Deferring depreciation saving for council

The Dunedin City Council has managed to wring some money from its budgets using a method it has been using for some time - deferring its spending on depreciation.

Since 1992, councils have been required by Audit New Zealand to list all assets on their books and set aside depreciation; an amount to maintain them and pay for their eventual replacement.

After Thursday's draft annual plan meeting, a decision was made to defer depreciation for water and waste services, something that would save $219,000 in the next financial year, $1 million the following year, $1.3 million in 2012-13, $1.5 million in 2013-14, $1.7 million in 2014-15, $1.8 million in 2015-16, and $929,000 in 2016-17.

Full depreciation would begin in 2017-18.

Council chief executive Jim Harland said deciding on the levels of depreciation was a "judgement call".

There were three tests that needed to be applied when deciding the levels: that it was financially prudent; that the asset in question "won't fall apart", and that the service levels of the asset were acceptable.

Council engineering staff were satisfied the tests had been met for the area, Mr Harland said.

Council finance and corporate support general manager Athol Stephens said yesterday it was common for the life of an asset to be longer than initially estimated, as those estimates were conservative, and that meant the cost of depreciation was lower than expected.

The council has already found savings of $212,000 from the 2010-11 budget through changes to its depreciation funding for assets within its community and recreation services department.

That included buildings not to be replaced and those to be transferred from council ownership to outside providers, such as the Waikouaiti camping ground.

Since November, department staff had also been examining depreciation funding for heritage assets.

Parks and reserves team leader Martin Thompson, in a report to this week's annual plan meeting, said a greater emphasis on maintenance would extend the life of heritage assets, such as the 146-year-old Cargill Monument in the Exchange.

Increasing maintenance would decrease the need for annual depreciation funding and the savings would be used to pay for the maintenance, he said.

A list of heritage assets was presented to the council at this week's meeting, which together were to cost the council $275,000 in depreciation funding in 2010-11.

With greater emphasis on maintenance, and less on depreciation, that could be reduced to $142,700, he said.

Councillors voted to accept the recommendation, subject to final approval for inclusion in the draft annual plan consultation at the next council meeting on February 1.

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