The New Plymouth District Council’s Perpetual Investment Fund (PIF) was established on 9 November 2004 from the proceeds of selling the Council’s shareholding in PowerCo Limited. The opening balance of the PIF was $259 million.

The PIF is a significant financial asset for the New Plymouth District, enabling financial benefits to accrue to the Council and its communities.

The PIF has operated with the intention of being a sustainable fund, whereby an annual release from the PIF is provided to Council to subsidise general rates. That release payment should, over the medium term, be lower than the earnings of the PIF (inflation adjusted) so that the PIF maintains or grows its capital base.

However, the PIF has not always been managed sustainably. Releases were not reduced to account for lowered market returns during the 2008 global financial crisis (GFC), and the PIF lost around $113 million in value over 5 years. Subsequently, the Council considerably reduced releases and increased rates to enable the PIF to recover its pre-GFC value.

From 2016, the Council implemented a series of changes to how the PIF was managed in order to prevent these issues from recurring. Currently, the New Plymouth PIF Guardians Limited, a Council-controlled organisation, manages the PIF as a sustainable perpetual investment fund in accordance with a Governance Deed.

The Council resolved, during long-term plan deliberations on 19 May 2021, for Council officers to report on introducing a local bill to contain the benefits of the PIF to the current district boundaries and provide legislative protections to its capital base to ensure benefits flow to the New Plymouth District communities in perpetuity.

Council officers explored various options for achieving these goals and reported back to the Council on 20 January 2022.

Council officers recommended that—

• draft legislation should be developed for community consultation, on the basis that geographically containing the PIF and ensuring it is used in a perpetual manner through legislation is both feasible and in the public interest:

• the Council should retain some ability to use the capital base of the PIF, for example in emergency situations, in order to avoid a negative impact on the Council’s credit rating and insurance.

The primary other options that the Council has considered are—

• do nothing and retain the status quo, whereby PIF Guardians Limited manage the PIF in accordance with the Governance Deed, which can only be amended or terminated by a vote of not less than 75% of elected members. This does not achieve legislative protection of the capital base of the PIF or containment to ensure that any future changes in local government boundaries do not affect the PIF’s status as a perpetual fund for the benefit of the New Plymouth District:

• an enhanced version of the status quo, by taking measures such as listing the PIF as a strategic asset under section 76AA of the Local Government Act 2002 and requiring a greater majority of elected members to amend or terminate the Governance Deed. This would have the same overall shortcomings of the status quo and could go too far in terms of limiting the Council’s ability to use the capital base of the PIF when circumstances (such as a natural disaster or other emergency) warrant it:

• establish a new trust to hold the PIF, with trustee obligations to use the PIF for the benefit of the New Plymouth District, and maintain it in perpetuity. However, this would not provide as much protection as legislation and would remove the PIF from the Council’s balance sheet, which would significantly reduce the Council’s credit rating and increase its borrowing and insurance costs.

The Council has also considered other local legislation, including—

• the South Taranaki District Council (Egmont Electricity Limited Sale Proceeds) Act 1999, which requires that the proceeds of the sale of shares in Egmont Electricity Limited be applied for purposes primarily benefiting the residents and ratepayers of the South Taranaki District as constituted when that Act commenced:

• the New Plymouth District Council (Waitara Lands) Act 2018, which established funds to receive income from the sale of the various Waitara endowment lands (being lands confiscated by the Crown from Otaraua and Manukorihi hapū before being transferred to the Council’s predecessors) and use that money for the benefit of the Waitara community, those hapū, and the Waitara River catchment.

Having considered its options, including its experience with the New Plymouth District Council (Waitara Lands) Act 2018, the Council resolved on 8 March 2022 to develop a draft local bill and use the special consultative procedure under the Local Government Act 2002 to engage with its communities on the bill.

Community consultation opened on 13 May and closed on 17 June 2022, with 52 written submissions received.

Following consideration of the written submissions, the Council determined on 26 July 2022 to proceed with a local bill to regulate the PIF.

The Council considered that the bill should require the Council to consider the following principles when dealing with the PIF:

• it should be used in a perpetual manner:

• the capital base may be used if circumstances arise warranting it:

• investments should be independently managed, on a prudent commercial basis, and to avoid prejudicing the Council’s reputation.

This Bill will require the Council to use the PIF for purposes that are primarily for the benefit of current and future communities of New Plymouth, as defined by its current boundaries.

Independent financial managers will make best-practice investment decisions to maintain or increase the value of the PIF over time and avoid prejudicing the Council’s reputation.

The Council will be able to reduce the real value of the capital of the PIF only where circumstances arise that warrant doing so.