Wellington's mayor is introducing the most challenging budget he's ever seen, with the proposition of a 14 per cent rates increase for the city.

The capital is facing myriad cost pressures including ageing water pipes, insurance hikes, seismic issues, transport plans and its social housing portfolio.

They come on top of the economic fallout from the Covid-19 pandemic.

But arguably one of the most high profile and pressing issues is the city's water woes.

Today it has been revealed $2.7 billion has been set aside in the council's budget over the next 10 years for water infrastructure.

Draft Long Term Plan documents will be made public tomorrow, but Mayor Andy Foster has signalled what can be expected in what he says is a resilience and infrastructure budget.

"This is by far the most challenging budget that I have ever seen, and I've seen a few."

The themes underpinning the budget are making every dollar work, finishing work the council has started, such as the convention centre, and focusing on critical and core infrastructure priorities.

Rates increase

The Herald earlier revealed councillors were facing a 23 per cent rates increase as a starting point.

The proposed rates increase for the incoming year is now 14 per cent and could be reduced even further, Foster said.

"Twenty-three was clearly the highest starting point we've ever had."

But the public will also be presented with a 17 per cent increase option, which would increase the council's level of debt repayment.

The cost of Covid-19 to the council includes the loss of user charges revenue and Wellington International Airport Ltd dividends, which will take years to recover.

The council has a borrowing to income ratio of 175 per cent, and it's being recommended that gets pushed up to 225 per cent, Foster said.

"The reason we're keeping it at 225 per cent and not going higher is we need to keep some headroom if something goes wrong, like a major unexpected event like an earthquake."

Foster said it was clear this was going to be a tough year and future rates increases were forecast to be well below 14 per cent.

"We're walking a tightrope between the community's ability to afford rates, that is challenging for me, it's not a comfortable place at 14 per cent, but also the need to invest in critical infrastructure, which the community has been calling out very loudly for."

Asked whether his councillors were on board with what was being proposed Foster said: "Our council is a broad church, there will be different people to whom different things matter but we've got a pretty clear focus. I think people are coming to the realisation that this is a particularly tough environment."

Trimming the fat

About 4 per cent has been shaved off the proposed rates increase from efficiency savings within the council, Foster said.

Its revenue recovery is also slightly better than first thought when a 23 per cent rates increase was being floated.

Some projects are also set to be deferred such as work on the Opera House, Foster said.

The mayor is also keen look at whether the council needs to diversify its asset portfolio, which is mainly ground leases and the airport.

Water

Foster said the council is proposing to spend about $2.7 billion on water infrastructure capital and operating expenditure over the next 10 years.

More details will be revealed tomorrow about how that sum is allocated.

There's consensus around the council table that serious investment is needed to turn around the city's water woes.

"There has been underinvestment in our pipe network since the pipes were put in the ground," Foster said.

Included in the overall investment is $40 million for two new pipes in Wellington's CBD and other improvements so wastewater can be diverted if existing pipes break.

Civic Square

Wellington City Council has already agreed to earthquake strengthen the central library at a cost of up to $179 million, after it was closed because of seismic concerns.

Foster said the Civic Administration Building and Municipal Office building will also be demolished at a cost of about $5 million each.

Their replacements will involve public-private partnerships, Foster said.

Transport

The council has made a significant commitment to the $6.4 billion Let's Get Wellington Moving transport plan.

But the project's slow pace has made it difficult for councils to budget for.

The Government has agreed to pay 60 per cent of the cost, leaving the regional and city councils to fund 40 per cent.

At the moment Wellington City Council has $220 million budgeted for the next 10 years, which is nowhere near what the final cost to the council will be.

Business cases on bigger projects like a second Mt Victoria Tunnel and Mass Rapid Transit are yet to be released making it impossible for councils to budget for them.

Social housing

Wellington City Council has already spent the $220m it got from the Government in 2008 as part of a 20-year deal to upgrade its social housing stock.

But that was enough to upgrade only half the portfolio.

It was initially thought the council would invest additional money from its rental income.

But rising costs through the likes of insurance and a volatile construction industry has left the upgrade project short.

City Housing is at risk of insolvency if issues are not resolved soon.

Foster said between upgrades and renewals the total cost was north of $400m.

He said the council was talking to the Government about how to deal with the situation and what funding levers could be pulled.

It's possible that could include a negotiation over the Government's Income Related Rent Subsidy (IRRS) scheme.

The subsidy means low-income tenants will pay no more than 25 per cent of their income on rent, with the Government paying the difference between that and market prices.

But it's only available for new tenants going into Kāinga Ora or Community Housing Provider social housing.

Councils are not eligible, despite Wellington City Council being the biggest council landlord in the country.

By Georgina Campbell, NZ Herald