This would be down on the 7% signalled when the Dunedin City Council’s 2021-31 long-term plan was approved, but the draft programme for 2023-24 would also not result in a balanced budget.
The draft budget, to be discussed by councillors next week, provides a net deficit of $38.5 million.
An overview from the council’s executive leadership team highlighted inflationary pressures, rising interest rates and accounting for depreciation.
"While savings have been found across the board, these are largely offset by the inflationary pressures faced when procuring goods and services and operating the business," staff said in the executive summary.
The draft budgets are essentially the starting point for determining the next financial year’s spending, although they tend to reflect an updated take on decisions previously made for the 10-year plan.
Councillors will approve a draft programme for public consultation ahead of annual plan hearings, deliberations and signing off on the agreed plan.
A 6.5% rates increase would result in "no obvious decreases to levels of service", the report said.
Overall rates revenue is projected to increase by $12.4 million.
The draft budget includes operating expenditure of $411 million.
This would fund activities such as water and roading infrastructure, waste management, parks, pools, libraries, galleries and museums.
Among the financial challenges was interest costs increasing by $9.5 million.
This amounted to a 69.4% rise, reflecting a predicted increase in debt funding required to support the planned capital expenditure programme and an increase in interest rates.
Depreciation increased by $38.3 million, or almost 45%.
Much of that is because of the way the value of Three Waters assets has been assessed, shifting to a methodology based on current replacement costs.
The valuation uplift resulted in higher depreciation and is subject to audit clearance.
Council staff signalled it was possible the valuation might be reduced.
The capital works programme is projected to increase by $38.3 million.
Capital expenditure had been forecast to run as high as $204.5 million for the 2023-24 year, but cost escalations and increases in interest rates prompted a revision to bring it back into line with what had been agreed in the 10-year plan, about $145 million.
Replacing ageing pipes was a focus in the 10-year plan.
Operations and maintenance costs are set to increase by about $1.3 million in the next year, or by 1.7%.
Waste management, community events and coastal management for transport are key contributors to this.
The draft budget provides for an increase in personnel costs of $4.4 million, or 5.7%.
However, there were 85 vacant positions at the time the report was written.
Commenting on consultants, the report said "there will always be a need for specialist services".
"The reliance on consultants continues to be a challenge, especially in a tight employment market.
"Further work is being undertaken to review these costs."
Staff signalled some challenging conversations loomed with the community before the next long-term plan, to be produced in 2024.
Amid central government’s reform programme and the broader economic outlook, the council "will need to review a range of services to ensure services can be delivered on a sustainable basis".
