Higher-than-expected harvest volumes and solid log prices led to a forestry surplus of NZ$4.1 million excluding distributions for Tasman District Council in 2020-21, driving up the overall activity surplus to NZ$12.5m. Source: Stuff NZ
However, council finance group manager Mike Drummond said some of that surplus was non-cash income.
“As your trees grow, the value of the forest goes up, that is triggered as income and so it’s not all a cash balance that sits within that activity,” Mr Drummond said.
TDC owns 2293 hectares of planted Pinus radiata forest, 203ha of planted Douglas fir and 29ha planted Cupressus species trees.
The discussion about the forestry surplus was sparked by a staff report on the operating balances for all council activity closed accounts as at the end of 2020-21.
Overall, those activity balances had a favourable movement of NZ$3.4m against budget, totalling NZ$23.2m at the end of the year.
Of the total, NZ$17.6m is to stay in the operational activity accounts and NZ$1.5m is earmarked to fund carryover projects. The remainder has been used to offset rate increases as outlined in the council’s Long Term Plan 2021-31.
Deputy mayor Stuart Bryant said that NZ$12.5m surplus in the forestry activity “seems quite considerable” and asked if it could be used to reduce or repay some debt for the Waimea dam project.
Mr Drummond pointed out the council had resolved to use some of that surplus – NZ$1.5m – to fund land purchases.
“We’ve also been holding back funds within forestry for the future repayments that are due on the Waimea Community Dam,” he said.
Repayments were not to be made every year on the borrowings from Crown Irrigation Investments Ltd, with the first NZ$2.5m due in 2023.
An NZ$10m environment loan was interest free while a second advance was low-interest, so there was no advantage to paying back those two early, Mr Drummond said.
“We tend to hold a balance within the activity simply because in the future, we might not see those harvest volumes, and we might not see those log prices and because we have tagged the income for the repayment in the future for the Waimea Community Dam loans, we tend to hold a larger balance.”
Councillor Christeen Mackenzie said a reader of the report could assume a large surplus was being built up “that we have no plan for what we’re going to do with it”.
“So, I would like to request …. a five-year forward plan for what the surplus in the forestry actually is going to look like, particularity taking out the non-cash adjustments.”
Ms Mackenzie also said it “may be prudent” to look at making a transfer into the disaster fund. The General Disaster fund had a balance of NZ$4.2m against a target of NZ$7.2m at the end of 2020-21. However, Mr Drummond said he would be reluctant to recommend such a transfer.
“The reason being that we are foreshadowing the use of primarily forestry income out 20 years in terms of repayments on those Waimea Community Dam loans … so prudence would suggest we hold a reasonable balance because while we have seen particularly good returns from forestry in recent times, that might not be sustained over the next 15 or 20 years.”
Ms Mackenzie said she was happy to suspend consideration of the disaster fund until the forward plan on the forestry surplus was complete.
