The Central Otago District Council (CODC) considered how to handle the increase in depreciation to its roading and three waters assets during the most recent full meeting of the council.

The roading revaluation for 30 June 2022 showed an increase in the depreciable replacement cost of assets by 14 per cent to $589.16M and annual depreciation by 19 per cent to $7.29M since the previous revaluation (July 1, 2020).

Depreciation is an operating expense that reflects the use of an asset over its useful life. 

The three waters revaluation for the same period also showed a significant rise in asset values with an increase in the gross replacement cost of 40.1 per cent (or $102M) and annual depreciation of $1.64M - an increase of 44.5 per cent.

Deputy mayor Neil Gillespie said the key thing for him in making the decision-making process is “consistency”.

“Every time there’s an asset revaluation, we see an impact on depreciation, and we seem to be regularly having this conversation,” he said.

“We are adopting a consistent approach that we have adopted in the past. It is an approach that has served us well, and we do it so that our ratepayers don’t get hit. 

“With the considerable financial pressures currently being faced by our community, it is important we don’t increase that by rating for revenue that we cannot reasonably expect to then spend on the renewal of three waters and roading infrastructure.”

A 7.31 per cent rate increase is estimated to fund the three waters depreciation shortfall

The increase in revaluations of assets was driven mainly by inflation, the rising cost of construction and replacing assets, and the addition of vested assets and new assets constructed since the last valuations in 2020.

The increase in rates required to fund the depreciation shortfall was estimated to equate to a 4.07 per cent rate increase in roading and a 7.31 per cent rate increase in three waters.

CODC will adjust the depreciation expense in the 2023/24 year to ensure rate-funded depreciation only covers the roading capital works programme and three waters renewal programmes in the Draft 2023-24 Annual Plan.