Hastings District Council

Civic Administration Building

Lyndon Road East, Hastings

Phone:  (06) 871 5000

Fax:  (06) 871 5100

WWW.hastingsdc.govt.nz

Open

A G E N D A

Finance and Risk Committee MEETING

Meeting Date:	Tuesday, 17 September 2019
Time:	1.00pm
Venue:	Council Chamber Ground Floor Civic Administration Building Lyndon Road East Hastings

Committee Members	Chair: Councillor Travers Mayor Hazlehurst Councillors Barber, Dixon, Harvey, Heaps, Kerr (Deputy Chair), Lawson, Lyons, Nixon, O’Keefe, Poulain, Redstone, Schollum and Watkins and Ngaio Tiuka (Quorum = 8)
Officer Responsible	Chief Financial Officer – Bruce Allan
Committee Secretary	Christine Hilton (Ext 5633)

Finance and Risk Committee

Fields of Activity

Oversight of all the Council’s financial management policy and operations (including assets, cash, investment and debt management) including (but not limited to):

· Monitoring compliance with the Long Term Plan/Annual Plan and budget implementation.

· Finance and Ownership

· Audit and other accountability requirements;

· Business units/CCO/CCTO ownership overview;

· Rating matters including rating sale proceedings;

· Taxation.

· Establishing the strategic direction of Council’s business units (if any), Council Controlled Organisations (CCOs) and Council Controlled Trading Organisations

· Other matters including:

- Performance Management

- Other matters not otherwise within the scope of other Committees

Monitoring compliance with the Long Term Plan/Annual Plan and budget implementation.

Membership (Mayor and 14 Councillors)

Chairman appointed by Council

Deputy Chairman appointed by Council

The Mayor

All Councillors

Quorum – 8 members

DELEGATED POWERS

General Delegations

1.       Authority to exercise all of Council powers, functions and authorities (except where prohibited by law or otherwise delegated to another committee in relation to all matters detailed in the Fields of Activity.

2.       Authority to re-allocate funding already approved by the Council as part of the Long Term Plan/Annual Plan process, for matters within the Fields of Activity provided that the re-allocation of funds does not increase the overall amount of money committed to the Fields of Activity in the Long Term Plan/Annual Plan.

3.       Responsibility to develop policies, and provide financial oversight, for matters within the Fields of Activity to provide assurance that funds are managed efficiently, effectively and with due regard to risk.

Fees and Charges

4.       Except where otherwise provided by law, or where delegated to another Committee, the authority to fix fees and charges in respect of Council activities or services.

HASTINGS DISTRICT COUNCIL

Finance and Risk Committee MEETING

Tuesday, 17 September 2019

VENUE:	Council Chamber Ground Floor Civic Administration Building Lyndon Road East Hastings
TIME:	1.00pm
A G E N D A

1.         Apologies

At the close of the agenda no apologies had been received.

At the close of the agenda no requests for leave of absence had been received.

2.         Conflict of Interest

Members need to be vigilant to stand aside from decision-making when a conflict arises between their role as a Member of the Council and any private or other external interest they might have.  This note is provided as a reminder to Members to scan the agenda and assess their own private interests and identify where they may have a pecuniary or other conflict of interest, or where there may be perceptions of conflict of interest. 

If a Member feels they do have a conflict of interest, they should publicly declare that at the start of the relevant item of business and withdraw from participating in the meeting.  If a Member thinks they may have a conflict of interest, they can seek advice from the General Counsel or the Democratic Support Manager (preferably before the meeting). 

It is noted that while Members can seek advice and discuss these matters, the final decision as to whether a conflict exists rests with the member.

3.         Confirmation of Minutes

Minutes of the Finance and Risk Committee Meeting held Tuesday 26 March 2019.

(Previously circulated)

4.         Horse of the Year (Hawke's Bay) Limited Annual Report for the year ended 31 May 2019                                                                                                                       5

5.         Non-Financial Performance Report for the Year Ended 30 June 2019      25

6.         Draft Financial Year End Result - 30 June 2019                                               53

7.         Omarunui LFG Generation Limited Partnership 2018-19 Annual Report   89

8.         Additional Business Items

9.         Extraordinary Business Items 

10.       Recommendation to Exclude the Public from Items 11 and 12                    99

11.       Hawke's Bay Airport Limited Remuneration of Directors

12.       Appointment of Independent member to the Risk & Audit Subcommittee

File Ref: 19/899

REPORT TO:               Finance and Risk Committee

MEETING DATE:        Tuesday 17 September 2019

FROM:                           Manager Strategic Finance

Brent Chamberlain

SUBJECT:                    Horse of the Year (Hawke's Bay) Limited Annual Report for the year ended 31 May 2019

1.0       EXECUTIVE SUMMARY - TE KAUPAPA ME TE WHAKARĀPOPOTOTANGA

1.1       The purpose of this report is to update the Committee on the performance of the Horse of the Year (Hawke’s Bay) Limited (HOYHB) for the year ended 31 May 2019.

1.2       This report arises from the receipt of the HOYHB’s Annual Report for the year ended 31 May 2019.

1.3       This report contributes to the purpose of local government by primarily promoting social wellbeing and more specifically through the Council’s strategic objective to support a major Hastings event that contributes to the provision of good local services by increasing economic activity, contributing to a resilient job rich district while also contributing to an appealing visitor destination.

1.4       HOYHB’s financial statements show a surplus for the year of $26,097 which is similar to the previous year’s result of $26,215.

1.5       HOYHB has minimal cash reserves of $45,975 and shareholders equity of $72,361 as at 31 May 2019.

2.0       RECOMMENDATIONS - NGĀ TŪTOHUNGA

A)      That the Committee receives the report titled Horse of the Year (Hawke's Bay) Limited Annual Report for the year ended 31 May 2019

3.0       BACKGROUND – TE HOROPAKI

3.1       The annual Land Rover Horse of the Year show is New Zealand’s premier equestrian competition, featuring a range of horse and rider combinations from multiple disciplines. With over 1600 riders and 1800 horses competing for lucrative titles and prize money, the show is a feature on all equestrian calendars.

3.2       The shareholding of HOYHB is made up of Hastings District Council, Equestrian Sport New Zealand (ESNZ) and Show Jumping Hawke's Bay (SJHB) with each entity holding one third of the allotted shares.  Each shareholder has advanced $30,000 as shareholder loans.

3.3       Each shareholder is allowed up to 2 shareholder appointed directors. The current Board is as follows:

·    Tim Aitken                    HDC appointment

·    William Moffett            SHB appointment

·    Dirk Waldin                  SHB appointment

·    Vicki Glynn                  ESNZ appointment

·    Richard Sutherland   ESNZ appointment

·    Craig Foss                   Independent

3.4       While there is a resolution of Council to appoint a second director to the Board, Council was very mindful that any appointment needed to have the required skills to complement the existing board and fill any gaps that may be evident. Council has yet to make an appointment and with the resignation of Cynthia Bowers there is also a vacancy for a second independent director.

3.5       The executed Shareholders Agreement provides the following in regard to the Annual Report:

"Annual Report:  Within 90 days after the end of the each financial year, the Company will deliver to the shareholders an annual report which will consist of:

·    A Chairman's report, containing a review of the Company operations with specific attention to the performance against the key performance indicators established in the respective Statement of Intent.

·    A comparison of actual performance with targeted performance.

·    Annual audited financial accounts to be completed in accordance with general accepted accounting standards and to include:

-     Statement of Financial Position

-     Statement of Financial Performance

-     Auditor's Report"

4.0       DISCUSSION - TE MATAPAKITANGA

4.1       HOYHB’s financial statements show a surplus for the year of $26,097 ($26,215: 2018). This result was achieved on revenues of $2,470,959 which was 2% up on the previous year. These in turn funded expenses of $2,445,554 which were also 2% up on last year.

4.2       At balance date HOYHB held cash reserves of $45,975 which is minimal for an organisation with an annual turnover of $2.4m.

4.3       For this reason note 6 to the accounts refers to HOYHB as being a going concern by virtue of the support of its shareholders (in the form of shareholder loans), and Hastings District Council’s continued sponsorship. It notes that HOYHB doesn’t have sufficient resources in its own right to underwrite the possibility of a future under-performing annual show.

5.0       OPTIONS - NGĀ KŌWHIRINGA

Option One - Recommended Option - Te Kōwhiringa Tuatahi – Te Kōwhiringa Tūtohunga

5.1       Council can receive HOYHB’s annual financial statements for the year ended 31 May 2019.

6.0       NEXT STEPS - TE ANGA WHAKAMUA

6.1       No further action is required.

Attachments:

1⇩

HOY 2019 Annual Report

EXT-10-20-19-92

SUMMARY OF CONSIDERATIONS - HE WHAKARĀPOPOTO WHAIWHAKAARO

Fit with purpose of Local Government - E noho hāngai pū ai ki te Rangatōpū-ā-rohe

The Council is required to give effect to the purpose of local government as set out in section 10 of the Local Government Act 2002. That purpose is to enable democratic local decision-making and action by (and on behalf of) communities, and to promote the social, economic, environmental, and cultural well-being of communities in the present and for the future

This report contributes to the purpose of local government by primarily promoting social wellbeing and more specifically through the Council’s strategic objective to support a major Hastings event that contributes to the provision of good local services by increasing economic activity, contributing to a resilient job rich district while also contributing to an appealing visitor destination.

Link to the Council’s Community Outcomes - E noho hāngai pū ai ki te rautaki matua

This proposal promotes the Social and Economic well-being of communities in the present and for the future.

Māori Impact Statement - Te Tauākī Kaupapa Māori

There are no known impacts for Tangata Whenua.

Sustainability - Te Toitūtanga

There are no implications for sustainability.

Financial considerations - Ngā Whaiwhakaaro Ahumoni

There are no financial implications.

Significance and Engagement - Te Hiranga me te Tūhonotanga

This report has been assessed under the Council's Significance and Engagement Policy as being of minor significance.

Consultation – internal and/or external - Whakawhiti Whakaaro-ā-roto, ā-waho

Risks: Legal/ Health and Safety - Ngā Tūraru: Ngā Ture / Hauora me te Haumaru

There are no legal or health and safety risks arising from this report

Rural Community Board - Ngā Poari-ā-hapori

HOY 2019 Annual Report

Attachment 1

File Ref: 19/867

REPORT TO:               Finance and Risk Committee

MEETING DATE:        Tuesday 17 September 2019

FROM:                           Strategy Manager

Lex Verhoeven

SUBJECT:                    Non-Financial Performance Report for the Year Ended 30 June 2019

1.0       PURPOSE AND SUMMARY - TE KAUPAPA ME TE WHAKARĀPOPOTOTANGA

1.1       The purpose of this report is to update the Committee on achievement against its non-financial performance management framework as contained within the 2018 – 2028 Long Term Plan.

1.2       This issue arises from the legislative requirement to report against Council’s performance management framework within its Annual Report.

1.3       This report is for information only, and contains unaudited information. The audited version will be incorporated in the Council’s Annual Report for Council adoption on 10 October 2019.

2.0       BACKGROUND

2.1       The Council’s Performance Management Framework has 3 levels as follows:

(1) Future Aspirations (what we are trying to achieve over time – trends and shifts)

(2) Today’s Commitments (levels of service we have committed to the community)

(3) Smart Business (internally focused on continuous improvement)

2.2       The Performance Management Framework forms part of the 2018 – 2028 Long Term Plan which the Council is legally required to report against annually.  This is the first year of reporting against the 2018 -2028 plan.

2.3       Level Two (Today’s Commitments) is the primary focus of this report.  It captures the performance information contained within the Long Term Plan and has three separate reporting components as follows:

(1)   Levels of Service

(2)   Customer Experience

(3)   Key Actions

2.4       In 2015/16 “mandatory measures” for some activities were introduced into legislation and standardised across the country.  For Hastings District these measures cover the infrastructural activities of Water Supply, Stormwater Disposal, Sewage Disposal and Roads and Footpaths.  With the recent reintroduction of the four wellbeing’s in legislation there may be some further standardisation across other measures.  Officers will keep Council updated of any developments in this regard.  Council will have the opportunity to review its performance management framework as part of the development of the next Long Term Plan.

3.0       CURRENT SITUATION

3.1       A summary of Council performance is contained at the beginning of Attachment 1, and provides a high level overview of performance.

3.2       In regard to the 65 level of service measures within the Long Term Plan (including the mandatory measures), 82% of those able to be measured in 2018/19 were either fully or substantially achieved.  Of those not achieved the key reasons were:

§ Strategy reviews which are underway but which span financial years;

§ Impacts of the new water operating and legislative environment on some measures (i.e. the requirement for Protozoa treatment to fully comply), with the Council’s upgrade programme ongoing to achieve full compliance;

§ The % release rate of impounded dogs being dependant on the temperament of the dogs impounded in any one year.

3.3       In regard to the 7 customer experience measures 5 were either fully or substantially met.  The 2 unachieved measures relate to:

§ A focus on measuring underperforming parks (a change in measurement methodology) in terms of the user satisfaction measure, which will be useful in better informing the forward renewal and improvement programme;

§ Increased resource consent levels and complexity of consents (44 over last year);

3.4       In regard to the 27 key actions contained in the Long Term Plan these are either on track or have been completed.

3.5       The remainder of Attachment 1 contains the full performance framework which is currently being audited, and will form part of the Council’s Annual report for adoption in October.

4.0       RECOMMENDATIONS - NGĀ TŪTOHUNGA

A)      That the Committee receives the report titled Non-Financial Performance Report for the Year Ended 30 June 2019

Attachments:

1⇩

Annual Report Non Financial Performance 2018/19

CG-14-71-00045

Annual Report Non Financial Performance 2018/19

Attachment 1

File Ref: 19/922

REPORT TO:               Finance and Risk Committee

MEETING DATE:        Tuesday 17 September 2019

FROM:                           Financial Controller

Aaron Wilson

SUBJECT:                    Draft Financial Year End Result - 30 June 2019

1.0       PURPOSE AND SUMMARY - TE KAUPAPA ME TE WHAKARĀPOPOTOTANGA

1.1       The purpose of this report is to inform the Council of the unaudited accounting and rating result for the year ended 30 June 2019 and for the Council to approve the allocation of the rating result. It also seeks the approval from Council to carry forward project budgets. This report has been prepared on the basis that the Hastings District Rural Community Board has approved the recommendations submitted to it on 9 September 2019 relating to the year-end rating result for Rating Area 2.

1.2       The rating result is a small surplus to budget. The deficit in RA1 is a consequence of interest rate savings and offset by increasing cost pressures within areas of Council along with a number of approved but unbudgeted spends in the financial year. RA2 has benefited from favourable budgeted rates remissions, penalties and rates revenues.

1.3       The unaudited rating result for the 2018/19 year is as follows:

Rating Area 1	$(96,456)	Deficit
Rating Area 2	$107,188	Surplus
Total for the District	$10,732	Surplus

1.4       In addition to the Rating Result, Council also generated a surplus from the Landfill operation, the report recommends that these surpluses be allocated as follows:

1.5       The report also recommends that budget allocations proposed to be carried forward from 2018/19 to 2019/20 to enable project completion be approved.

1.6       Council is provided with quarterly financial reports during the year with the unaudited year-end result presented annually at the September Finance and Risk Committee meeting.

1.7       Officers report on the operating financial result (operating surplus/deficit) as well as the rating result. The operating (accounting) financial result is reported on quarterly during the year and, at year end, a report is prepared on the rating result in addition to the accounting result.

1.8       The rating result differs from the accounting result in respect of non-cash items such as depreciation, gains or losses on interest rate swaps, vested assets, impairment of assets and investments and development contributions income which have no impact on setting rates and are therefore excluded from the rates calculations. The rating result is also affected by the extent of rates-funded carry forwards that are approved. The rating result reports on the variance of rates collected and net total expenditure (including capital and reserve transfers) for Council.

1.9       The Financial Reports attached to supplement this report include:

Attachment 1 – Interim Rating Result for the year ended 30 June 2019

Attachment 2 – Dash Board Summary of Financial Performance

Attachment 3 – Draft Unaudited Financial Statements

Attachment 4 – Carry Forwards 2019/20

1.10    The financial reports contain summarised information. Please feel free to contact the report writer or the Chief Financial Officer directly on any specific questions from the reports before the meeting. This will ensure that complete answers can be given at the meeting on the detail that forms the basis for these reports.

2.0       Current Situation

2.1       The 2018/19 financial year has seen a continuation of a strong Hawke’s Bay economy. In terms of Council’s performance, there are a number of areas that have experienced cost pressures in responding to these strong economic conditions.

2.2       Since the financial quarterly report for the year to 31st March was presented in May, most of the issues and trends identified have remained on the same track to the end of the financial year. This report sets out the financial performance (accounting result) and the rating result for the year ended 30 June 2019. These results are unaudited and may be subject to minor adjustments.

3.0       THE RATING RESULT

3.1       Council adopts strong financial management practices and prepares a balanced budget to deliver Council’s desired programme, including high levels of fiscal tensioning and stretch targets.

3.2       This year the overall general rating result for 2018/19 is a small surplus to budget, which is lower than the previous year’s surplus in 2017/18 of $942,713.

Rating Area 1	$(96,456)	Deficit
Rating Area 2	$107,188	Surplus
Total for the District	$10,732	Surplus

3.3       In addition to the general rating result, the Council’s share of the surplus from the Landfill operations is $1.2m. Previously, the Landfill surpluses were used to repay Landfill debt. The remaining debt was extinguished by application of the surplus from the 2015/16 financial year. Landfill surpluses from the last two years have been used to fund the water supply targeted rate account, helping fund the response to the waster change programme.

3.4       Council resolved last year to apply the 2017/18 landfill surplus of $2.2m to the water supply targeted rate account ($1.09m), and stormwater debt repayment both in RA1 whilst allocating $284k to the capital reserve for RA 2. This now leaves the Council with a decision on how to allocate the 2018/19 Landfill surplus.

3.5       In addition to the above, which is after all necessary reserve transfers have been made, there are a number of significant activities where surpluses or deficits are ring fenced and/or transferred to reserves and include water supply, waste water and refuse & recycling.

3.6       In allocating surpluses and reserves, Council’s prudent financial policy approach has traditionally focused on debt repayment or borrowing reduction. In Rating Area 2, priority has been given to replenishing the Rural Flood and Emergency Event Reserve.

3.7       Given Rating Area 1 is in a rates deficit position for 2018/19, a transfer from the RA1 General Purpose Reserve is required to offset this deficit of $96,456.

3.8       It is recommended that Council contribute all of the RA1 share of the Landfill surplus, $1,052,397, to the Kerbside Collections Reserve. The implementation of the Waste Management Plan requires significant upfront expenditure and this reserve can help smooth the impact of this implementation on the refuse collection and recycling target rates.

3.9       In determining priorities for the Rating Area 2 general rate surplus and Council’s share of the Landfill surplus, officers recommend the following allocations:

1.    Contribute the RA2 Surplus of $107,188 to the RA2 Flood and Emergency Event Reserve.

2.    Contribute all of the RA2 share of the Landfill surplus, $151,581, to the RA2 Flood and Emergency Event Reserve. 

4.0       THE unaudited ACCOUNTING RESULT

4.1       Draft Unaudited Operating Accounting Result

Set out below is a summary of the 2018/19 financial year. Please note that this is not the same as the rating result.

4.2       The draft unaudited financial result for the year ended 30 June 2019 before gains or losses on revaluations and losses on interest rate swaps is a surplus of $9.7m with a favourable variance to the budget of $0.3m.

4.3       It is important to note that budget variances noted in the table above, refer to variances against the Annual Plan excluding carry forwards or any other budget adjustments as this is what Council is required to report against in the Annual Report.  By comparison the attached dashboard reports include budgeted information that includes all budget adjustments including carry forwards from previous year.

4.4       The unrealised losses on interest rate swaps of $7m is an accounting entry and reflects the potential cost to Council of replacing all of its interest rate swaps at the prevailing swap interest rates on 30 June 2019. Council is, however, extremely unlikely to be put in that situation and the loss is therefore recognised as an ‘unrealised loss’.

4.5       Council has interest rate swaps in place to hedge against interest rate exposure by reducing uncertainty of future cashflows.  This is in line with Councils prudent financial approach and meets the requirements of Councils treasury policy.  Market conditions have changed from several years ago when many of these swaps were taken out.

5.0       Revenue

5.1       Revenue has a favourable variance to revised budget of $7.08m. The increase in revenue compared to budget is made up of the following activities:

5.2       Subsidies and grants are $447k unfavourable to revised budget, this is made up of lower NZTA subsidies that are reimbursements for capital work done, offset by higher grants across the community facilities and Economic and Social Development areas.

5.3       Fees and Charges are above budget by $2.2m. This increased revenue has been achieved across a wide range of Council activities - Water Meter revenue ($437k), Parking ($316k), along with Building Consent fees ($295k) and Environmental Consents ($176k). There was also a number of one-off revenues received for insurance reimbursement ($408k) and other projects.

5.4       Interest revenue earned is favourable to budget by $534k due to investment of funding held for capital projects.

5.5       Infrastructure vested assets are above budget by $3.97m.

6.0       Expenditure

6.1       Operational Expenditure against revised budget before swaps is higher than budgeted by $7.3m. Key drivers are:

6.2       Contracted services are $2.4m above budget. This is primarily in the areas of infrastructure where there have been and are large capital projects underway, with Planning and Regulatory and Parks also being impacted.

6.3       Three Water services operational expenditure is $637K above YTD budget. This is mainly due to higher than budgeted spend related to the September rain event, effluent treatment maintenance costs plus higher than budget chlorine costs.

6.4       Legal fees are $464k above budget mainly due to compliance costs across a range of cost centres.

6.5       Depreciation is $2.7m above budget due to the higher revaluation of assets at the end of the 2017/18 year.

6.6       The unrealised loss on swaps of $7.088m. As mentioned in paragraph 4.4, this is an unrealised accounting entry that has no effect on cash.

7.0       Unbudgeted but approved expenditure:

7.1       There have been a number of events and decisions made that have resulted in approved but unbudgeted expenditure. The added spend has directly impacted on the overall financial position for the 2018/19 year.

7.2       Craggy Range Track

7.3       Since the original resource consent was granted incorrectly at the end of 2017, Council has been engaged in a process with stakeholder parties to understand and undertake remedial works to remove the Craggy Range track. The approved but unbudgeted costs for the current year 2018/19 is $512k; total project spend over the life of the project up until July 2019 is $570k.

7.4       Maintenance Group Transition Costs

7.5       In February 2019, the parks and open space maintenance work was contracted out to Recreation Services, and this was a transition from the work being done internally through Maintenance Group.

7.6       In transitioning the process over to an external contract, there were a number of significant one-off transition costs that were incurred in the development of the contract and the outsourcing to the new external supplier, Recreational services. The impact of this approved but unbudgeted spend was $512k.  Long term efficiency savings have been built into the new contract.

7.7       Flood Damage

7.8       Costs associated with the 2018 floods have continued to impact on this financial year, with the total overspend to budget for the YTD $661K for the local share.  The Rating area 2 flood reserve, will fund the majority of the local share. The current balance of the RA2 Flood reserve after funding the local share is $1.12M.

7.9       The following table summarises the cost of the flood events and how they were funded:

7.10    Museum Trust Grant

7.11    An increase to the operational grant paid to the Museum Trust that was approved by Council. The impact of this approved but unbudgeted spend was $132k.

8.0       Summary by Areas of Activity of Council

8.1       Economic Growth and Organisational Improvement

8.2       Economic Growth and Organisational Improvement (EGOI) Group had an overall group result of $339k favourable to budget. The key drivers were in lower expenditure, with underspends in expert advice $111k, electricity and fuel $42k across a number of operational cost centres.

8.3       Governance and Support Services

8.4       Included in this group of activities are the support services of Finance, HR, Democratic Support, Leadership and the Chief Executive’s Office. There have been a number of cost pressures within this group, significantly within HR, primarily due to the increasing requirements of health and safety which has contributed to an operational overspend.

8.5       Community Facilities & Programmes

8.6       This group of activities has a favourable variance against budget of $252k primarily driven by favourable revenue lines in fees and charges such as Splash Planet ($72k) and Housing for the Elderly ($125k). In addition, insurance proceeds for the Opera House claim ($389k) were received. Subsidies and grants were also received for the Crime Prevention Programme ($362k) along capital grants for the Opera House ($259k). Offsetting this were higher personnel costs of $875k along with higher maintenance costs of ($603k). Some of these costs are offset by the grants and subsidy revenue received to fund them.

8.7       Planning & Regulatory Services

8.8       Planning and Regulatory had an overall group result of ($451k) unfavourable to budget. Revenue was $989k favourable to budget. Fees and charges across the group have been the main driver - parking $316k, building control $295k along with environmental consents $176k. Offsetting this was higher expenditure of $1.4m driven by higher personnel and contracting costs required to deliver the increased volumes. The consent area is facing significant volume and complexity pressures going forward and is likely to be an area exposed to ongoing financial risk.

8.9       Summarised below are key variance drivers in Planning and Regulatory.

8.10    Within the Planning & Regulatory Group, the Environmental and Building Consent activities have been most affected by the increase economic activity with increased costs incurred to meet the additional demands. The following tables present the individual financial results for those activities. While some of the increased activity is recovered by user charges, both these activities require a percentage of their funding to come from rates, increased activity requires by default increased rates.

8.11    Asset Management

8.12    Landfill revenue was favourable to budget by $1.2m, with higher volumes contributing to the favourable revenue variance along with lower than budgeted spend. This increased revenue has translated into a HDC share of the surplus of $1.2m.

8.13    The surpluses generated from the Landfill are released to the shareholding Councils and it is up to the two Councils as to what they decide to do with those funds. In previous years, HDC has decided to repay landfill debt with those surpluses, however, with all landfill debt now repaid Council can decide how it wishes to allocated those funds.

8.14    Parks operational expenditure was $355k unfavourable with the main driver being the transition costs of outsourcing the work previously undertaken by the Maintenance Group to Recreation Services. This is further outlined in approved but unbudgeted expenditure.

8.15    Building Service costs were $911k favourable due to lower than planned maintenance and services costs; these funds have been retained in the building reserve.

8.16    Water Services

8.17    Council continued to respond to the water change programme with elevated expenditure supply activity through 2018/19 including both Capital and Operational expenditure. This activity is funded by way of a targeted rate and accounted for in a separate water account which is designed to either accumulate reserves or run in deficit depending on expenditure needs and Council decision making. This allows Council to spread the impact of “lumpy” expenditure in this activity.

8.18    Below shows a summary table of spend to budget in this area:

8.19    The Three Water services operational expenditure is $637K above YTD budget. This is mainly due to higher than budgeted spend related to the September rain event, effluent treatment maintenance costs plus higher than budget chlorine costs.

8.20    Water Supply operational expenditure when split out shows an unfavourable variance to budget of $330K, with the higher strategy and planning costs along with reactive and preventative maintenance offset by savings in electricity and service assurance.

9.0       Capital Expenditure

9.1       Capital spend to the year ended 30 June 2019 is $70.2m compared to a full year budget of $116m, which included $37.5m carried forward into the 2018/19 year. Whilst budget was not achieved, capital spend for the year is at a historical high with a number of significant projects well underway, including the Opera House, Municipal Building and the water supply projects.

9.2       New Works

9.3       Water service projects account for 47% of the under spend in new works with some delays along with a challenging contractor market meaning a delayed start to these projects.  With the Booster Pump station and small communities’ project now underway, budget has been applied for to be carried forward for those projects. Buildings services and transport have had projects delayed due to changes in scope of some projects along with delays in receiving NZTA funding approval. 

9.4       Renewals

9.5       Wastewater projects account for 52% of the under spend in renewals with the Park Road system upgrade, rising mains and trunk sewer starting later than budgeted. Building services under spend is driven primarily by delay on Heretaunga House renewals whilst a decision whether to sell or keep the property was made.

9.6       Growth

9.7       Growth projects such as Iona have been delayed into the 2019/2020 year.  Lyndhurst, Irongate and Omahu are underway with completion expected in 2019/2020.

10.0    CARRY FORWARD SCHEDULE

10.1    Included in Attachment 4 is a Schedule of Projects and budget amounts that officers have requested to be carried forward to the 2019/20 year. Management has reviewed these requests and also compared them to project budgets in the 2019/20 year to ensure that the appropriate amount is being carried forward.

10.2    The level of carry forwards requested at $40.3m is similar to last year’s carry forwards of $37.6m. Whilst this number when compared to last year has not decreased, prioritisation of what projects are already “in train” have been looked at closely, with those not likely to be delivered in 2019/20 to be rebudgeted within the next two years.

10.3    In addition $29m of 2019/20 budgeted projects have now been rebudgeted into future years in order to provide capacity for the proposed carried forward projects to be completed, this work will be completed over the following two years. As a result, the capital programme for the 2019/20 year has therefore been reduced to $98m from $130m.

10.4    The effect of this 2019/20 capital budget adjustment will be a reduced level of debt funding required to be carried forward into 2019/20 with budgeted funding reprioritised for 2018/19 carry forwards.

10.5    The level of carry forwards from rates funding is $1.43m ($2.06m last year). While the table provides a summary of the major carry forward items, the $0.316m of rates carry forwards classified as other is made up of a number of smaller carry forward projects across Council groups.

10.6    Included in the Loan Funded carry forwards is $12m for the major drinking water projects. In addition, there is a range of carry forwards across a number of Council activities, from the trunk sewer project ($2.2m) through to the Akina Park irrigation of $0.23m.

10.7    The following table is a summary of 2018/19 Carry Forwards recommended for approval. Details of all these projects are included in Attachment 4.

11.0    EXTERNAL DEBT

11.1    Total net borrowing as at the end of June 2019 is $106.2m, an increase from last year ($77.7m). This is lower than projected in the 2018-28 Long Term Plan (LTP) which had forecast debt levels of $125.3m at this time. Committed borrowing facilities in place are $116.7m, providing headroom of $10.5m. The liquidity ratio is at 110% in line with the policy minimum of 110%.

11.2    Subsequent to 30 June 2019, Council increased unutilised facilities by an additional $5m, increasing the liquidity ratio to 114%.

11.3    While there are higher debt levels when compared to the LTP, it also needs to be noted that there is a significant increase in debt levels when compared to the previous year’s actuals. This is reflective of the large number of projects well underway, including the Opera House and Municipal Building projects along with completed projects in the prior year such as the Whakatu Arterial and the new Havelock North water main.

12.0    ALLOCATION OF RATING SURPLUS

12.1    Council’s Treasury Policy states the following on the allocation of surpluses:

“The funds from all asset sales and operating surpluses will be applied to the reduction of debt and/or a reduction in borrowing requirements, unless the Council specifically directs that the funds will be put to another use.”

12.2    Whilst Rating Area 2 currently has debt of $802k, incurred for capital works, the specific resolution by Council to build the Rural Flood and Emergency Event Reserve up to a level of $2m is considered a prudent one given the recent flood events.

12.3    Two significant rain events in the second half of 2017/18 have reduced the balance of the Rating Area 2 Rural Flood and Emergency Event Reserve to $1.178m and it has been recommended to the Hastings Rural Community Board that the Rating Area 2 surplus be used to contribute to the Rural Flood and Emergency Event Reserve.

12.4    The Rating Area 1 deficit ($96,456) is recommended to be funded from the RA1 General Purpose Reserve and is the result of increasing cost pressures faced by the high levels of demand especially in the regulatory area along with a number of unforeseen and unbudgeted but approved spends across Council as outlined earlier in this report.

12.5    Landfill additional surplus allocation

12.6    Council has previously used any surpluses generated from the Landfill operations to repay Landfill debt. Debt associated with the Landfill was repaid in 2015/16, providing Council with a decision as to how future surpluses are to be utilised. Last year, Council’s share of the Landfill surplus was allocated based on the approved rating splits to the Rating Area 1 Water Supply targeted rate account, as well as to the repayment of RA1 debt along with an allocation to the Rating Area 2 Capital Reserve.

12.7    It is recommended that Council contribute all of the RA1 share of the Landfill surplus, $1,052,397, to the Kerbside Collections Reserve. The implementation of the Waste Management Plan requires significant upfront expenditure and this reserve can help smooth the impact of this implementation on the refuse collection and recycling target rates.

12.8    It has also been recommended that the RA2 share of the Landfill surplus, $151,581, be transferred to the RA2 Flood and Emergency Event Reserve. 

12.9    The recommendation of this report, taking into consideration the recommendations to the Hastings District Rural Community Board, is to allocate the rating surplus/deficit as per the table below:

13.0    RECOMMENDATIONS - NGĀ TŪTOHUNGA

A)      That the Council/Committee receives the report titled Draft Financial Year End Result - 30 June 2019

B)     That the funds arising from the Rating Area 2 surplus for the 2018/19 financial year, as recommended by the Hastings Rural Community Board, be allocated as follows:

C)     That the rating allocation be allocated as per the following table:

D)     That the budgets as per the schedule of Carry Forwards funded by rates and loans be approved to be carried forward to the 2019/20 financial year.

E)      That $29m of loan and reserve funded capital expenditure projects from the 2019/20 budget be approved to be rebudgeted into future years.

Attachments:

1⇩	Rating Surplus RA1 & RA2 for 2019 reports Attachment 1	FIN-09-01-19-177
2⇩	Attachment  2 Quarterly Dashboard June 2019	CG-14-71-00044
3⇩	Attachment 3 Unaudited Financial Statements to year ended 30 June 2019	CG-14-71-00042
4⇩	Attachment 4 Carry Forwards 2019 20	CG-14-71-00043

Rating Surplus RA1 & RA2 for 2019 reports Attachment 1

Attachment 1

Attachment  2 Quarterly Dashboard June 2019

Attachment 2

Attachment 3 Unaudited Financial Statements to year ended 30 June 2019

Attachment 3

Attachment 4 Carry Forwards 2019 20

Attachment 4

File Ref: 19/925

REPORT TO:               Finance and Risk Committee

MEETING DATE:        Tuesday 17 September 2019

FROM:                           Manager Strategic Finance

Brent Chamberlain

SUBJECT:                    Omarunui LFG Generation Limited Partnership 2018-19 Annual Report

1.0       EXECUTIVE SUMMARY - TE KAUPAPA ME TE WHAKARĀPOPOTOTANGA

1.1       The purpose of this report is to present to Council the Annual Report for the year ending 31 March 2019 for the Omarunui LFG (Landfill Gas) Generation Limited Partnership (Gas Generation Partnership).

1.2       This arises from the receipt of the Omarunui LFG (Landfill Gas) Generation Limited Partnership’s Annual Report.

1.3       This report contributes to the purpose of local government by primarily promoting economic and environmental wellbeing and more specifically through the Council’s strategic objective of providing local infrastructure that protects the natural environment (by not flaring landfill gas) while sustainability using resource available to it (the landfill gas).

1.4       In the year the partnership generated 3,245 mw/h of electricity utilising 1,889m³ of landfill gas that would have been flared and not utilised.

1.5       Total revenue for the 2018/19 Financial Year was $303k resulting in an EBITDAF loss of $21k.

1.6       Due to the continued poor financial performance of the asset over time, the decision has been made to impair investment to reflect lower expected returns. The Gas Partnership has taken a $150k impairment of which Hastings District Councils share is $60k.

2.0       RECOMMENDATIONS - NGĀ TŪTOHUNGA

A)      That the Committee receives the report titled Omarunui LFG Generation Limited Partnership 2018-19 Annual Report

3.0       BACKGROUND – TE HOROPAKI

3.1       Pioneer Generation Limited and Hastings District Council established the Gas Generation Partnership for the purpose of purchasing landfill gas from the Omarunui Landfill to generate electricity using the energy facility and to sell the electricity.

3.2       Pioneer Generation Limited (the General Partner) operates and maintains the plant in accordance with the shareholder agreement for the plant and also holds the off take agreement for the electricity supplied.  Hastings District Council, through contracts with the Omarunui Refuse Landfill, supplies gas to the energy facility and leases the land occupied by the gas to energy plant.

3.3       Pioneer Generation Limited (PGL) hold 60% of the Limited Partnership shares with Hastings District Council holding 40%. Council’s investment in the Partnership was $744k.

3.4       The current advisory committee board members of the Gas Generation Partnership are:

Andrew Williamson, PGL appointment (Chairman)

Jamie Aitken, PGL appointment

Bruce Allan, HDC appointment

Brett Chapman, HDC appointment

4.0       DISCUSSION - TE MATAPAKITANGA

4.1       2018/19 Annual Report to the Limited Partners is attached in Attachment 1.  The Annual report includes a report from the Chairman.

4.2       In the year the partnership generated 3,245 mw/h of electricity (5,019 mw/h last year) compared to 6,000 mw/h budgeted, utilising 1,889m³ (3,010m³ last year) of landfill gas that would have been flared and not utilised.

4.3       It has been another challenging year for the partnership with ongoing problems with the plant and inconsistent gas extraction. Significant investment has been made at the landfill to ensure the gas from Valley D in particular is able to be extracted and transported to the plant. This work was undertaken during June 2018 and October 2018 (which covers the winter period when electricity returns are normally at their highest due to the higher consumer consumption).

4.4       Since this work was undertaken gas collection and engine performance has improved (the financial results for the last quarter of the 2018/19 financial year and for the first quarter of this financial year are much improved).

4.5       Total revenue for the 2018/19 Financial Year was $303k (2018: $402k) resulting in an EBITDAF loss of $21k (2018: $38k), a significant variance to the budgeted profit of $81k for the year.

4.6       The average sales price per mw/h of electricity during the year was $72.12 ($66.62 last year), whereas the budget was set at $73.04 per mw/h.

4.7       Due to the continued poor financial performance of the asset over time, the decision has been made to impair the investment to reflect lower expected returns. The Gas Partnership has taken a $150k impairment of which Hastings District Councils share is $60k. This has been reflected in Hastings District Council’s annual accounts.

4.8       Whilst the Landfill Gas plant is not meeting the financial goals set out in the business plan, it is achieving the goal of turning previously flared off gas into electricity.

5.0       OPTIONS - NGĀ KŌWHIRINGA

Option One - Recommended Option - Te Kōwhiringa Tuatahi – Te Kōwhiringa Tūtohunga

5.1       That the committee receives the Gas Partnership’s Annual Report.

6.0       NEXT STEPS - TE ANGA WHAKAMUA

6.1       No further action is required.

Attachments:

1⇩

Omarunui Annual Report March 2019

SW-6-19-48

SUMMARY OF CONSIDERATIONS - HE WHAKARĀPOPOTO WHAIWHAKAARO

Fit with purpose of Local Government - E noho hāngai pū ai ki te Rangatōpū-ā-rohe

The Council is required to give effect to the purpose of local government as set out in section 10 of the Local Government Act 2002. That purpose is to enable democratic local decision-making and action by (and on behalf of) communities, and to promote the social, economic, environmental, and cultural well-being of communities in the present and for the future

This report contributes to the purpose of local government by primarily promoting economic and environmental wellbeing and more specifically through the Council’s strategic objective of providing local infrastructure that protects the natural environment (by not flaring landfill gas) while sustainability using resource available to it (the landfill gas).

Link to the Council’s Community Outcomes - E noho hāngai pū ai ki te rautaki matua

This proposal promotes the economic and environmental well-being of communities in the present and for the future by turning landfill gas into electricity rather than flaring it into the atmosphere.

Māori Impact Statement - Te Tauākī Kaupapa Māori

There are no known impacts for Tangata Whenua.

Sustainability - Te Toitūtanga

This report supports sustainability by ulitising previously unused landfill gas to generate electricity.

Financial considerations - Ngā Whaiwhakaaro Ahumoni

Apart for the lower financial returns than contained in the original business case there are no new financial implications for Council.

Significance and Engagement - Te Hiranga me te Tūhonotanga

This decision/report has been assessed under the Council's Significance and Engagement Policy as being of minor significance.

Consultation – internal and/or external - Whakawhiti Whakaaro-ā-roto, ā-waho

There has been no external consultation undertaken.

Risks: Legal/ Health and Safety - Ngā Tūraru: Ngā Ture / Hauora me te Haumaru

There have been no legal or health and safety risks identified in this report.

Rural Community Board - Ngā Poari-ā-hapori

There are no implications for the rural community board in this report.

Omarunui Annual Report March 2019

Attachment 1

TRIM File No. CG-14-71-00039

HASTINGS DISTRICT COUNCIL

Finance and Risk Committee MEETING

Tuesday, 17 September 2019

RECOMMENDATION TO EXCLUDE THE PUBLIC

SECTION 48, LOCAL GOVERNMENT OFFICIAL INFORMATION AND MEETINGS ACT 1987

THAT the public now be excluded from the following part of the meeting, namely:

11        Hawke's Bay Airport Limited Remuneration of Directors

12        Appointment of Independent member to the Risk & Audit Subcommittee

The general subject of the matter to be considered while the public is excluded, the reason for passing this Resolution in relation to the matter and the specific grounds under Section 48 (1) of the Local Government Official Information and Meetings Act 1987 for the passing of this Resolution is as follows:

GENERAL SUBJECT OF EACH MATTER TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION IN RELATION TO EACH MATTER, AND PARTICULAR INTERESTS PROTECTED	GROUND(S) UNDER SECTION 48(1) FOR THE PASSING OF EACH RESOLUTION
11        Hawke's Bay Airport Limited Remuneration of Directors	Section 7 (2) (a) The withholding of the information is necessary to protect the privacy of natural persons, including that of a deceased person. To protect the privacy of the individual directors..	Section 48(1)(a)(i) Where the Local Authority is named or specified in the First Schedule to this Act under Section 6 or 7 (except Section 7(2)(f)(i)) of this Act.
12        Appointment of Independent member to the Risk & Audit Subcommittee	Section 7 (2) (a) The withholding of the information is necessary to protect the privacy of natural persons, including that of a deceased person. To protect the privacy of individual members.	Section 48(1)(a)(i) Where the Local Authority is named or specified in the First Schedule to this Act under Section 6 or 7 (except Section 7(2)(f)(i)) of this Act.