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

 

 

 

 

 

 

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, 11 September 2018

 

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

 

 

1.         Apologies

Apologies from Councillor Harvey and Councillor Schollum have 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

            There are no previous minutes to confirm.

4.         Non Financial Performance Report For Year Ended 30 June 2018               5

5.         Draft Financial Year End Result - 30 June 2018                                               39

6.         Summary of Recommendations from Risk and Audit Subcommittee Meeting held on 3 September 2018                                                                                      79

7.         Additional Business Items

8.         Extraordinary Business Items 

 

 

     

File Ref: 18/799

 

REPORT TO:               Finance and Risk Committee

MEETING DATE:        Tuesday 11 September 2018

FROM:                           Strategy Manager

Lex Verhoeven

SUBJECT:                    Non Financial Performance Report For Year Ended 30 June 2018        

 

1.0       SUMMARY

1.1       The purpose of this report is to update the Committee on achievement against its non-financial performance management framework.

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

The Council is required to give effect to the purpose of local government as prescribed by Section 10 of the Local Government Act 2002. That purpose is to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost–effective for households and businesses. Good quality means infrastructure, services and performance that are efficient and effective and appropriate to present and anticipated future circumstances.

This report relates to all elements of the purpose of Local Government as set out in the Local Government Act 2002.

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 in October 2017.

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 2015-2025 Long Term Plan which the Council is legally required to report against annually.  This is the third and final year of reporting against the 2015-2025 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       The 2015 – 2025 Long Term Plan saw the introduction of “mandatory measures” for some activities which have been standardised across the country.  In regard to the Hastings District Council these measures cover the infrastructural activities of Water Supply, Stormwater Disposal, Sewage Disposal and Roads and Footpaths.  Some further standardisation of measures across other activities has been signalled and officers will keep Council updated of any developments in the future.

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 70 levels of service measures within the Long Term Plan, 87% of those able to be measured in 2017/18 were either fully or substantially achieved.

3.3       In regard to the 9 customer experience measures 78% were either fully or substantially met.

3.4       In regard to the 25 key actions contained in the Long Term Plan these have all either been completed or are substantially advanced.

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 due course.

4.0       OPTIONS

4.1       This is a year-end report against Council’s adopted performance management framework and an analysis of options is not required.

5.0       SIGNIFICANCE AND ENGAGEMENT

5.1       Reporting on achievement against Council’s performance management framework does not trigger and matters of significance or any consultative provisions in the Local Government Act 2002.  The Council’s Annual Report (and Annual Report Summary) are the statutory documents that outline annual performance to the community.

 

 

6.0       RECOMMENDATIONS AND REASONS A)        That the report of the Strategy Manager titled “Non Financial Performance Report For Year Ended 30 June 2018” dated 11/09/2018 be received.

 

Attachments:

 

1

Our Reporting Framework Finance and Risk Committee

CP-02-18-318

 

 

 

Our Reporting Framework Finance and Risk Committee

Attachment 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

File Ref: 18/823

1.   

REPORT TO:               Finance and Risk Committee

MEETING DATE:        Tuesday 11 September 2018

FROM:                           Financial Controller

Aaron Wilson

Chief Financial Officer

Bruce Allan

SUBJECT:                    Draft Financial Year End Result - 30 June 2018        

 

1.0       SUMMARY

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 2018 and for the Council to allocate the reported surplus.  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 10 September 2018 relating to the year-end rating result for Rating Area 2.

1.2       The Council is required to give effect to the purpose of local government as prescribed by Section 10 of the Local Government Act 2002. That purpose is to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost–effective for households and businesses. Good quality means infrastructure, services and performance that are efficient and effective and appropriate to present and anticipated future circumstances.

1.3       The rating result is favourable to budget. This is a consequence of the adoption of sound financial management including active treasury management, continued pursuit of efficiencies and delays in some projects.

1.4       The unaudited rating result for the 2017/18 year is a positive result and is as follows:

 

1.5       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:

1.6       The report also recommends that budget allocations proposed to be carried forward from the 2017/18 year to 2018/19 to enable project completion be approved.

2.0       BACKGROUND

2.1       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.

2.2       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. 

2.3       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 reports on the variance of rates collected and net total expenditure (including capital and reserve transfers) for Council.

2.4       The Financial Reports attached to supplement this report include:

Attachment 1 – Interim Rating Result for the year ended 30 June 2018

Attachment 2 – Dash Board Summary of Financial performance

Attachment 3 – Draft Unaudited Financial Statements

Attachment 4 – Detailed Carry Forward Schedule.

 

2.5       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.

3.0       CURRENT SITUATION

3.1       The 2017/18 financial year has seen a continuation of a strong Hawke’s Bay economy. In terms of Council performance, almost all areas of Council have met their respective revenue targets. At the same time a close watch was kept on expenditure to ensure Council maintained a prudent approach to cost pressures.

3.2       Since the financial quarterly report for the year to March 31 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 2018. These results are unaudited and may be subject to minor adjustments.

4.0       THE RATING RESULT

4.1       Council adopts strong financial management practices. Council prepares a balanced budget to deliver Council’s desired programme, including high levels of fiscal tensioning and stretch targets. In addition projects are only proceeded with after a thorough review and analysis. This also ensures that projects are not undertaken until they are required thereby deferring expenditure and reducing debt and interest costs to Council.

 

4.2       Interest savings of $927,257 have contributed significantly to the surplus, with savings and overspends across Council matching off.

 

4.3       Interest savings are mainly due to:

 

·          effective treasury management

·          favourable market conditions with interest rates being at 30 year historical lows

·          projects being deferred until the later part of the year or carried forward

 

4.4       Council has managed its interest rate risk in the short and medium term through its interest rate risk position (swaps) and Council has a strong debt maturity portfolio which is cost effective. Council’s weighted average cost of funds was 5.31% at 30 June 2018 (4.97% at 30 June 2017).  The lower average cost of capital last year is reflective of higher levels of cash on hand and interest received income impacting on the net interest expense.

4.5       Overall the net interest savings were $997,729 of which $927,257 directly impacted on the overall rating result and includes interest income which is not budgeted for.  The remainder of the savings were to offset the loan funding required on growth projects which are repaid through development contributions.

 

INTEREST	Budget $	Actual $	Variance $
Interest – HDC Loans*	3,835,255	3,042,386	792,869
Interest – Growth Loans	787,561	717,089	70,472
Interest Income*	-	(134,388)	134,388
TOTAL NET INTEREST	4,622,816	3,625,087	997,729

 

* Contribute to Rating Surplus

 

4.6       The rating result for the 2017/18 financial year is a positive result and compares with a $1,158,370 surplus reported in 2016/17.

 

Rating Area 1	$518,439	Surplus
Rating Area 2	$424,274	Surplus
Total for the District	$942,713	Surplus

 

 

4.7       The rating surplus is 0.7% of the total reported revenue in the 2017/18 Statement of Comprehensive Revenue and Expense. Achieving this positive result where there are continued pressures on Council funds is reflective of the prudent financial strategies adopted by Council.

 

4.8       In addition to the rating surplus, the Council’s share of the surplus from the Landfill operations is $2.2m.  Prior to last year the Landfill surpluses were used to replay Landfill debt.  The remaining debt was extinguished by application of the surplus from the 2015/16 financial year. Council resolved last year to apply the 2016/17 landfill surplus of $1.615m to the water supply targeted rate account for RA1 ($1.4m), and to the capital reserve for RA 2 ($0.203m). This now leaves the Council with a decision on how to allocate the 2017/18 Landfill surplus.

 

4.9       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:

 

	2018 Surplus / (Deficit)   $	Reserve Balance as at 30 June 2018 $
Opera House Operations	232,293	1,244,569
Targeted Rate Accounts
Water Supply – RA1	(1,209,245)	(2,905,153)
Water Supply – RA2	(127,258)	(370,561)
Waste Water	(188,434)	859,594
Refuse & Recycling	196,305	1,545,735

 

 

4.10    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.

 

4.11    In determining priorities for surplus and revenue allocation, staff advise that the following priority order would be in line with Council’s prudent financial management approach:

 

1.   Repay Rating Area 1 Debt

2.   Reduce Water Supply Targeted Rate Account Deficits

3.   Contribute to the Rating Area 2 Flood and Emergency Event Reserve and the Rating Area 2 Capital Reserve

 

 

 

 

5.0       EXTERNAL DEBT

5.1       Total net borrowing as at the end of June is $77.7m, an increase from last year ($60.7m), although is still lower that what was projected in the 2015-25 Long Term Plan (LTP) which had forecast debt levels of $98.9m at this time. Committed borrowing facilities in place are $87.7m, providing headroom of $10m. The liquidity ratio is at 113% compared to the policy minimum of 110% and is therefore above the minimum requirements set by Council.

5.2       While there are lower debt levels when compared to the LTP, it needs to be noted the 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 Whakatu Arterial and the new Havelock North water main. Prudent management of Council’s financial affairs has created capacity for future borrowing requirements.

6.0       THE unaudited ACCOUNTING RESULT

6.1       Draft Unaudited Operating Accounting Result

Set out below is a summary of the for the 2017/18 financial year. Please note that this is not the same as the rating result.

Unaudited Operating Accounting Result	Budget Council $’000	Actual Council $’000	Variance $’000
Operating Revenue	115,577	130,985	15,408
Less Operating Expenditure	111,709	116,770	(5,061)
Net Surplus/(Deficit)	3,868	14,215	10,347
Gain / (Loss) Revaluations	27,437	159,772	132,335
Net Surplus after accounting gains / losses	31,305	173,987	142,682

 

6.1.1   The draft unaudited financial result for the year ended 30 June 2018 before gains or losses on revaluations is a surplus of $14.2m with favourable variance to the budget of $10.3m. This includes an unrealised loss on interest rate swaps of $0.803m, and is before the impact of the revaluation of assets.

6.1.2   The unrealised loss on interest rate swaps 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 2018.  Council is however extremely unlikely to be put in that situation and the loss is therefore recognised as an ‘unrealised loss’.

 

6.1.3   It is important to note that when we refer to budget variances in the table above, we are referring to variances against the Annual Plan excluding carry forwards or any other budget adjustments as this is what we are required to report against in the Annual Report.

 

6.1.4   Revenue has a favourable variance of $15.4m. The increase in revenue compared to budget is made up of the following activities:

·    Subsidies and grants make up a significant amount of the increase in revenue at $8.4m.  Most of this is made up of NZTA subsidies that are reimbursements for capital work done, along with $3.75m granted to the Opera house project.

·    Development Contributions of $4.7m are $0.8m above budget with large contributions received from the Irongate and Lyndhurst residential development areas driving this increase. Additional Development Contribution revenue represents a higher than expected level of development which drives further investment in growth related expenditure and growth related debt which DC’s are designed to repay. Total growth related debt as at 30 June 2018 was $10.2m

·    Fees and Charges are above budget by $2.5m. This increased revenue has been achieved across a wide range of Council activities Landfill through increased tonnages ($0.889m) and Splash Planet attendance and insurance proceeds ($0.183m) along with Parking ($0.199m) and Environmental Consents ($0.171m).

·    Water vested assets are above budget by $1.7m.

 

6.2       Expenditure is higher than budgeted by $5m and higher than last year by $2.9m.  Highlights in expenditure are:

·    Contracted services which are $4.6m above budget, this is primarily in the areas of infrastructure where there have been and are large capital projects underway. Brought forwards from the prior 2016/17 year however, are an offset to a large portion of the higher expenditure at $4m. 

·    The unrealised loss on swaps of $0.803m. As mentioned in paragraph 6.3, this is an accounting entry that has no effect on cash.

·    Personnel costs were higher than budget and last year, with the addition of personnel in the water area a key driver.

 

6.3       All asset classes are on a revolving revaluation cycle, transportation and parks and reserves were revalued last year, this year the revaluation of the land and buildings, water services and heritage and culture assets have been the major revaluation activity.

6.4       This year the valuation for Land and Buildings has seen the fair value assessed at $208.6m which is an increase of $46.8m in value. The main drivers for this increase are due to strong market and economic conditions, along with the increase in costs of rebuilding or constructing an asset of a comparable nature.

6.5       This year the valuation of the 3 waters assets have shown a $113.5m increase in the depreciated replacement cost.  The increase in replacement costs were driven primarily by an adjustment to unit rates on the recommendation of a specific review undertaken by Opus International of unit rates used.

6.6       The Heritage and Cultural assets are revalued every five years.  This class of asset involves the collection of Mayoral portraits. The valuation was completed by Webbs and had an adjustment downward adjustment of $24,000. It must be noted that this reduced value of the overall collection is not a reflection on the additional painting recently added to the collection.

6.7       Summary by Areas of Activity of Council:

Economic Growth and Organisational Improvement

6.8       Economic Growth and Organisational Improvement (EGOI) Group had an overall group result of $0.439m favourable to budget. The key drivers were in the Economic Development budget with underspends in expert advice ($0.202m), and contracted services ($0.186m) across a number of operational projects.  Where required, some of this underspend has been requested to be carried forward to 2018/19.

Governance and Support Services

6.9       Included in this group of activities are the support services of Finance, HR, Democratic Support, Leadership and the Chief Executive’s Office. Overall, these activities have been managed either in line with budget.

Community Facilities & Programmes

6.10    This group of activities has a favourable variance against budget of $0.910m primarily driven by favourable revenue lines in fees and charges such as Splash Planet ($0.183m), swimming pools ($0.101m) and housing for the elderly ($0.120m). In addition libraries received a $0.501m donation from the estate of a benefactor.

Planning & Regulatory Services

6.11    Planning and Regulatory had an overall group result of $0.312m favourable to budget. Revenue was $0.534m favourable to budget.  Fees and charges across the group have been the main driver, parking ($0.199m), along with environmental consents ($0.171m), Offsetting this was higher expenditure of $0.222m driven by higher personnel and contracting costs required to deliver the increased revenue.

Asset Management

6.12    Landfill revenue was favourable to budget by $0.889m,with higher volumes contributing to the favourable revenue variance with the forestry harvest contributing $0.282m to that surplus. This increased revenue has translated into a HDC share of the surplus of $2.2m.

 

6.13    The surpluses generated from the Landfill are released to the shareholding Council’s 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. Last year Council allocated $1.6m to the RA1 water services targeted reserve ($1.4m) and the RA2 Capital reserve ($0.20m). 

 

6.13.1 Parks operational expenditure was $1.5m favourable due to a proposed grant to the Hawke’s Bay Community Fitness Centre Trust not being fully drawn down. This is one of the recommended carried forwards into 2018/19 year and those funds are expected to be fully drawn down by the end of the second quarter of 2018/19.

 

6.13.2 The Maintenance Group (Council’s service delivery unit) had an overall loss reported of $0.395m. The deficit is largely due to the timing of maintenance expenditure.

 

6.13.3 Building Service costs were $0.210m favourable due to lower than planned maintenance and services costs, these funds have been retained in the building reserve.

6.14    Water Services

Council continued to spend significant sums of money on water supply activity through 2017/18 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.

 

6.14.1 Below is a summary of operating water services costs as at 30 June 2018.

 

 

6.14.2 The 2018-28 Long Term Plan anticipated that the Water Supply Targeted rate account would be in a deficit position of $1.8m due to increased operational expenditure, with increased water quality monitoring, maintenance and expert advice required post the water contamination incident of August 2016. The high level of operational expenditure has continued at a rate higher than anticipated through 2017/18 and the Water Supply Targeted Rate account has ended the year with a deficit of $2.9m, $1.1m higher than expected.

 

6.14.3 The increases forecast to the Water Supply Targeted Rate signaled in the 2018-28 Long Term Plan of an additional $100 for years 1 and 2 and then an additional $50 in year three assumed that with an opening deficit position in the Targeted Rate Account of $1.8m along with elevated levels of operational expenditure, the Targeted Rate Account would achieve a breakeven position within the life of the long term plan.

 

6.14.4 In light of the higher than expected deficit position at year end, to achieve that breakeven position forecast during the life of the long term plan an additional increase to the Water Supply Targeted Rate of $44 per ratepayer would be required, unless there could be some allocation of Council surplus’s to this account or significant savings in budgeted expenditure in this activity.

 

6.14.5 It is proposed by officers, in order to maintain the expected timeline of when the reserves will come back into surplus as per the 2018-28 Long Term Plan and to avoid additional increases to the Water Supply Targeted Rate that the difference noted below of $1.09m be allocated out of the HDC share of the Landfill surplus to the Water Supply Targeted Rate Account.

 

6.14.6 Below is a summary of the RA1 water supply targeted rates reserves:

 

 

 

7.0       TRANSFER TO RESERVES

7.1       Splash Planet Reinvestment

The annual Splash Planet budget contains a provision of $100,000 towards new or upgraded attractions at Splash Planet. Due to the nature and cost of the attractions, this budget is not spent every year and a Splash Planet Reinvestment Reserve has been created. The Splash Planet Reinvestment Reserve has a balance of $834,260. In addition to this annual budget, there is a standing process whereby Council considers at this time each year a transfer up to a further $100,000 to the Splash Planet Reinvestment Reserve should Splash Planet achieve a result better than budget and if the overall Council surplus is sufficient enough to allow such a transfer.  While the Splash Planet financial result is $78k better than budget, it is recommended that given Council’s other financial priorities and the smaller than normal rating surplus, that the transfer is not recommended in this year.

 

8.0       CARRY FORWARD SCHEDULE

8.1       Included in Attachment 4 is a Schedule of Projects and budget amounts that officers have requested to be carried forward to the 2018/19 year.  Management have reviewed these requests and also compared them to project budgets in the 2017/18 year to ensure that the appropriate amount is being carried forward.

8.2       The level of carry forwards requested at $37.6m is a reduction from last year’s carry forwards of $43.5m.

8.3       The level of carry forwards from rates funding has reduced from last year to $1.96m ($2.6m last year).  While the table provides a summary of the major carry forward items, the $0.556m of rates carry forwards classified as other is made up of over 25 different carry forward projects.  Details of all these projects are included in Attachment 4.

8.4       Included in the Loan Funded carry forwards is $3.8m for the Opera House, Plaza and Municipal strengthening and upgrades for 2018/19. In addition, there are a range of carry forwards across a number of Council activities, from the Clifton revetment ($1m) through to the HB Community Fitness Centre Trust.

8.5       The following table is a summary of 2017/18 Carry Forwards recommended for approval and detailed in Attachment 4.

 

 

9.0       ALLOCATION OF RATING SURPLUS

9.1       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.”

9.2       The practice for Rating Area 2 has been that the surplus is transferred into the Rural Flood and Emergency Event Reserve and used to repay RA2 debt.  Currently Rating Area 2 has no debt and the Hastings Rural Community Board has previously recommended that the target for the Rural Flood and Emergency Event reserve be increased to $2.0m.

9.3       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 by $0.605m to $1.17m 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.

9.4       The Rural Community Board has also previously recommended that surpluses be used to contribute to the Rating Area 2 Capital Reserve, recognising that there is an increasing capital programme included in the 2018-28 Long Term Plan and 30 year Infrastructure Strategy.

9.5       The Rating Area 1 surplus has been used to repay debt although some additional projects have been funded from the surplus in the past as a way of offsetting the need for additional debt or rates funding. However the events of 2016/17 have put ongoing financial pressure on the 2017/18 result and in particular on the Rating Area 1 Water Supply Targeted Rate account.

9.6       The following priorities for surplus allocations are detailed below:

9.6.1   Rating Surplus

Given the size of the rating surplus from 2017/18, it is recommended that the two priority areas of Rating area one debt repayment and the Rating area two rural flood and emergency reserve replenishment are addressed.

 

It is also recommended that Council contribute $25,000 to the A&P Society for the 2018 Royal Show. With the changeover of General Managers this year the Society overlooked their annual application to the discretionary grant fund and has subsequently asked if Council would be prepared to fund this application from other budget sources. As there are no other budgets for this application it is recommended that Council fund this from the surplus. Council has made contributions to the A&P Society over the past two years of $20,000 and $22,000.

 

9.6.2   Landfill additional surplus allocation

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 for the first time the Landfill surplus was allocated based on the approved rating splits to the Rating Area One Water Supply account and to the Rating Area Two Capital Reserve.

9.7       Given the financial pressures the Water Supply activity is under and the difference between the actual deficit position of the Water Supply Targeted Rate Account compared to the assumed opening position of the 2018-28 Long Term Plan, it is recommended that in the first instance the Landfill surplus be allocated to the Water Supply Targeted Rate Account to bring it in line with the LTP assumed starting position. This will ensure the proposed increases in the Water Supply Targeted Rate will be sufficient to meet the needs of that activity assuming all other variables being met. 

9.8       The balance of Rating Area One’s share of the Landfill surplus is recommended to be used to repay debt and the Rating Area Two share allocated to the Rating Area Two Capital reserve.

9.9       It is therefore recommended that revenues from the Landfill surplus be allocated as follows:

Total Landfill Surplus to allocate                                               $2,260,613

Rating Area 1

Allocation to Water Targeted Rate Account                                $1,090,659

Repayment of RA 1 Debt                                                            $885,342

Rating Area 2

Allocation to RA 2 Capital Reserve                                              $284,612

Total Allocated                                                                        $2,260,613

9.10    The funds set out for the allocation to the Water Supply targeted rate account of $1.09m above brings the opening balance of the water account in line with the 2018-28 Long Term plan assumptions and will reduce the potential need for increases to the Water Supply Targeted Rate beyond that already forecast in the Long Term Plan.

9.11    Given the extraordinary events of 2016/17 and the projected increases in the Water Supply Targeted Rate in future years it is recommended that the Rating Area 1 share of the 2017/18 Landfill surplus be allocated to the Rating Area 1 Water Supply targeted rate account. It is not in keeping with sound financial management to always “jam jar” account for future development opportunities and create reserves for potential future expenditure. It would be considered prudent for Council to allocate this additional surplus to the Rating Area 1 water account to reduce the impact of future rate increases by bringing the current deficit into line with the assumed LTP starting position.  It is also considered prudent for the Rating Area 2 share of this surplus to be allocated to the Rating Area 2 Capital Reserve.

9.12    In 2008 the Rural Community Board recommended to Council that the Landfill rating formula be changed to designated population which is the basis for the allocation above.  This recommendation was approved by Council and is consistent with the allocations made last year for the Landfill surplus.

Hawea Park

9.13    It has also been contemplated to use the 2017/18 surpluses to fund HDC’s share of the land purchase for Hawea Park, a regional park to be owned and managed by the Hawke’s Bay Regional Council.  Through the land purchase negotiations for the Whakatu Arterial an opportunity arose with HBRC to create a new park adjacent to the existing Pakowhai Country Park and it was agreed that HDC would contribute half of the land cost in order for this to be achieved.

9.14    Council’s share of this land purchase was $300,000 and is currently unbudgeted.  While there is an opportunity to use the 2017/18 surpluses to fund this land purchase, the other priorities of RA1&2 are significant, particularly in RA2 where the need to replenish the RA2 Flood Reserve is the main priority.  If surpluses were used to fund this land purchase, the impact on the RA2 reserve contributions would be appropriately $40,000.

9.15    It is recommended that the land purchase for HDC’s share of Hawea Park be treated as unbudgeted expenditure and be loan funded.

9.16    The Hastings District Rural Community Board will meet on 10 September 2018 and the recommendation to the Board are as follows:

A)  That the report of the Financial Controller titled “Draft Financial Year End Result - 30 June 2018” dated 11/09/2018 be received.

 

B)  That the Hastings Rural Community Board recommend to Council that  the Rating Area 2 Rating Surplus of $424,274 be allocated to the Rural Flood & Emergency Event Reserve. Noting that the value of the surplus available will change if Council makes decisions to allocate the overall Council surplus to other projects that require a rating area allocation to be made.      

 

C)  That the Hastings Rural Community Board recommend to Council that the RA2 allocation of the Landfill surplus of $284,612  contribute to the RA2 Capital Reserve in accordance with the approved rating allocation for the Landfill.                                              

 

Note: that the exact numbers recommended to the Hastings District Rural Community Board have changed slightly with the development of recommendations for this report.  The decision of the Hastings District Rural Community Board will be reported verbally to the Committee.

 

 

 

 

 

 

 

 

 

 

 

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

 

10.0    SIGNIFICANCE AND CONSULTATION

10.1    This report does not raise any issues that are significant in terms of the Council’s Significance and Engagement Policy that would require consultation.

11.0    SUMMARY/ PREFERRED OPTION

11.1    It is the view of officers that this is a good financial result. Council’s financial strategy is to budget for all known expenditure and when a surplus is achieved to repay debt along with meeting other particular needs. Following the extraordinary events of 2016/17 and the impact that has had on Council’s finances in 2017/18, it is recommended that Council prioritise allocation of the surpluses to repaying debt and repaying the Rating Area 1 Water Supply deficit.  In Rating Area 2, allocations are recommended to the Capital Reserve and to the Rural Flood Emergency Event Reserve as per policy.

11.2    The recommendations have been prepared on the basis of the recommendations to the Hastings District Rural Community Board.

 

 

 

 

12.0    Recommendations A)  That the report of the Financial Controller titled “Draft Financial Year End Result - 30 June 2018” dated 11/09/2018, be received. B)  That the funds arising from the Rating Area 2 surplus for the 2017/18 financial year as recommended by the Hastings Rural Community Board be re-allocated as follows:     C)  That the rating surplus 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 2017/18 financial year. E)  That $300,000 of unbudgeted loan funding be provided for in 2018/19 for Council’s share of land purchased for the creation of Hawea Park.

 

Attachments:

 

1	Draft Rating Result for the year ended 30 June 2018	FIN-09-3-18-290
2	Dashboard Summary of Financial Performance	FIN-09-3-18-289
3	Draft Unaudited Financial Statements	FIN-09-3-18-291
4	Detailed Carry Forward Schedule	FIN-09-3-18-292

 

 

Draft Rating Result for the year ended 30 June 2018

Attachment 1

 

Draft Rating Result for the year ended 30 June 2018

Attachment 1

 

 

Dashboard Summary of Financial Performance

Attachment 2

 

 

 

 

Draft Unaudited Financial Statements

Attachment 3

 

 

Detailed Carry Forward Schedule

Attachment 4

 

 

 

 

 

 

 

 

 

 

 

 

 

File Ref: 18/849

 

REPORT TO:               Finance and Risk Committee

MEETING DATE:        Tuesday 11 September 2018

FROM:                           Chief Financial Officer

Bruce Allan

SUBJECT:                    Summary of Recommendations from Risk and Audit Subcommittee Meeting held on 3 September 2018        

 

 

 

 

1.0       SUMMARY

1.1       The purpose of this report is to advise that recommendations from the Risk and Audit Subcommittee meeting held on 3 September 2018 require ratification by Council.

 

1.2       The relevant Risk and Audit Subcommittee recommendations to be ratified are set out below:

 

 

2.0     RECOMMENDATIONS A)   That the report of the Chief Financial Officer titled “Summary of Recommendations from Risk and Audit Subcommittee Meeting held on 3 September 2018” dated 11/09/2018 be received. B)   That the following recommendations from the Risk and Audit Subcommittee meeting held on 3 September 2018 be adopted: “Item 7 – Governance Risk A)   That the report of the District Customer Services Manager titled “Governance Risk” dated 3/09/2018 be received. B)   That the Risk and Audit Subcommittee recommends to Council that a workshop be held on the issue of governance risk and that the Chair of the Subcommittee be invited to attend.                     With the reasons for this decision being that the objective of the decision will contribute to meeting the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and business by: i)     Setting a clear direction for Council to follow to help achieve the strategic objectives defined in the Long Term Plan and meet statutory obligations. ii)    Increasing certainty that strategic goals will be achieved.   Item 9 – Enterprise Risk Management Update   A)     That the report of the Risk and Corporate Services Manager titled “Enterprise Risk Management Update”, with minor amendments, dated 3/09/2018 be received. B)     That the Risk and Audit Subcommittee recommend to Council that a workshop be held with the aim of subsequently adopting the updated Enterprise Risk Management Policy and Framework document. With the reasons for this decision being that the objective of the decision will contribute to meeting the current and future needs of communities for good quality local infrastructure, local public services and performance of regulatory functions in a way that is most cost-effective for households and business by: i)       Providing a robust framework that promotes effective and efficient management of risks in core business processes.   Item 10 – General Update Report and Status Of Actions   A)     That the report of the Manager Strategic Finance titled “General Update Report and Status of Actions” dated 3/09/2018 be received. B)     That the Risk and Audit Subcommittee recommend to the Chief Executive that a status of actions report be included on each council committee agenda and that officers investigate how best to address this request.”

 

Attachments:

There are no attachments for this report.