Agenda of Finance and Risk Committee Meeting

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, 13 November 2018

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.

Leave of Absence had previously been granted to Councillor O'Keefe.

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 11 September 2018.

(Previously circulated)

4. Update from the Chair of the Risk and Audit Subcommittee 5

5. Horse of the Year (Hawke's Bay) Limited Annual Report for the year ended 31 May 2018 7

6. Hawke's Bay Regional Sports Park Trust Annual Report to 30 June 2018 23

7. Hawke's Bay Airport Limited - Annual Report for the year ended 30 June 2018 25

8. Financial Quarterly Report for the three months ended 30 September 2018 29

9. Economic Outlook Update 39

10. Hastings District Holdings Limited Equity 51

11. HB LASS Limited Annual Report for the year ended 30 June 2018 55

12. Hawke's Bay Museums Trust Annual Report for the year ended 30 June 2018 59

13. New Zealand Local Government Funding Agency Limited - Annual Report for the year ended 30 June 2018 63

14. Local Government Funding Agency - Annual General Meeting 2018 67

15. Additional Business Items

16. Extraordinary Business Items

File Ref: 18/253

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Chief Financial Officer

Bruce Allan

SUBJECT: Update from the Chair of the Risk and Audit Subcommittee

1.0 SUMMARY

1.1 The purpose of this report is to update Council about the activities of the Risk and Audit Subcommittee.

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 This report concludes by recommending that the update from the Chair of the Risk and Audit Subcommittee be received.

2.0 BACKGROUND

2.1 The Risk and Audit Subcommittee’s terms of Reference state that the subcommittee is responsible for assisting Council in its general overview of financial management, risk management and internal control systems that provide:

· Effective management of potential risks, opportunities and adverse effects; and

· Reasonable assurance as to the integrity and reliability of the financial reporting of Council; and

· Monitoring of the Council’s requirements under the Treasury Policy.

2.2 The Chair of the Risk and Audit Subcommittee, Mr Jon Nichols, provided the first verbal update to Council at the September 2017 Council meeting on the Subcommittee’s activities.

2.3 Given that just four Councillors are represented on the Subcommittee it is considered good practice for the Chair of the Risk & Audit Subcommittee to provide regular updates to Council. It is also envisaged that the Chair will report more formally to Council on an annual basis.

3.0 SIGNIFICANCE AND ENGAGEMENT

3.1 This matter is not significant in relation to Council’s Significance and Engagement Policy.

4.0 RECOMMENDATIONS AND REASONS

A) That the report of the Chief Financial Officer titled “Update from the Chair of the Risk and Audit Subcommittee” dated 13/11/2018 be received.

Attachments:

There are no attachments for this report.

File Ref: 18/978

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: Horse of the Year (Hawke's Bay) Limited Annual Report for the year ended 31 May 2018

1.0 SUMMARY

1.1 The purpose of this report is present the Horse of the Year (Hawke’s Bay) Limited (HOYHB) annual report for the year ended 31 May 2018 and provide Council with an opportunity to provide feedback to Council on the Horse of the Year’s Draft Statement of Intent (SOI).

1.2 This issue arises from a requirement under the Shareholders Agreement that requires HOYHB to submit an Annual Report within 3 months after the end of the financial year and Statement of Intent (SOI) 3 months prior to the start of the financial year. The HOYHB financial year commences 1 June.

1.3 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.

1.4 The objective of this decision relevant to the purpose of Local Government is 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.

1.5 This report concludes by recommending that the 2017/18 Annual Report be received and the Draft 2018/19 Statement of Intent be received with any feedback passed onto the directors of HOYHB.

2.0 BACKGROUND

2.1 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.

2.2 Each shareholder is allowed up to 2 shareholder appointed directors and until recently each shareholder had been comfortable with just one representative each on the Board. In June ESNZ advised that they would be taking up the option of having a second appointed director and SJHB subsequently followed. Cynthia Bowers resigned from the Board effective from the October AGM and Council’s appointed Director Tim Aitken has been appointed by the Board as the Chairperson.

2.3 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

2.4 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.

2.5 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”

2.6 The executed Shareholders Agreement provides the following in regard to the Statement of Intent:

“A draft Statement of Intent is to be provided to the shareholders for comment three months prior to the start of each financial year. The Board will review any comments received from shareholders and approve the Statement of Intent prior to the start of each financial year. The Statement of Intent will address such matters as:

· Nature and objectives of the Company

· Mission Statement

· Shareholding Role

· Principal Objectives

· The Board’s approach to Governance

· Strategic Direction

· Scope of Company

· Financial Forecasts including cashflow statement of financial position

· Key Performance Measures and Targets

· Reporting Requirements

· Accounting Policies”

3.0 CURRENT SITUATION

3.1 Annual Report

3.2 The 2017/18 Annual Report including the Chairman’s report, report against Statement of Intent KPI’s and the Financial Statements are attached as Attachment 1. The 2018 show was the third show managed by SMC Events and ran smoothly and in fine weather (unlike the 2017 show). The show achieved a 90% satisfaction rating from competitors and spectators, however there is some concern that gate takes were down on the previous year.

3.3 The event finished with a net operating surplus of $25,539 ($28,686: 2017). This was on the back of higher revenues $2,412,974 ($2,288,267: 2017) with higher corporate sales, offset by lower grants and gate revenues. Costs were also up (but in line with revenues) and are being tightly managed.

3.4 The table below shows how this compares to the budget contained in the 2017/18 statement of intent:

	Actuals	Budget (SOI)	Variance
REVENUE
Event Income	1,084,197	1,044,000	40,197
Corporate Income	1,213,148	1,228,000	(14,852)
Charitable Income	124,629	200,000	(75,371)
Total Income	2,421,974	2,472,000	(50,026)
Expenses	2,396,435	2,422,000	25,565
Net Operating Surplus	25,539	50,000	(24,461)

3.5 The Statement of Intent non-financial measures have been reported against as this table from page 4 of the annual report illustrates:

3.6 Statement of Intent

3.7 The Draft 2018/19 Statement of Intent was received by Council on 23^rd October 2018.

3.8 The Draft 2018/19 Statement of Intent (Attachment 2) satisfies the requirements of the Shareholders Agreement, provides a budgeted financial position for 2018/19 and includes a number of relevant performance objectives.

3.9 The financial projections outlined in the Statement of Intent project a small surplus in 2018/19 which continue into future years. The projected financial result for 2018/19 when compared to the actual 2017/18 result is achieved through increased revenue across the board. The 2018/19 forecast is showing an 11% increase in event expenses which is in line with the expected revenue growth. The risk is committing to this increased expenditure if the additional revenue doesn’t eventuate.

3.10 The Key Performance Indicators contained in the Statement of Intent for 2018/19 are unchanged from 2017/18 and are very generic.

3.11 Other Key Performance Indicators that might be considered as best practice include:

· Increase the Number of Competitors Participating

· Satisfaction survey of Competitors

· Increase the Number of Spectators Attending

· Satisfaction survey of Spectators

· Increase the Number of Trade Stalls exhibiting

· Satisfaction of Trade Stall Retailers

· Reduction of H&S Incidents compared to prior year

3.12 The 2018/19 Statement of Intent has included a risk assessment. This identifies a number of risks to the HOY, assesses the exposure that this creates and identified any mitigation strategies that are available. The assessed risks and mitigation strategies are in line with last year’s Statement of Intent.

3.13 The draft Statement of Intent meets the requirements of the Shareholders Agreement.

4.0 OPTIONS

4.1 Council can receive the HOYHB 2017/18 Annual Report.

4.2 Council can receive the draft 2018/19 Statement of Intent. Council can also request directors of HOYHB to consider changes to the Statement of Intent if it wishes. The directors of HOYHB would then need to consider the request, with consideration of the wishes of the other 2 shareholders, and decide if a change is appropriate.

5.0 SIGNIFICANCE AND CONSULTANT

5.1 The issues for discussion are not significant in terms of the Council’s policy on significance and engagement and no consultation is required.

6.0 PREFERRED OPTIONS AND REASONS

6.1 The preferred option is for the 2017/18 Annual Report and the draft Statement of Intent for 2018/19 be received with any suggested changes to the Statement of Intent passed onto the HOYHB Board.

6.2 The Draft 2018/19 Statement of Intent presented by HOYHB satisfies all the requirements as set out in the Shareholders Agreement and clearly sets out the nature and scope of the HOYHB activities and its performance targets.

6.3 There are no direct financial implications for Council in receiving the Draft 2018/19 Statement of Intent for HOYHB.

7.0 RECOMMENDATIONS AND REASONS

A) That the report of the Manager Strategic Finance titled “Horse of the Year (Hawke's Bay) Limited Annual Report for the year ended 31 May 2018” dated 13/11/2018 be received.

B) That Council receive the Horse of the Year (Hawke’s Bay) Limited 2017/18 Annual Report.

C) That the Draft 2018/19 Statement of Intent for Horse of the Year (Hawke’s Bay) Limited be received with any feedback passed on to the directors of Horse of the Year (Hawke’s Bay) Limited for consideration.

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 local public services in a way that is most cost-effective for households and business by:

i) supporting and attracting business, building a resilient job rich district while also contributing to an appealing visitor destination.

Attachments:

1	Annual Report for the year ended 31 May 2018	EXT-10-20-18-86	Under Separate Cover
2	Draft Statement of Intent 2018-19	EXT-10-20-18-88

File Ref: 18/980

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: Hawke's Bay Regional Sports Park Trust Annual Report to 30 June 2018

1.0 SUMMARY

1.1 The purpose of this report is to inform the Council about the Hawke’s Bay Regional Sports Park Trusts (the Trust) full year result to 30 June 2018.

1.2 This update arises from a requirement detailed in the Funding Agreement between Council and the Trust.

1.3 The Trust’s Chief Executive (Jock Mackintosh) will be in attendance at the meeting.

1.4 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.

1.5 The Trust is responsible for the efficient and cost effective management of sporting facilities (good quality local infrastructure) located at the Hawkes Bay Regional Sports Park.

1.6 This report concludes by recommending the Hawke’s Bay Regional Sports Park Trust annual report to 30 June 2018 be received.

2.0 BACKGROUND

2.1 The presentation of an annual report by the Trust is a requirement of the Management Agreement between Council and the Trust which was executed in March 2018.

3.0 CURRENT SITUATION

3.1 The presentation of the Trust’s annual report is in accordance with the management agreement. Attachment 1 includes the Hawke’s Bay Regional Sports Park Trusts annual report to 30 June 2018. These accounts show an operating surplus of $109,310 before depreciation for the year compared to budgeted surplus of $117,206 and a deficit of $3,169 for the same period last year.

3.2 After accounting for depreciation the Hawke’s Bay Regional Sports Park Trust has recorded a deficit of $417,189 for the year compared to $525,042 last year. What this shows is that while the Trust result is positive from an operational sense, the surpluses generated will not be sufficient in themselves to fully fund the eventual replacement of their infrastructure without further external funding.

3.3 The Trust was again well supported by community grants and corporate sponsorship. This accounted for 40% of all revenue raised, with only 17% coming from the 286,000 users of the park.

3.4 During the year the athletics track was repaired and re-marked courtesy of a $47,000 grant from the New Zealand Community Trust.

3.5 Event revenues and costs were down on the previous year which contained the Te Matatani Celebrations and an International Hockey Tournament, neither of which repeated in 2018.

3.6 An outdoor aquatic facility is the next major development being undertaken by the Sports Park Trust. This is a 6,000 square metre facility which will be used by a range outdoor aquatic sports including canoe polo, triathlons, waka ama and kayak training. Two thirds of the funding for this facility has been raised and development is expected to commence towards the end of 2018.

4.0 OPTIONS

4.1 The Council can receive the Trust’s annual report to 30 June 2018.

5.0 SIGNIFICANCE AND ENGAGEMENT

5.1 No consultation is required and there is nothing in this report that triggers any threshold in the significance and engagement policy.

6.0 PREFERRED OPTION/S AND REASONS

6.1 That Council receive the Trust’s annual report to 30 June 2018.

7.0 RECOMMENDATIONS AND REASONS

A) That the report of the Manager Strategic Finance titled “Hawke's Bay Regional Sports Park Trust Annual Report to 30 June 2018” dated 13/11/2018 be received.

B) That the Hawke’s Bay Regional Sports Park Trust Annual Report to 30 June 2018 be received.

Attachments:

Hawke's Bay Regional Sports Park Trust - HBRSP Annual Report 2017/18

EXT-10-38-18-221

Under Separate Cover

File Ref: 18/983

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: Hawke's Bay Airport Limited - Annual Report for the year ended 30 June 2018

1.0 SUMMARY

1.1 The purpose of this report is to inform the Committee on the financial results of Hawke’s Bay Airport Limited (HBAL) for the year ended 30 June 2018.

1.2 This issue arises from the receipt of the 2018 Annual Report from HBAL.

1.3 Tony Porter (Chairman) and Stuart Ainslie (Chief Executive) from HBAL will be in attendance at the Council meeting.

1.5 The objective of this decision relevant to the purpose of Local Government is to provide good quality local infrastructure in a way that is most cost-effective for households and business and the community.

1.6 This report concludes by recommending that the HBAL Annual Report for the year ended 30 June 2018 be received.

2.0 BACKGROUND

2.1 The 2018 Annual Report represents the eight year of trading for the HBAL following corporatisation in July 2009 and the acquisition of the assets of the Hawke’s Bay Airport Authority. The company is owned 50% Crown, 26% Napier City Council and 24% Hastings District Council.

2.2 The Statement of Intent requires that an Annual Report including audited financial statements be provided to shareholders. A six monthly report is also required to be delivered to shareholders.

3.0 CURRENT SITUATION

3.1 Attachment 1 is a copy of the 2018 Annual Report.

3.2 Net Profit after income tax was $1,444.975 compared with $1,717,609 for the 2017 financial year and $1,254,896 budgeted. Income increased by 9% to $6,649,167 with a 5% increase in passenger numbers to 700,000.

3.3 Operating expenses of $3,041,665 increased from the previous year by 35% and 6% higher than budget due to the increased costs in Task Protection Services (additional staff due to Civil Aviation Authority requirements), appointment of key staff, and legal and consultancy costs for terminal redevelopment.

3.4 The Return on Equity of 4.9% which is 0.6% higher than the Statement of Intent and the Company’s Gearing Ratio of 12% was well below the Statement of Intent as a result the terminal development starting later.

3.5 In September 2018 the Watchman Road Entrance was opened to traffic. In March 2018 Stage one of the Terminal Expansion commenced construction. Total capital expenditure for the year ended 30 June 2018 was $5.4m with a further $16.1m committed for future years. Loan funding at 30 June 2018 was $4m ($Nil: 2017).

Performance targets for HBAL for the year ended 30 June 2018.

3.6 The key objectives, performance targets and performance results (as reflected in the Company’s Annual Report for 2017/18) are:

3.7 Officers are of the view that HBAL has performed well over 2017/18 and continues to show growth in revenue and passenger numbers.

4.0 OPTIONS

4.1 Council is only being asked to receive this report and an analysis of options is not required.

5.0 SIGNIFICANCE AND CONSULTATION

5.1 The issues for discussion are not significant in terms of the Council’s Significance Policy and Engagement and no consultation is required.

6.0 RECOMMENDATIONS AND REASONS

A) That the report of the Manager Strategic Finance titled “Hawke's Bay Airport Limited - Annual Report for the year ended 30 June 2018” dated 13/11/2018 be received.

B) That the Hawke’s Bay Airport Annual Report for the year ended 30 June 2018 be received.

Attachments:

Hawke's Bay Airport Limited Annual Report 2018

EXT-10-9-1-18-49

Under Separate Cover

File Ref: 18/976

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Financial Controller

Aaron Wilson

SUBJECT: Financial Quarterly Report for the three months ended 30 September 2018

1.0 SUMMARY

1.1 The purpose of this report is to inform the Committee of the financial result for the three months ended 30^th September 2018.

1.3 This report concludes by recommending that the report for the three months ended 30^th September 2018 be received.

2.0 BACKGROUND

2.1 The accounting operating financial result is reported on quarterly during the year and at year end a report is prepared on the financial as well as the rating result. The rating result differs from the accounting result in respect of non-cash items such as depreciation, vested assets and development contributions that are not included.

2.2 This financial report is governance focussed and allows significant variances to be highlighted with explanations provided.

3.0 CURRENT SITUATION

3.1 Set out below is a summary of the operating financial result year to date. The financial results detailed below represent the accounting view and do not reflect the potential rating result for 2018/19:

	$’000	$’000	$’000	$’000
2018/19	YTD Actual	YTD Revised Budget	YTD Variance	Full Year Revised Budget *
Operating Revenue	32,052	32,387	(335)	129,995
Operating Expenditure	33,429	32,826	(603)	120,865
Net Surplus/(Deficit)	(1,377)	(439)	(938)	9,131

* Revised budget includes the Annual budget, Brought Forwards and surplus allocations from 17/18 financial year

3.2 The result above is presented against the revised budget. The revised budget includes changes and decisions made during the year on Council budgets which includes carry forwards from 2017/18 and allocations from the 2017/18 rating surplus.

3.3 Council’s overall financial performance is $0.938m behind YTD budget for the quarter ended 30^th September 2018. Revenue is unfavourable to budget and expenditure is unfavourable to budget.

3.4 Overall revenue is $0.335m unfavourable to YTD budget and expenditure is $0.603m, unfavourable to YTD budget.

Revenue

3.5 Fees and charges revenue across Council are favourable against budget by $0.272m with the main drivers being:

· Community Facilities & Programme fees and charges are $45k favourable spread across a wide range of activities from pools to cemeteries.

· Transport are $75k favourable YTD due to having received reimbursement for emergency Haumoana shingle replenishment.

· Economic and Social Development are $88k favourable to budget due to grant revenue carried forward from the prior year in addition to some smaller unbudgeted grants.

· Planning and Regulatory services are favourable to budget by $205k driven by higher environmental ($41k), and building consents (50k) revenue along with higher than budgeted parking revenues of $81k.

3.6 Subsidies, grants and donations are tracking to budget for the first quarter.

3.7 Development contributions are unfavourable to YTD budget by $0.818m. Phasing of budgets in relation to when contributions occur is difficult, and creates timing differences as it is not always known in advance in what month a payment will occur when the budget is being set.

3.8 Key contributors to the negative budget variance are the Irongate and Omahu Industrial developments which have ring fenced development contribution policies. While there is still a lot of pre-development activity at Irongate, it has yet to materialise into development contributions paid this financial year. This does pose a risk for Council in that assumptions that underlie the development contribution rates assume a level of update which has been budgeted. If development does not occur as assumed, Council will be required to review the Development Contribution rate for the 2019/20 financial year through the Annual Plan process.

3.9 This is still the expectation by officers, however, it is likely to be towards the end of the financial year before developers pay the contributions expected.

Expenditure

3.10 Overall expenditure is tracking above budget to 30th September 2018 by $0.603m or 1.83% of total budgeted expenditure year to date.

3.11 The Transport area is $0.706m unfavourable to budget, driven by higher emergency reinstatement costs for the June flood and costs coming through in September. This will be offset by a reserve adjustment from the flood reserve and NZTA subsidies.

Water:

3.12 Council continues to spend significant sums of money on water supply activity in Operational expenditure. This activity is funded by way of 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.

3.13 There has been a considerable increase in the operational budgets for water in recognition of the higher operational spend now required in this area. Higher treatment costs along with reactive maintenance have been offset by savings in electricity. Below shows a summary table of spend to budget in this area:

3.14 Te Mata Peak Project:

Council has spent $280k to-date on the Craggy Range Te Mata Peak Track with this spend focused on:

- Cultural and landscape impact evaluations

- Development, evaluation and report of suitable track options

1.0

It should be noted that while this is unbudgeted, some of this expenditure would have been required at some future date to inform the District Plan.

3.14.1 Flood Damage:

Costs associated with the June 2018 flood have continued to impact on this financial year. Along with the impact of the September flood the total overspend to budget for the first quarter is $0.954m. With further costs still to come in for the September flood the final costs are estimated to be in the vicinity of $2m. The Rating area 2 flood reserve, will fund the majority of this in addition to some subsidy by NZTA for work done. The net financial impact for Council’s local share is expected to be $0.716m

2.0

Capital Spend

3.15 Council’s total capital budget (including carry forwards, renewals, new works, and growth projects) for 2018/19 is $126m. This level of expenditure is a significant increase on what has been delivered previously by Council and there is a real risk associated with the ability of Council to deliver on this programme. Capital spend year to date of $15.2m is ahead of actual spend for the prior year ($11m), however it is behind current year to date budget.

Treasury

3.16 Total net external borrowing as at the end of September 2018 is $98.7m with committed borrowing facilities of $105.2m, providing headroom of $6.6m. The liquidity ratio is at 127% compared to the policy minimum of 110%.

3.17 The following table sets out Council’s overall compliance with the Treasury Management Policy as at 31 October 2018:

Measure	Compliance	Actual	Min	Max
Liquidity	ü	131%	110%	170%
Fixed debt	ü	59%	55%	95%
Funding profile: 0 – 3 years 3 – 5 years 5 years +	ü ü ü	41% 26% 33%	10% 20% 10%	50% 60% 60%
Net Debt as % Equity Net Debt as % Income Net Interest as % Income Net Interest as % Rates	ü ü ü ü	5% 71% 3% 5%	0% 0% 0% 0%	20% 150% 15% 20%

3.18 Council is currently compliant with its Treasury Management Policy. The Risk and Audit subcommittee is responsible for reviewing Council’s treasury performance and policy with advice from PricewaterhouseCoopers (PwC). Current debt forecasts indicate a debt position at 30 June 2019 to be $127m with major capital projects well underway.

4.0 SIGNIFICANCE AND CONSULTATION

4.1 This report does not raise any issues that are significant in terms of the Councils Significance and engagement Policy that would require consultation.

5.0 RECOMMENDATIONS AND REASONS

A) That the report of the Financial Controller titled “Financial Quarterly Report for the three months ended 30 September 2018” dated 13/11/2018 be received.

Attachments:

Quarterly dashboard as at 30 September 2018

FIN-09-01-18-163

File Ref: 18/1073

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Senior Advisor Economic Policy and Evaluation

Bill Murdoch

SUBJECT: Economic Outlook Update

1.0 SUMMARY

1.1 The purpose of this report is to inform the Committee about the current economic situation in the Hastings District as measured by selected key indicators.

1.3 It is recommended that this report is received.

2.0 BACKGROUND

2.1 The data presented is for indicators that are identified as being relevant to the current Hastings District and Hawke’s Bay socio-economic environment. Further data can be provided on request and included in future reports.

2.2 The information provided should assist Council in the conduct of Council business.

3.0 CURRENT SITUATION

3.1 The Hawke’s Bay and Hastings economies have performed strongly over the past 12 months. There is indication that growth will continue throughout the remainder of 2018 with the recently released national GDP growth of 1.9% for the September quarter being above expectations. The anomaly is the youth NEETS rate which has deteriorated over the same period.

Gross Domestic Product

3.2 Hastings GDP increased to $3,721m as at 31 March 2017 (note the time lag in regional GDP reporting), an increase of 6.1% over the previous 12 months. This was stronger than the 4.5% increase in Hawke’s Bay GDP (to $7,095m) and 4.9% for total New Zealand. Hastings percentage of national GDP is 1.5% and Hawke’s Bay 2.8%.

3.3 The graph below shows the breakdown of Hastings GDP by sector.

3.4 As at March 2017 Hastings GDP per person increased by 3.4% to $48,970 which was lower than the 4.8% increase in 2016. Overall the GDP per capita for Hawke’s Bay increased by 4.8% compared to the 5.7% increase in 2016. New Zealand’s GDP per capita is $56,441.

3.5 Hastings District GDP per capita year-on-year is consistently slightly higher than for overall Hawke’s Bay.

3.6 The lower GDP per capita growth rate than the total GDP growth rate indicates that productivity is not improving. The strong population increase over the 12 month period would partly account for the lower year-on-year growth rate in GDP per capita.

Unemployment and Employment

3.7 Both Hawke’s Bay and Hastings had improved unemployment and employment rates year-on-year.

3.8 As at 30 June 2018 the unemployment rate for both Hawke’s Bay and Hastings was 5.8%, an improvement from the previous year of 7.1% for Hawke’s Bay and 6.1% for Hastings.

3.9 Notwithstanding the improvement, Hawke’s Bay has the second highest regional unemployment in the country behind Manawatu/Whanganui (6.1%). The unemployment rate for all of New Zealand is 4.5%.

3.10 The national and regional trend in unemployment since 2013 has been downward, however, of note is the intra-year volatility within Hawke’s Bay and Hastings due to the seasonal nature of the horticultural industry. The graph below shows Hastings in turquoise, Hawke’s Bay in green and New Zealand in dark blue.

3.11 Statistics NZ has just released the September quarter employment data for Hawkes Bay/Gisborne combined. The unemployment rate has dropped to 4.1%. The lower rate is consistent with the fall to 3.9% for total New Zealand.

3.12 The employment rate for Hawke’s Bay improved from 62.4% to 64.1% and for Hastings from 66.4% to 67.9%. The Hastings rate is similar to the employment rate for all of New Zealand of 67.7%. Since 2016 Hastings has a higher employment rate than total Hawke’s Bay, reversing the position of the previous two years.

NEET

3.13 The number of youth (15 to 24 year old age group) not in education, employment or training (NEET) in Hawke’s Bay and Hastings as at 30 June 2018 was 17.6% and 18.3% respectively. In both cases this is a deterioration from 16.9% and 17.0% from a year earlier.

3.14 The size of the 15 to 24 year old age group has remained the approximately the same year-on-year at an estimate of 10,147. This means that for Hastings the number of NEET in 2017 was 1,725 and in 2018 is 1,856.

3.15 A point of significance is that Hawke’s Bay NEET rate is now the highest of all New Zealand’s regions. The second worse NEET region as at June 2018 is Manawatu-Whanganui at 15.6%.

3.16 Of note is the significant improvement in Northland, which previously has consistently had the country’s highest NEET rate. Their rate is now 11.7%, a fall from 16.8% in 2017.

3.17 The graph below shows Hastings in green, Northland in turquoise and New Zealand in dark blue.

3.18 Statistics NZ has just released the September quarter NEET data for Hawkes Bay/Gisborne combined. The rate has dropped to 14.9% from 18.4% in the June quarter. This is still, however, the highest NEET rate in the country as most regions showed improvement. Hastings and Hawke’s Bay data is not yet available.

Guest nights

3.19 For Hawke’s Bay guest nights rose strongly year-on-year from 1,413,000 to 1,535,000 (8.6%). Domestic guest nights, 1,051,000, account for 74.4% of guests compared to 392,000 international guest nights.

3.20 Average annual occupancy rate at as 31 March 2018 is also higher at 42.2% for Hastings, up from 41.5% in 2017 and for Hawke’s Bay 44.5% compared to 42.9%.

3.21 The rise in guest nights and occupancy rate continues an upward trend that commenced in 2013.

Retail sales

3.22 Hawke’s Bay and Hastings continue to have strong year-on-year growth in retail sales with the rate of increase climbing in most recent years.

3.23 As at 31 March 2018 the total retail sales for Hawke’s Bay was $2,821m and Hastings $1,353m, an increase of 6.9% and 5.8% respectively over the preceding 12 months. This follows strong growth between 2016 and 2017 of 5.8% for Hawke’s Bay and 7.3% for Hastings.

3.24 Hastings accounts for 48.3% of Hawke’s Bay retail sales, up from 46.8% five years ago.

Year	Hawke's Bay the annual actual retail sales values	Hastings the annual actual retail sales values	Hawke's Bay annual percentage change in annual retail sales values	Hastings annual percentage change in annual retail sales values
2012	2,223 M	1,024 M	-	-
2013	2,254 M	1,050 M	1.4	2.5
2014	2,310 M	1,072 M	2.5	2.1
2015	2,357 M	1,107 M	2	3.2
2016	2,479 M	1,191 M	5.2	7.7
2017	2,638 M	1,279 M	6.4	7.4
2018	2,821 M	1,353 M	6.9	5.8

Household income (average annual)

3.25 As at 31 March 2018 the average household income for Hastings was $90,400 which is higher than the $86,700 for all of Hawke’s Bay and lower than the $104,400 for total New Zealand.

3.26 Hastings and Hawke’s Bay average household income increased by 3.9% and 4.0% respectively between 2017 and 2018.

3.27 After large percentage increases in household income in 2015 and 2016 the level of income has stayed flat for the past three years and is actually marginally lower in 2018 ($90,400) compared to 2016 ($90,800).

Port of Napier

3.28 As at 31 March 2018 the Port handled record exports by volumes, 3,530,315 tonnes, which is up 11% from 2017. The value was lower at $3,530,315,000 compared to $3,768,476,000 i.e. -4.8%. The higher volume, lower value, is due to an increase in log and other forest product exports and a small rise in apple exports.

3.29 2018 import volumes were marginally higher at 700,969 tonnes compared to 698,111 tonnes in 2017. Value was lower in 2018 at $1,048,048,000 compared to $1,198,078,000.

3.30 Of note is the very sharp rise in import values that occurred between 2016 and 2017, a rise from $594,791,000 to $1,198,078,000 i.e. +101%.

3.31 The reason for the increase in import values is the Kaikoura earthquake which crippled Wellington’s Centrepoint container terminal for 10 months. All Wellington region’s imports are now back to being handled by Wellington but Port of Napier has retained some Manawatu cargo.

Exports

3.32 The chart below shows the percentage share of the top 10 exports by industry for the Hastings District in 2017 and the almost complete dominance of primary industry.

Population

3.33 As at 30 June 2018 the population of Hastings District is estimated at 80,600, an increase of 700 (0.9%) from 2017.

3.34 The main cause of the recent higher population growth than previous years is positive net migration. Between 2017 and 2018 Hastings had net migration of +413. This follows on from positive net migration numbers in 2015 and 2016. This is significant as since the 1980s the region has had negative net annual migration numbers each year with the exception of 1993. Early data indicates that the positive net migration trend will continue in second half of 2018 albeit at a lower rate than in 2017.

Building Consents

3.35 In the 12 months to June 2018 there were 289 new building consents for residential buildings in Hastings District. This is an increase of 6.3% from 2017 and follows a 23% and 17.6% increase in 2017 and 2016. These increases however are from a low base of 187 in 2015.

Housing

3.36 House prices have risen strongly in the past three years. The percentage increase in the 12 months to June 2016 was 9.0%; June 2017 18.1%; and June 2018 13.9%. The current average house price is $479,828.

3.37 In the past three years the percentage increase in rents has been lower than the percentage increase in house prices. In 2016, 2017 and 2018 the percentage increase in average rent each year has been 4.9%, 8.6% and 8.0% respectively.

3.38 The average weekly rent in Hastings as at June 2018 was $363.00 per week an increase from $266 ten years ago in 2009.

4.0 SIGNIFICANCE AND ENGAGEMENT

4.1 This report is not significant in relation to Council’s Significance and Engagement Policy.

5.0 RECOMMENDATIONS AND REASONS

A) That the report of the Senior Advisor Economic Policy and Evaluation titled “Economic Outlook Update” dated 13/11/2018 be received.

Attachments:

There are no attachments for this report.

File Ref: 18/975

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: Hastings District Holdings Limited Equity

1.0 SUMMARY

1.1 The purpose of this report is to obtain a decision from the Council on recommendation from the Director’s to Hastings District Holdings Limited to return unneeded equity.

1.2 This issue arises from the resolution of the Hastings District Holdings Limited Director’s at the 9^th October 2018 Board Meeting.

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 objective of this decision relevant to the purpose of Local Government is to make efficient use of spare funds.

1.4 This report concludes by recommending Council agree to approve the return of equity proposed by the Directors of Hastings District Holdings Limited.

2.0 BACKGROUND

2.1 In September 2018, Hastings District Properties Limited agreed to close its bank accounts, and remit the surplus funds contained in those bank accounts back to its Parent (Hastings District Holdings Limited) as a return of equity as it was no longer trading and in need of the funds. This amounted to funds to be transferred of $118,436.

2.2 This return of equity from Hastings District Properties Limited won’t create any tax issues, and while this has left Hastings District Properties Limited with no assets, this doesn’t formally cease the company’s existence. Hastings District Properties Limited could be reactivated at any stage and reopen new banks accounts and once again be provided seed funding from its Parent Company.

3.0 CURRENT SITUATION

3.1 With the return of funds from Hastings District Properties Limited (once fully implemented) will leave Hastings District Holdings Limited with $132,350 of surplus funds.

3.2 While Hastings District Holdings Limited is not trading it has no current need for these funds and could return this unneeded equity back to its parent (the Hastings District Council).

3.3 Like Hastings District Properties Limited return of capital, such a transaction won’t create any tax issues, and doesn’t formally dissolve the company. The company could be reactivated again in the future should the need arise.

3.4 At the Board Meeting of Hastings District Holdings Limited on the 9^th October 2018, the Directors passed the following resolution:

“The Directors of Hastings Holdings Limited recommend to Hastings District Council as 100% shareholder to close the bank accounts of Hastings District Holdings Limited, and remit the surplus funds contained in those bank accounts back to its Parent (Hastings District Council) as a return of equity.”

4.0 OPTIONS

4.1 Option A – Hastings District Council could approve the recommendation of the Hastings District Holdings Limited Director’s to return its equity.

4.2 Option B - Hastings District Council could decline the recommendation of the Hastings District Holdings Limited Director’s to return its equity.

5.0 SIGNIFICANCE AND ENGAGEMENT

5.1 The issues for discussion are not significant in terms of the Council’s policy on significance and engagement and no consultation is required.

6.0 PREFERRED OPTION/S AND REASONS

6.1 The preferred option is option A as Hastings District Council can make better use of these funds since Hastings District Holdings Limited currently isn’t trading and has no immediate need for these funds.

7.0 RECOMMENDATIONS AND REASONS

A) That the report of the Manager Strategic Finance titled “Hastings District Holdings Limited Equity” dated 13/11/2018 be received.

B) That Hastings District Council approves the recommendation of the Hastings District Holdings Limited Director’s to return its equity.

With the reasons for this decision being that the objective of the decision will contribute to meeting the current and future needs of communities in a way that is most cost-effective for households and business by making efficient use of surplus funds.

Attachments:

There are no attachments for this report.

File Ref: 18/979

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: HB LASS Limited Annual Report for the year ended 30 June 2018

1.0 SUMMARY

1.1 The purpose of this report is to present to the Committee the HB LASS Limited Annual Report for the year ended 30 June 2018.

1.2 This request arises from a requirement under the Local Government Act 2002 for Council Controlled Organisations (CCO) to submit an annual report to their shareholders within 90 days of year end.

1.4 The objective of this decision relevant to the purpose of Local Government is to enable HB LASS to develop the most cost effective delivery of joint services for the five shareholding Councils

1.5 This report concludes by recommending that the HB LASS Limited Annual Report for the year ended 30 June 2018 be received.

2.0 BACKGROUND

2.1 HB LASS Limited is a Local Authority Shared Services company established by four Hawke’s Bay Territorial Local Authorities and the Hawke’s Bay Regional Council.

2.2 As at 30 June 2018 the Directors of HB Lass Limited were:

· Craig Waterhouse (Independent Chair)

· Monique Davidson (Central Hawke’s Bay District Council)

· Wayne Jack (Napier City Council)

· James Palmer (Hawke’s Bay Regional Council)

· Steven May (Wairoa District Council)

· Ross McLeod (Hastings District Council)

2.3 The Directors of HB LASS Limited are required to deliver to their shareholders an annual report within 90 days of the end of each financial year which will consist of:

· A comparison of actual performance with targeted performance

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

i. Statement of Financial Position

ii. Statement of Financial Performance

iii. Auditor’s Report

3.0 CURRENT SITUATION

3.1 Attachment 1 is the 2018 Unaudited Annual Report (which only covers 10 months of trading).

3.2 HB LASS Limited was established to investigate, develop and deliver shared services, where and when it can be done more effectively for any combination of the Shareholding Councils.

3.3 The annual result is a break even result which is consistent with the Statement of Intent and last year’s result. The intention of HB LASS Limited is to recover its costs of operations from shareholder membership fees and project evaluation fees.

3.4 At the Board meeting on the 8^th December 2017 the five Chief Executives of the Hawke’s Bay Councils recommended that HBLASS be wound up to become a dormant company. This was subsequently endorsed at the Hastings District Council’s Finance and Monitoring Sub Committee meeting on the 20^th March 2018.

3.5 HBLASS will be replaced by “The Chief Executive (CE) Forum” with the same five Council CEs and independent chair continuing the function of HBLASS but without the legislative requirements of operating a Company. The CE Forum group is fully committed to working together focusing on improving Service and Value for the Hawke’s Bay region through collaboration.

3.6 Since this time the final bills of HBLASS have been settled, final tax liabilities dealt with, and surplus funds have been transferred to Napier City Council ($71,783). These funds will be used to pay for the ongoing services of the Chairman and Collaborator roles.

3.7 These unaudited accounts represent the trading of HBLASS up till the time it dissolved all its assets and liabilities and passed its surplus funds over to Napier City Council.

4.0 SIGNIFICANCE AND CONSULTATION

4.1 The issues for discussion are not significant in terms of the Council’s policy on significance and engagement and no consultation is required.

5.0 RECOMMENDATIONS AND REASONS

A) That the report of the Manager Strategic Finance titled “HB LASS Limited Annual Report for the year ended 30 June 2018” dated 13/11/2018 be received.

B) That the HB LASS Limited Annual Report for the year ended 30 June 2018 be received.

Attachments:

HB LASS Limited - Annual Report 2017/18

ADM-02-7-18-436

Under Separate Cover

File Ref: 18/981

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: Hawke's Bay Museums Trust Annual Report for the year ended 30 June 2018

1.0 SUMMARY

1.1 The purpose of this report is to update the Committee on the performance of the Hawke’s Bay Museums Trust for the year ended 30 June 2018.

1.2 This request arises from the receipt of the Hawke’s Bay Museums Trust Annual Report for the year ended 30 June 2018.

1.3 Unfortunately Dr Grant (Chair of the Hawke’s Bay Museums Trust) is unable to attend this meeting.

1.5 The objective of this decision relevant to the purpose of Local Government is to meet the needs of current and future communities in providing good quality public services.

1.6 This report concludes by recommending that the Hawke’s Bay Museums Trust Annual Report for the year ended 30 June 2018 be received.

2.0 BACKGROUND

2.1 The Hawke’s Bay Museums Trust (HBMT) is a Council Controlled Organisation with 3 of the 5 Trustees appointed by Napier City Council (NCC) and Hastings District Council (HDC) and with the bulk of its funding provided jointly by those Councils. The HBMT Board is responsible for a management agreement between the HBMT and the NCC with the management agreement providing for the operations of the Museum, Art Gallery and associated activities which are operated by the NCC.

HBMT has 4 main goals:

1. To protect the regional collection

2. To maintain and enhance the quality of the collection

3. To maximise access to the collection

4. To further develop the collection

2.2 The HBMT (Incorporated) is registered as a charitable entity under the Charities Act 2005.

2.3 The Board is constituted to have five members appointed as follows:

§ One appointed by Napier City Council

§ One appointed by Hastings District Council

§ One appointed by the Hawke’s Bay Museums Foundation Charitable Trust

§ One appointed by Ngati Kahungunu Iwi (Incorporated)

§ The Chairperson who shall be appointed by Napier City Council and Hastings District Council jointly.

2.4 The current Trustees are as follows:

Director	Effective From
Dr Richard Grant	December 2014
Deputy Mayor Faye White (Napier)	September 2015
Councillor George Lyons (Hastings)	December 2013
Johanna Mouat	December 2013
Mike Paku	December 2013

2.5 Dr Grant was appointed as the Independent Chairman by the joint appointments committee in late 2014. Council’s Policy on Appointment and Remuneration of Directors for Council Organisations states that the Independent Chair be appointed jointly by NCC and HDC and that HDC’s member on this Appointments Panel be the Mayor Hazlehurst or their delegate.

3.0 CURRENT SITUATION

3.1 Attachment 1 is a copy of the Hawke’s Bay Museum Trust’s Annual Report including signed and audited accounts for the year ended 30 June 2018.

3.2 Hastings District Council’s representative on the Trust is Cr George Lyons.

3.3 The HBMT received grants of $917,320 in aggregate from the NCC and HDC compared to $900,850 received in the 2017 financial year. The grants cover the contracted costs to NCC to provide administrative and management services for the management of the collection. The costs of the regional collection are met equally by the HDC and NCC with HDC contributing $466,160 in 2018 compared to $457,925 in 2017. The HDC contribution includes $15,000 as a training grant to the Trust whereby the NCC training grant offsets expenditure incurred by NCC on behalf of the Trust.

3.4 The audited accounts show a net surplus from operating activities for the year ended 30 June 2018 of $78,444 ($198,689 in 2017). $56,496 of this surplus is due to the recognition of the value of assets gifted to the Trust, with the remaining $21,948 surplus coming from normal operations.

3.5 The Statement of Financial Position reports accumulated funds of $40,840,378 as at 30 June 2018 compared with $39,902,897 as at 30 June 2017. $800,266 of the change in equity between 2017 and 2018 is due to the increased valuation of the collection, with the balance coming from operating activities.

3.6 The statement of Financial Position records the collection at $40,179,424 as at 30 June 2018 compared to $39,324,935 in 2017.

3.7 The statement of Financial Position also records an operating bank balance of $17,786 ($31,117: 2017) with a further $635,260 held in investments ($540,260: 2017). Of the investments of $635,260, $507,263 are held as special purpose reserves (see note 7) with various restricted use applications.

3.8 The Annual Report also includes a comparison of the non-financial performance measures included in the Statement of Intent for the year ended 30 June 2018 against the actual results achieved, and these are as follows:

3.9 Generally the targets set in the Statement of Intent have been met and officers believe that this plus the financial result reported in the Annual Report presents a good result for the Trust.

3.10 The HBMT owns, protects, and makes available the collection of art, local history, Maori and ethnographic objects. The primary place of display and storage of the collection is at the MTG Hawke’s Bay, while overflow storage is housed at the Rothmans Building in Napier. This offsite storage has been a long standing issue as it is expensive and not ideal for storing historical artefacts (lack of climate control).

With the NCC’s library moving temporarily into the MTG building, storage has become an even more pressing issue, which has been resolved in the short term with a 5 year lease being signed on the Rothmans Building. However the Trustees continue to search for the permanent solution.

A recent review of the management arrangements held by the Trust was undertaken, and this along with storage and identity issues are being considered by a joint working group between the two Councils (refer to Council workshop held on the 4^th September 2018 which presented the findings of the review undertaken by Rationale)..

4.0 SIGNIFICANCE AND CONSULTATION

4.1 The issues for discussion are not significant in terms of the Council's policy on significance and engagement and no consultation is required.

5.0 Recommendations and Reasons

A) That the report of the Manager Strategic Finance titled “Hawke's Bay Museums Trust Annual Report for the year ended 30 June 2018” dated 13/11/2018 be received.

B) That the Hawke's Bay Museums Trust Annual Report for the year ended 30 June 2018 be received.

Attachments:

HBMT Annual Report 30 June 2018

EXT-10-11-7-18-218

Under Separate Cover

File Ref: 18/982

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: New Zealand Local Government Funding Agency Limited - Annual Report for the year ended 30 June 2018

1.0 SUMMARY

1.1 The purpose of this report is to inform the Committee of the financial results of New Zealand Local Government Funding Agency Limited (LGFA) for the year ended 30 June 2018.

1.2 This issue arises from the receipt of the annual report for the 12 months ended 30 June 2018 from the LGFA.

1.4 This report concludes by recommending New Zealand Local Government Funding Agency Limited Annual Report for the year ended 30 June 2018 be received.

2.0 BACKGROUND

2.1 The LGFA was established on 1 December 2011 with 18 Local Government shareholders and the Crown. Hastings District Council became a shareholder with a shareholding investment of $400,000 (1.8%). The LGFA is a Council Controlled Organisation.

2.2 During 2012 12 new shareholders joined the LGFA as part of the second opening with Council selling down some shares to the 12 new shareholders. This reduced HDC’s shareholding to $373,196 (1.77%).

3.0 CURRENT SITUATION

3.1 Attachment 1 is a copy of the 2017/18 Annual Report for the 12 months ended 30 June 2018.

3.2 The Annual Report covers a number of topics including financial performance, how they manage their treasury risk, and how they performed against their Statement of Intent.

3.3 The LGFA has had another good financial year with interest income up 7% to $342.8m ($320.7m: 2017). This was matched with a 7% increase in Interest Costs and Operating Costs of $331.0m ($309.7m: 2017). This saw the net operating profit increase to $11.8m from $11.0m from the previous year.

3.4 Three new Councils joined the LGFA (Westland District Council, Stratford District Council, and Rangitikei District Council) during 2017/18.

3.5 As at 30 June 2018 56 Councils had borrowed a total of $7,976m ($7,784m: 2017). The average term of new borrowings during the year was 6.9 years (8.1 years: 2017).

3.6 Page 61-62 of the annual report lists all the Councils that had borrowings through the LGFA as at 30 June 2018. There were 54 of them, with 21 of them having higher levels of debt than Hastings District Council. In fact Hastings District Council’s debt of $77.2m only represents 1% of the total borrowings from the LGFA.

3.7 The LGFA continues to provide savings in borrowing costs for councils relative to other sources of borrowing (Auckland and Dunedin Councils are paying between 10 and 21 basis points more when borrowing externally than the LGFA equivalent offerings).

3.8 The LGFA allows Councils to borrow for periods anywhere from 30 days to 15 years in length.

3.9 LGFA bonds continue to be popular with investors with an average of 2.8 bids per bond being offered during 2017/8 (there were nine tenders during this year).

3.10 The Statement of Service Performance sets out progress on the achievement of its primary objectives, additional objectives and financial performance against its financial performance targets.

3.11 Officers are of the opinion that the LGFA’s performance continues to be very successful; creating a more efficient and diversified funding market for Councils to participate in.

3.12 LGFA has achieved its key financial results for the year to 30 June 2018 and these are set out in the table below:

3.13 The key performance targets are set out in the table below including an explanation of any material variances:

3.14 LGFA have declared a $1.285 million dividend for the year ended 30 June 2018. This equates to a dividend payment to Council of $21,314.

4.0 SIGNIFICANCE AND CONSULTATION

4.1 The issues for discussion are not significant in terms of the Council's policy on significance and engagement and no consultation is required.

5.0 RECOMMENDATIONS AND REASONS

A) That the report of the Manager Strategic Finance titled “New Zealand Local Government Funding Agency Limited - Annual Report for the year ended 30 June 2018” dated 13/11/2018 be received.

B) That the New Zealand Local Government Funding Agency Limited Annual Report for the 12 months ended 30 June 2017 be received.

Attachments:

LGFA Annual Report 2018

FIN-15-5-18-706

Under Separate Cover

File Ref: 18/1075

REPORT TO: Finance and Risk Committee

MEETING DATE: Tuesday 13 November 2018

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: Local Government Funding Agency - Annual General Meeting 2018

1.0 SUMMARY

1.1 The purpose of this report is for the Finance and Risk Committee to provide voting recommendations to the Council when in attendance of the Local Government Funding Agency’s (LGFA’s) Annual General Meeting (AGM) to be held on 21 November 2018.

1.2 This report is staff generated as a result of receiving the LGFA’s Notice of AGM and information supporting agenda items.

This report concludes by recommending that the Council votes in favour of the following proposals which require ordinary shareholder resolutions:

a. John Avery is re-appointed to the Local Government Funding Agency’s board as an independent director;

b. Mike Timmer is re-appointed to the Local Government Funding Agency’s board as a non-independent director;

c. Hamilton City Council is re-elected to the Shareholders’ Council;

d. Tauranga City Council is re-elected to the Shareholders’ Council;

e. Changes to the Local Government Funding Agency’s foundation policies

2.0 BACKGROUND

2.1 The LGFA is a Council-controlled organisation (CCO), owned 11.1% by the Government and 88.9% by 30 local authorities. The Council has an ownership stake of 1.77 %.

2.2 The LGFA was established to provide councils with improved access to cost-effective long term debt. It is a registered financial institution regulated by the Reserve Bank. Total loans made to local government total around $7.976 billion. Together, Auckland Council and Christchurch City Council have approximately 47% of the LGFA’s issued debt, with the remainder shared between the other councils.

2.3 The LGFA’s Shareholder’s Agreement (SHA) provides that the board may comprise between four and seven directors, a majority of whom must be independent. Since inception in 2011, the board has had six directors, one of which was non-independent (aside from one very short period due to a time lag between the retirement of a director and the appointment of a replacement). The SHA provides that in each year, the longest serving independent director, and the longest serving non-independent director must retire from the board, but may offer themselves for re-election.

2.4 Current board members are Craig Stobo (Chair) who was initially appointed in 2011 and was re-appointed in 2017, John Avery and Philip Cory-Wright (both initially appointed in 2011), Linda Robertson and Mike Timmer (both appointed 2015) and Anthony Quirk, appointed 2017.

2.5 Council oversight is provided through a Shareholders’ Council. These are Auckland Council, Christchurch City Council, Hamilton City Council, Bay of Plenty Regional Council, Greater Wellington Regional Council, Tasman District Council, Tauranga City Council, Wellington City Council, Western Bay of Plenty District Council and Whangarei District Council.

2.6 The SHA provides that the role of the Shareholders’ Council is to advise shareholders on certain matters, and that it shall (in relation to the matters for resolution at the AGM):

· review and report to shareholders periodically on the performance of the company and the board;

· make recommendations on the appointment, removal, re-election, replacement and remuneration of directors; and

· make recommendations to shareholders on, and endeavour to ensure that shareholders are fully informed on matters concerning the company

3.0 CURRENT SITUATION

3.1 The LGFA has issued a Notice of Annual Meeting to be held at the Bolton Hotel in Wellington on 21 November 2018, commencing at 2pm (refer to Attachment A). The Agenda for the meeting is at Attachment B, with the following agenda items and staff recommendations noted below.

3.2 The Shareholders’ Council has provided recommendations to shareholders on the resolutions sought at the AGM. It has recommended voting in favour of all. Its recommendations are at Attachment C.

3.3 Agenda Item 4 – Election of Company Directors

3.4 Incumbent directors, Mr John Avery (independent director first appointed 2011), and Mr Mike Timmer (non-independent director first appointed 2015) are retiring by rotation and standing for re-election. There are no alternative candidates standing for the positions.

3.5 The LGFA board seeks shareholder resolutions in favour of the re-election of both directors. Biographies for the directors are provided in an attachment to the Notice of Annual Meeting (refer Attachment A).

3.6 Agenda Item 5 – Election of Nominating Local Authorities (NLAs) to the Shareholders’ Council

3.7 Hamilton City Council and Tauranga City Council are retiring by rotation and standing for re-election.

3.8 Staff support the re-election of these members to the Shareholders’ Council which is currently made up of representatives of the largest shareholders in the LGFA. Nine of the 30 nominating local authorities are represented on the Shareholders’ Council (along with the Crown), and these nine have the highest capital at risk in the LGFA.

3.9 Agenda Item 6 – Changes to LGFA foundation policies

3.10 Two changes to the foundation policies are proposed as follows:

· Measuring council compliance with LGFA covenants at the group level to align with the approach taken by external credit agencies (currently compliance is measured at the parent level). Auckland Council is the most likely local authority to seek to have its covenants tested at the group level. This is because it has issued international debt securities, and having an aligned position with its credit agency is useful to it.

The Shareholders’ Council has made its support for the amended policy conditional on there being no additional risk to either lenders, guarantors or the Crown created. In its Letter of Expectations to LGFA, the Shareholders’ Council will seek disclosure of relevant information periodically to enable an assessment of the impact on costs and risks to be made.

· Lending to Council-controlled organisations directly. Currently council can borrow from the LGFA and on-lend to CCOs when required. Direct lending between the LGFA and CCOs would reduce transaction and compliance costs

3.11 The Shareholders Council supports both these policy changes as being consistent with the LGFA’s primary objective to optimise the debt funding terms and conditions for participating local authorities.

3.12 Staff are comfortable with the proposed changes as being unlikely to increase the Council’s risk as either a borrower or a shareholder of LGFA.

4.0 OPTIONS

Option 1: That Finance and Risk Committee recommends that the Council votes in favour of the following proposals which require ordinary shareholder resolutions:

a. John Avery is re-appointed to the Local Government Funding Agency’s board as an independent director;

b. Mike Timmer is re-appointed to the Local Government Funding Agency’s board as a non-independent director;

c. Hamilton City Council is re-elected to the Shareholders’ Council;

d. Tauranga City Council is re-elected to the Shareholders’ Council;

e. Changes to the Local Government Funding Agency’s foundation policies

4.1 Option 2: That Finance and Risk Committee recommends that the Council votes in against the following proposals which require ordinary shareholder resolutions:

a. John Avery is re-appointed to the Local Government Funding Agency’s board as an independent director;

b. Mike Timmer is re-appointed to the Local Government Funding Agency’s board as a non-independent director;

c. Hamilton City Council is re-elected to the Shareholders’ Council;

d. Tauranga City Council is re-elected to the Shareholders’ Council;

e. Changes to the Local Government Funding Agency’s foundation policies

5.0 SIGNIFICANCE AND ENGAGEMENT

5.1 The issues for discussion are not significant in terms of the Council's policy on significance and engagement and no consultation is required.

6.0 PREFERRED OPTION/S AND REASONS

6.1 Officers agree with the Shareholders’ Council recommendations and therefore endorse Option1 as the preferred option.

7.0 RECOMMENDATIONS AND REASONS

A) That the report of the Manager Strategic Finance titled “Local Government Funding Agency - Annual General Meeting 2018” dated 13/11/2018 be received.

B) That Finance and Risk Committee recommends that the Council votes in favour of the following proposals which require ordinary shareholders:

1. John Avery is re-appointed to the Local Government Funding Agency’s board as an independent director;

2. Mike Timmer is re-appointed to the Local Government Funding Agency’s board as a non-independent director;

3. Hamilton City Council is re-elected to the Shareholders’ Council;

4. Tauranga City Council is re-elected to the Shareholders’ Council;

5. Changes to the Local Government Funding Agency’s foundation policies.

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 access to cost-effective financing.

Attachments:

1	LGFA Notice of AGM 2018	FIN-15-5-18-713
2	LGFA AGM 2018 Agenda	FIN-15-5-18-714
3	LGFA AGM 2018 - Shareholders' Council Recommendations	FIN-15-5-18-715

Hastings District Council

Lyndon Road East, Hastings