

Go directly to the Regulations

Reporting basis

  • Local authorities must disclose their performance in relation to the benchmarks as a single entity and not include subsidiaries.
  • However, Auckland Council must disclose, in its disclosure statements, the performance of Auckland Council and its subsidiaries as a single consolidated entity.

Commencement

The regulations come into force on 1 May 2014, but they include transitional provisions – see Schedule 1.

The benchmarks and indicators

Name

Description

Regulation

Affordability benchmarks

Rates affordability benchmark

Rates revenue complies with the limits set in the council’s financial strategy

17 Rates affordability benchmark

Debt affordability benchmark

Debt complies with the limits set in the council’s financial strategy

18 Debt affordability benchmark

Affordability indicators

Rates

Rates per rating unit

Regulations are not required for these indicators – but you should still report them.

Debt

Net debt per rating unit

Sustainability benchmarks

Balanced budget benchmark

Operating revenue, excluding development and financial contributions and revenue from revaluations, exceeds operating expenditure

19 Balanced budget benchmark

Essential services benchmark

Capital expenditure on the five network infrastructure services exceeds depreciation on those five services

20 Essential services benchmark

Debt servicing benchmark

Interest expense is less than 10% of operating revenue, as defined in the balanced budget benchmark, except for local authorities with projected population growth greater than or equal to New Zealand’s projected population growth. For those authorities the benchmark is 15% of operating revenue.

21 Debt servicing benchmark

Predictability benchmarks

Debt control benchmark

Net debt is less than or equal to forecast debt in the long-term plan:

22 Debt control benchmark

Operations control benchmark

Net cash flow from operations equals or exceeds budget

23 Operations control benchmark

How to report these measures

The regulations specify how Councils must report these benchmarks and indicators in their Annual plans, Annual reports, and Long-term plans.

Also changes to the FIS

The regulations also include changes to the Funding Impact Statement, including:

5 Information to be disclosed in financial statements

6 Information about core assets to be disclosed in financial statements in annual report

7 Form of funding impact statement (You will need the pdf version of the regulations to see these forms.)

8 Directions for preparation of funding impact statements

How were these measure chosen?

To learn more about why these particular benchmarks and indicators were chosen, read the Regulatory Impact Statement from DIA. It explains

- what government thought the problem was

- the options that were considered

- what the various agencies that were consulted thought about the benchmarks

- DIA’s conclusions and recommendations.


Net Debt explanation

A further explanation of net debt is available here