Tauranga City Council's Finance and Risk Committee is asking council to adopt an annual report which shows a bigger operating deficit than expected.

The committee yesterday recommended the 2013-14 Annual Report, which shows an operating deficit for 2014 of $2.8 million, be adopted by TCC.

The deficit has increased on last year's $2m operating deficit, while there is a rates surplus of $1.7m.

Committee chairman John Robson says they were originally budgeting for a $500,000 surplus, which was hindered by $6.8 million in non-funded accounting adjustments.

Without the $6.8m of non-funded accounting adjustments the city's surplus would have been about $4m, he says.

The annual figures show the city's debt has lowered slightly to $365.4m as of June 30 2014, compared with $377.5m last year.

The reduced debt is attributed to reduced spending on capital works.

Key financial results discussed in the draft report are:

Operating revenue for the year to 30 June, 2014 is $170.4m, against a budget of $167.8m.

The $2.6m increase is driven by above budget results in a number of areas, including water rates and user fees.

Expenditure was $173.2m, which is $5.9m or 3.5 per cent over budget.

While personnel and finance costs are below budget, depreciation is slightly above budget and other expenses exceed budget by $7m.

The key variances in other expenses are asset adjustments, write offs, impairment and gain/loss on sale totalling $6.8m which were not budgeted.

These impacts created an operational deficit of $2.8m for 2014, compared with a deficit of $2m in 2013.

The $6.8m of asset adjustments are accounting entries that arise as a result of the sale of assets or revaluation requirements and are not funded.

Excluding these adjustments, a surplus of $4m is recorded. Within this total surplus the rates surplus is $1.7m.

The balance is due to non-rate funded activities.

After asset development and other movements in assets, the operating surplus is $29.7m which compares with $28m in 2013.

This result includes vested assets and revaluation movements along with asset development revenue.

Total asset development revenue, which includes development contributions and contributions to capital funding, is $4.9m above budget and $7.7m above 2013.

Development contributions are $14.7m compared to a budget of $13.9m and last year's figure of $9.2m.

The council's net capital expenditure (excluding vested assets) for the year was $44m, or $52m excluding land sales, against an annual plan budget of $76m after adjusting for carry forwards.

More than $19m of the unspent budget has been carried forward to 2014/15.

The $6.8 million of non-funded accounting adjustments will be discussed in a separate story.