Hastings
District Council: Performance & Monitoring Committee Meeting
Te Rārangi Take
Report to Performance and Monitoring Committee
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Nā:
From:
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Bruce Allan, Deputy
Chief Executive
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Te Take:
Subject:
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Hawke's Bay Airport Ltd
Draft Statement of Intent and half year report to 31 December 2023
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1.0 Purpose and summary - Te Kaupapa Me Te Whakarāpopototanga
1.1 The
purpose of this report is to inform the Council of the results of the
Hawke’s Bay Airport Limited (HBAL) for the six months ended 31 December 2023
and to present the draft HBAL 2024/25 Statement of Intent for consideration.
1.2 HBAL
is a joint venture between the Crown (50%), Napier City (26%) and Hastings
District (24%).
1.3 The
Council’s share of HBAL is a Strategic Asset in Council’s
Significance and Engagement Policy.
1.4 HBAL
is required to report to its shareholding partners every six months. The Board
Chair, Wendie Harvey and Chief Financial Officer, Rochelle Ham will be at the
meeting to present their half year report and draft Statement of Intent and
answer any questions that the members of the Committee may have.
1.5 The
Local Government Act requires all Council Controlled Organisations to prepare a
Statement of Intent. A draft is required to be provided by 1 March each
year for comment with the final Statement of Intent to be completed by 30 June
each year. Clause 3 of Schedule 8 of the Local Government Act 2002 outlines the
Board’s responsibilities upon receiving comments from the shareholders:
3) Completion
of statements of intent
The
board must –
a) Consider any
comments on the draft statement of intent that are made to it within 2 months
of 1 March by the shareholders or by any of them; and
b) Deliver the
completed statement of intent to the shareholders on or before 30 June each
year.
1.6 Clause
9 of Schedule 8 of the Local Government Act outlines the contents of a Council
Controlled Organisation’s Statement of Intent for which HBAL must comply.
Half Year Accounts
1.7 Attached
as Attachment 1 is a copy of the report to shareholders for the half
year ended 31 December 2023.
1.8 HBAL
has reported a half-year after-tax profit of $1,140,865 which is better than
the budgeted profit of $938,591 for the same period. This result against budget
has largely been driven by increased airside and car parking revenue.
1.9 Passenger
movements at 331,842 are 5% up on last year and in line with budget.
Aeronautical revenue follows the trend of increased passenger numbers and is
further supported due to improved landing changes negotiated with Air New
Zealand.
1.10 Bank
borrowings have decreased to $25m as at 31 December due to the improved operating
result.
Statement
of Intent
1.11 Council
has requested that Officers continue the recent practice of issuing through the
shareholding Mayors a Letter of Expectation to the Board of HBAL outlining the
Shareholding Councils’ expectations for consideration by the Board when
they compile the Statement of Intent for 2024/25. Attached as Attachment 2
is a copy of that joint Letter of Expectation. The draft Letter of Expectation
was unfortunately not delivered to the Airport Board in time for their drafting
of the Statement of Intent but is attached for information.
1.12 The
Board has issued a Strategic Initiatives Letter and this is attached as Attachment
3 and is cognisant of the issues raised in the Letter of Expectation.
1.13 Attached
as Attachment 4 is the draft Statement of Intent for 2024/25 from HBAL.
The Statement of Intent is comprehensive and details its key objectives across
their 5 Strategic Pou.
1.14 The
HBAL Board is forecasting an improved net profit after tax (NPAT) of $2.96m in
2024/25 on modest increases in passenger numbers from projected June 2024
numbers of 5%. The Board is forecasting a consistently higher level of capital
expenditure over the next three years, continuing the investment into
non-airside infrastructure as well as airside infrastructure upgrades delayed
due to COVID.
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2.0 Recommendations -
Ngā Tūtohunga
A) That the Performance
and Monitoring Committee receive the report titled Hawke's Bay Airport Ltd
Draft Statement of Intent and half year report to 31 December 2023 dated 28
March 2024.
B) That the
Committee receive the Hawke’s Bay Airport Limited Half Year report to
31 December 2023.
C) That the
Committee receive the Hawke’s Bay Airport Limited draft 2024-2025
Statement of Intent and provide any feedback as required.
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Attachments:
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1⇨
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Dec 23 Stat Accounts
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CG-17-4-00083
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Vol 1
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2⇨
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HDC and NCC Shareholder Expectations for HBAL
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CG-17-4-00093
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Vol 1
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3⇨
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HBAL Strategic Issues letter
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CG-17-4-00082
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Vol 1
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4⇨
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HB Airport Ltd - Draft SOI as at 29 Feb 24
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CG-17-4-00081
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Vol 1
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Te
Hui o Te Kaunihera ā-Rohe o Heretaunga
Hastings
District Council: Performance & Monitoring Committee Meeting
Te
Rārangi Take
Report to Performance and Monitoring Committee
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Nā:
From:
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Kim Herrick, Strategic
Project Manager
Bruce Allan, Deputy
Chief Executive
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Te Take:
Subject:
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Hawke's Bay REDA Limited
Update Report
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1.0 Purpose and
summary - Te Kaupapa
Me Te Whakarāpopototanga
This Report updates the Performance
and Monitoring Committee on the establishment of the Hawke’s Bay REDA (Regional
Economic Development Agency) Limited (HBREDA). The Report covers:
· Background
· HBREDA
establishment update
· Current
activity and next steps
· Funding
update
2.0 Background
2.1 Councils
resolved to fund HBREDA in late 2021. The organisation was to be formed as a
tri-party partnership between business, iwi/hapū and local government.
2.2 Following
legal advice, the legal structure for REDA was confirmed to be a
non-council-controlled organisation, limited liability company and governed by
an independent skills-based board. Shareholding in the HBREDA company was
agreed by Council Chief Executives and the Matariki Governance Group (MGG) to
be in equal thirds between business, iwi/hapū and local government.
2.3 MGG
assumed responsibility for board member appointments, setting up a board
appointments panel, and after an extensive search and selection process,
appointed the Board in December 2022.
2.4 Board
members are:
· Alasdair
MacLeod (Chair)
· Shayne
Walker
· Caren
Rangi
· Erin
Simpson
· Rawinia
Kamau
2.5 The
Matariki Governance Group was nominated by shareholders, via the HBREDA
constitution, as the shareholder representative.
2.6 The
funding allocations from Councils is shown in the Table.
2.7 Prior
to HBREDA’s establishment, some of the funds set aside for HBREDA were
allocated to the operation of the Business Hub in Ahuriri, shifting the
business support agencies to Hastings and setting up a new business hub
environment, the Regional Freight Distribution Strategy, consultant support to
assess the needs of business post-cyclone, and consultant and legal costs for
the establishment of HBREDA.
3.0 HBREDA
establishment update
3.1 Lucy
Laitinen was appointed as Chief Executive of HBREDA and commenced on 14th
August 2023.
3.2 HBREDA was incorporated on 14th
September 2023 with a constitution that outlined the shareholder
arrangements and appointed the Matariki Governance Group as the shareholder
representative.
3.3 The Shareholders’ Charter was approved
at a meeting of shareholders on 23rd February 2024. This lays out
the governance, reporting, and funding arrangements for the company. The
Charter states that the Matariki Governance Group, as the shareholder representative,
shall agree an annual Letter of Expectations (LOE) with the HBREDA Board. The
process for agreeing the annual letter of expectations must allow for an
opportunity for shareholder entities to provide their input/feedback into the
letter. The Matariki Governance Group has the final signing authority, on
behalf of shareholders.
3.4 HBREDA’s governance arrangements are
illustrated below:
3.5 The
Shareholders’ Charter lays out eight operating principles to assist
HBREDA in determining its work programme (to be detailed in the LOE). The Charter is attached as Attachment 1.
3.6 The
LOE will lay out HBREDA’s work programme, performance measures, and
reporting requirements. The LOE will be annexed to HBREDA’s funding
agreement with councils.
3.7 Aside from being a
shareholder in the HBREDA, Council is also a funder of the HBREDA. There is
currently no funding agreement in place between Council and HBREDA due to the
expectation that the LOE is appended. It is expected that the LOE will be
available in April and a funding agreement will follow. Officers will work with
the HBREDA to ensure that a satisfactory agreement is in place between Council
and HBREDA that ensures compliance with Section 17A of the Local Government Act
2002, which relates to delivery of services by an entity other than Council.
3.8 Council
has made it clear to HBREDA that no further funding will be released until the
funding agreement is in place and HBREDA have confirmed in writing that once
the LOE has been agreed it will be in a position to develop a funding
agreement. (Refer to Attachment 2).
4.0 Current activity
and next steps
4.1 HBREDA
is currently engaging with shareholders and stakeholders to develop a work plan
to be agreed in the annual LOE. The first draft will be presented to Matariki
on 5th April 2024 along with a financial update.
4.2 In
addition to the establishment work REDA has undertaken the following:
· Established
Te Rae, the new business hub, which was blessed and opened to the public on
23rd February 2024. Te Rae houses the business support
agencies (Chamber of Commerce, NZTE, Business Central, and Export NZ) and
HBREDA, and provides six meeting rooms for public hire. HBREDA has partnered
with Toi Mairangi to provide gallery space for local artists in the events/meeting
space. HBREDA is in the process of taking over the lease on 101 Queen St East
from Hastings District Council and re-negotiating licenses to occupy with
tenants. HBREDA funds have been put toward the design and fitout of Te Rae. A
website and online booking system will go live in the near future. Landlord and
operational responsibility for Te Rae will be an ongoing part of HBREDA’s
responsibilities.
· Engaged
a consultant to conduct a review of Hawke’s Bay’s
telecommunications resilience as a contribution to the regional Recovery so
that lessons can be learned from the widespread telecommunications outage that
occurred after Cyclone Gabrielle. The report is currently being reviewed and
next steps are being considered – this involves the Regional Recovery Agency,
Lifelines, and others.
· Co-hosted,
with the Energy Efficiency Conservation Authority, a kick-off event for
EECA’s regional decarbonisation programme (RETA) in January.
· Supporting
the establishment and management of the Matariki secretariat and communications
function.
· Contributing to a number of working groups: and initiatives to
better understand the wider environment and the value that HBREDA may or may
not add, e.g. workforce development (led by MSD) Green hydrogen (led by HBRC),
resource recovery and waste infrastructure roadmaps (led by BECA).
5.0 Funding update
5.1 To
date Council has have funded HBREDA the following:
· $454,772
August 2022
· $230,949
August 2023
· A
further $230,949 is due to be invoiced, this will be the final payment until a
full funding agreement is in place.
5.2 HBREDA
is in the process of setting its budget and clarifying the treatment of
pre-incorporation expenses.
5.3 A
cashflow summary as at 20 March 2024 is provided below.
It should be noted:
· HBREDA was
incorporated on 14 September 2023.
· HBRC assumed
financial management of HBREDA’s funds for the 2023 financial year and
part of the 2024 financial year. This included the commissioning of the
Regional Freight Distribution Strategy and the Telecoms resilience projects.
· HBREDA has
established it’s financial management systems and will assume full
financial responsibility from 1 April 2024. The establishment phase is now
largely completed.
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6.0 Recommendations - Ngā Tūtohunga
That the Performance and
Monitoring Committee receive the report titled Hawke's Bay REDA Limited
Update Report dated 28 March 2024.
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Attachments:
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1⇩
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HBREDA Shareholders Charter
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CG-17-4-00092
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2⇩
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HBREDA Council Funding Letter 20240306
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CG-17-4-00091
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Hastings
District Council: Performance & Monitoring Committee Meeting
Te Rārangi Take
Report to Performance and Monitoring Committee
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Nā:
From:
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Bruce Allan, Deputy
Chief Executive
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Te Take:
Subject:
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Hawke's Bay Museums
Trust draft Statement of Intent and half year report to 31 December 2023
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1.0 Purpose and summary - Te Kaupapa Me Te Whakarāpopototanga
1.1 The purpose of this
report is to receive the Hawke’s Bay Museums Trust Half-Year Report to 31
December 2023 and draft Statement of Intent for 2024/25.
1.2 The Trust’s
Chair, Dr Richard Grant, will attend this meeting to answer any questions from
members of the Committee.
1.3 The Trust is a Council
Controlled Organisation with most of its funding provided by the Napier City
and Hastings District Councils.
1.4 The Hastings District
Council’s appointment to the Trust is Mr George Lyons who was appointed
to the Trust by Council in November 2013. This appointment is normally
addressed through the appointment process following the triennial elections and
Mr Lyons was reappointed in 2022.
1.5 The current trustees
of the Hawke’s Bay Museums Trust are:
Dr Richard Grant
(Chair)
Tania Wright (NCC)
George Lyons (HDC)
Jeanette Kelly
Nigel How
1.6 As required under the
Local Government Act 2002, the Trust is to provide a draft Statement of Intent
for comment by 1 March each year and a half-year report within 60 days of the
end of the first six months.
1.7 The objectives of the
Trust, amongst other things, are to hold, protect and manage the regional
collection for the people of Hawke’s Bay including overseeing the
collection development through acquisition and disposal of collection items.
The Trust Board governs on a high-level strategic direction basis to ensure the
objectives of the Trust are being met and have a Management Agreement with
Napier City Council for the care and management of the regional collection.
Half-Year Report
1.8 The Trust’s
financial statements for the six months to 31 December 2023 are attached as Attachment
1. Note 12 to the accounts provides a comparison to the current
year’s Statement of Intent budget. The half-year surplus is primarily
driven interest revenue and other grants received. The Council grants have
largely covered the Trust’s operations.
Statement of Intent
1.9 The draft HBMT
2025-2027 Statement of Intent (attached as Attachment 2) contains the
following performance indicators and targets for the key result areas:
· Protection
– including storage, security and records management;
· Quality
– including conservation, accessioning and de-accessioning;
· Access
– including ensuring the collection is available for exhibitions,
research and archives; and
· Development
– including fundraising, reserves management and stakeholder relations.
1.10 It is expected that following a review
of the Governance arrangements for the Trust, that a complete and thorough
review of KPIs and objectives will be undertaken to reflect the new operating
environment.
1.11 The Trust’s strategic intentions
are consistent with the prior year, including the intention to find a solution
to develop long-term storage for the collection. This issue is being resolved
with the purchase and redevelopment of 307 Queen Street into a fit-for-purpose
storage and research facility.
Joint
Working Group
1.12 The Hastings District Council continues
to participate in a Joint Working Group with Napier City Council that is to
consider the future structure of the Hawke’s Bay Museums Trust, its
funding, the storage of the collection, and the role of the MTG Hawke’s
Bay in the display of the collection.
1.13 Gemco Construction have commenced
construction on the new Hawke’s Bay Museum Research and Archives Centre
and, at the time of writing, were on budget and on time.
1.14 The Joint Working Group continues to
work on the future governance arrangements with the help of consultants
Morrison Low, although progress has been delayed. It is expected that staff and
consultant availability will allow this to be finalised for Council
consideration later in 2024.
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2.0 Recommendations -
Ngā Tūtohunga
A) That the Performance
and Monitoring Committee receive the report titled Hawke's Bay Museums Trust
draft Statement of Intent and half year report to 31 December 2023 dated 28
March 2024.
B) That the
Committee receives the Hawke’s Bay Museums Trust Half-Year Report to 31
December 2023.
C) That
the Committee receives and provides any feedback to the Hawke’s Bay
Museums Trust on the Draft 2025-27 Statement of Intent.
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Attachments:
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1⇨
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HBMT 31 December 2023 Financial Report
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CG-17-4-00086
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Vol 1
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2⇨
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HBMT Statement of Intent 2025-2027
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CG-17-4-00085
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Vol 1
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Te
Hui o Te Kaunihera ā-Rohe o Heretaunga
Hastings
District Council: Performance & Monitoring Committee Meeting
Te
Rārangi Take
Report to Performance and Monitoring Committee
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Nā:
From:
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Aaron Wilson, Financial
Controller
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Te Take:
Subject:
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Quarterly Financial Report
for the six months ended 31st December 2023
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1.0 Purpose and
summary - Te Kaupapa
Me Te Whakarāpopototanga
1.1 The purpose of this report is to inform the Performance and
Monitoring Committee of the financial result for the six months ended 31st
December 2023.
1.2 Due to the uncertainties around the impacts of cyclone
Gabrielle at the time the 2023/24 Annual Plan was prepared Council chose to
adopt the pre-cyclone draft budget and given the uncertainties that surrounded
the extent of the cyclone recovery to exclude costs associated with the cyclone
from its Annual Plan budgets. The reason for this approach was to allow
Council to take more time to plan for the cyclone recovery and to allow for a
multi-year approach to funding the costs of the cyclone recovery.
1.3 As was noted in the first quarter report some initial
modelling on the costs of recovery post the annual plan adoption was undertaken
whereby the 2023/24 Annual Plan budget was adjusted to allow for recovery costs
where possible. The modelling indicated that with the inclusion of
recovery costs and the financing thereof, Council was likely to incur a
significant deficit for the 2023/24 financial year. Also, given the
rating deficit incurred in 2022/23, there were no rates funded carry forwards
available for projects or programmes that had not been completed.
Forecast
year-end result
1.4 A 2023/24 year-end forecast has been completed (see section
5) which, excluding Cyclone Gabrielle costs and revenues, shows a potential
$17m unfavourable full year variance against the Annual Plan which presented a
budgeted surplus of $21.9m. The 2023/24 forecast financial position is a $4.8m
surplus.
1.5 Note this forecast year result is not the rating result
normally presented to Council in September as it includes the impacts of higher
depreciation costs and lower development contributions revenue for example.
1.6 The forecast result has been driven in particular by;
· Lower Development Contribution and BAU (Business as Usual) Subsidies
revenues
· Higher interest costs driven by higher debt levels and
higher interest rates than were forecast in the Annual Plan budgets.
· A higher depreciation expense due to asset revaluations in
the 2022-23 Annual report.
· Increased operating costs due to the demolition costs of
Heretaunga House which is to be loan funded.
· A number of other operational impacts that have arisen in
the current inflationary and cyclone recovery environment.
1.7 Council’s overall financial performance for the half
year ended 31st December 2023 is a small favourable variance of
$296k to budget, this is inclusive of Cyclone Gabrielle costs and
reimbursements due so far.
Half Year
result - YTD
1.8 Overall, the revenue is $46m higher than the YTD budget and
expenditure is $45.7m higher than the YTD budget giving a net favourable
variance of $296k. The main driver for the size of the expenditure and
revenue variance is the unbudgeted cyclone recovery costs and revenues so these
have been reported separately.
1.9 The impact of Cyclone Gabrielle at both the regional and
Hastings District level cannot be understated, with Council moving fully into
the recovery phase. As well as direct recovery costs additional support
resources have been needed across the organisation to manage the impact of the
additional recovery work streams on the organisation. Much of this additional
cost incurred in supporting the organisation has not been recognised as a
Cyclone cost but absorbed into BAU.
1.10 In addition, Council’s Annual Plan includes a large
capital programme of $149m which will, on its own, significantly increase
Council debt and this new debt is now costing more than was forecast in the
Annual Plan. The size of this base capital programme will impact on
debt levels and the financing costs will impact directly on the LTP budgets
Council is currently considering. The local share of the roading recovery and
the category 3 property buyouts will add further to Councils debt position.
1.11 Due to the cyclone impacts and other decisions made by
Council, the opening debt as at 1 July 2023 was $23m higher than the Annual
Plan forecast ($292m compared to $269m) and interest rates have continued to
increase when there was an expectation that interest rates would start to
reduce earlier. This means that financing costs are increasing
rapidly. The extra costs of the cyclone recovery will exacerbate this.
1.12 The 2023/24 Annual Plan forecast the debt as at June 2024
to be $322m. As at 31st December the Council debt is $353m. Whilst the forecast
shows Council capital programme not being fully completed, Council will be
funding its share of recovery costs, with officers estimating closing debt to
be approximately $400m.
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2.0 Recommendations - Ngā
Tūtohunga
That Performance and Monitoring Committee receives the report titled
Quarterly Financial Report for the six months ended 31st December 2023 dated
28 March 2024.
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3.0 Background – Te Horopaki
3.1 The 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 quarterly financial result in respect of non-cash items such
as depreciation, vested assets and development contributions are not included.
3.2 This financial report is governance focussed and allows
significant variances to be highlighted with explanations provided in a way
that is easy to read and understand through dashboard analytics and commentary.
3.3 The Financial Report attached to supplement this report: Attachment
1 – Dashboard Summary of Financial Performance.
3.4 If Councillors require clarification on any points, please
contact the writer, Chief Financial Officer or Deputy Chief Executive prior to
the meeting to ensure complete answers can be given at the meeting on the
detail in these reports.
4.0 Discussion – Te Matapakitanga
4.1 Set out below is a summary of the operating financial
results for the first 6 months to 31st December 2023. The financial
results detailed below do not reflect the potential rating result for 2023/24
as this requires separate calculations that are completed at year-end.
However, based on the forecast just completed, it is likely that Council will
record a significant unfavourable forecast result when compared to annual plan
for the current 2023/24 financial year due to the factors referred to in the
summary.
Note:
The cyclone net forecast looks positive as it includes subsidies on substantial
road renewal expenditure (Capital expenditure).
4.2 The year-to-date (YTD) result above is presented against
the revised budget. The full year revised and Annual Plan budgets are included
for comparison. The revised budget includes changes and decisions made during
the year on Council budgets. The most significant change in the revised budget
comes from the inclusion of capital subsidies for the transport choices
programme.
4.3 The impact of expenditures and revenues for cyclone
Gabrielle have been excluded to provide a view against Council’s BAU
activities.
Overall
YTD result including cyclone recovery
4.4 Council’s overall financial performance is $296k
favourable to YTD budget for the quarter ended 31st December 2023.
The overall results are impacted by Cyclone Gabrielle recovery costs and
revenues through to the end of the first half of the year. Revenues in
the statement of Comprehensive Revenue include subsidies on capital projects so
the additional subsidies on recovery roading projects means that there is more
cyclone related revenues than costs in the above summary.
4.5 Overall
revenue is $46m favourable to the YTD budget and expenditure is $45.7m
unfavourable to YTD budget (including depreciation). Excluding the cyclone,
revenue is $14.1m unfavourable whilst expenditure is $10.9m unfavourable.
Overall
YTD result excluding cyclone recovery
4.6 The YTD variance against the revised budget for BAU
activities is $25m unfavourable. $10m of this is in subsidies and grants
which are due to a mixture of the cyclical nature of road expenditures (the
budget includes subsidies on capital projects). Specific commentary on
variances is included under the revenue and expenditure sections.
4.7 For clarity, cyclone costs have been separated out and the
revenue and expense tables in the next section also have the cyclone impacts
split out in a separate line to show the cyclone impact which provides a
clearer picture of how business as usual is tracking.
Revenue
YTD
4.8 The second quarter year to date revenue excluding cyclone
impact is $14.1m unfavourable in the context of total revenue budgeted for the
six months to December, at $106.9m, or 13.6% of YTD budget.
Note:
See separate section on cyclone costs and revenues.
4.9 Fees & Charges are $1.18m unfavourable, with the main
drivers being:
· Planning and Regulatory services are unfavourable to budget
by $559k driven by lower than budgeted building consent fees ($678k) along with
lower environmental consents (189k). The lower revenue in consent fees is driven
by a lower number of consents received than budgeted. Parking revenues
offset some of this impact as fees and infringements are favourable by $298k.
· Aquatics (Pools) are unfavourable to budget by $156k.
This is mainly a shortfall in fees from council’s aquatic centres due the
impact of the new Regional Sports park pool taking significant revenues from
HDC aquatic centres.
4.10 Subsidies and Grants in terms of standard BAU are $10.3m
unfavourable through the first six months of the year which are driven by
funding changes due to the new government direction. The programmes that
were budgeted for included “Transport Choices, and streets for
Schools. Offsetting the revenue shortfall is the reduced capital spend
that was budgeted for these projects.
4.11 Development contributions are lower than budget by $3.8m
and are $462k behind the same period last year, despite significant increases
to the development contribution charges introduced through the LTP amendment in
2023. This is an area that is sensitive to changes in the overall market
conditions and we have seen a slowdown in building and subdivision activity.
The Reserve Bank’s current monetary policy settings are intended to slow
down spending activity and combined with the current cost of construction, the
residential market has got out of alignment with the cost of land and
construction costs for new builds significantly outstripping the existing
housing stock. As the development contributions are used to repay growth
expenditure debt Council will need to monitor and adjust where possible the
growth expenditure plans to match changes in the overall market.
4.12 The cyclone revenue is mainly driven by the NZTA subsidies
on local roading repairs and asset renewals $53.6, Government funding for property
compensation costs $3.1m and other Gabrielle funding support from Red Cross,
and other agencies of $3.1m. See table in section 6 for breakdown.
4.13 Expenditure:
4.14 Overall expenditure excluding the impact of the cyclone is
tracking unfavourably year to date for the first six months by $10.9m. Main
drivers include:
4.15 Depreciation costs are higher than budget by $3.7m and is
driven by increases in asset values for the water services and transport
assets. The 2024-34 LTP will consider how Council addresses the increasing gap
between the value of the depreciation expense and the rates collected for
renewals. Noting that depreciation is a non-cash expense and is a general
indication of the level of renewal spend that Council should be incurring.
4.16 Personnel costs are favourable to budget by $684k due to a
number of vacancies across Council activities.
4.17 Finance costs are higher than budget and this is reflective
of both the increasing average cost of debt and higher than budgeted levels of
debt. The increase in the average cost of debt is due to the cyclical
raising of the OCR rate by the Reserve Bank Governor, however the average cost
of debt is being managed with approximately 60% of council’s current debt
held with fixed interest instruments at historical rates in line
Council’s Treasury Policy. Council’s average cost of borrowing has
increased to 5.12%.
4.18 The net increase in finance costs against budget of $3.4m
less interest revenue of $1.1m is $2.3m to 31st December. The $2.3m
net variance is reflective of how the balance of the year will pan out and as
such a budget deficit on net financing costs forecast to be more than $4.9m by
year end. Interest costs have been exacerbated by borrowings incurred by
Council with the roading recovery works while finalising the crown funding
agreement. Staff are currently working with the Crown Infrastructure Partners
to find a solution to mitigate these additional financing costs.
4.19 Other
operating costs excluding cyclone costs were unfavourable to budget by $4.4m
and were mainly driven by:
4.20 Contracted
Services costs were $3m unfavourable to budget for the first 6 months with
those areas of spend being the Heretaunga House Demolition as at end of
December being $1.6m, higher transport maintenance costs of $1.1m along with
some higher maintenance costs at Splash Planet. Noting that the Heretaunga
House demolition was approved through Council to be funded by debt and the
higher transport maintenance will have a corresponding subsidy allocation at
the prevailing rates.
4.21 It
should be noted that the Heretaunga House demolition, and Splash Planet grounds
project were approved prior to the current financial year but remained
unbudgeted.
4.22 Areas of note:
4.23 Toitoi:
Operationally the 2022/23 financial year for Toitoi was a difficult one with
the budget having been set without a full year’s operations to base the
budget on. This year has seen a number of the previous year’s
issues rectified with the budget being adjusted to reflect more closely the
operating environment. Excluding finance costs Toitoi is currently $238k behind
budget. This includes higher costs for electricity and gas of $88k.
4.24 Building
Control: The Building Control activity is seeing a continuation in the
reduction in consent numbers following on from the last year, with a 15% fall
in consent numbers from the previous quarter and has resulted in lower than
budged revenue in the first quarter of $329k.
4.25 Splash
Planet: The bulk of the revenues for this activity is received in the
months of January. Early indications are that, while Splash Planet may achieve
its budgeted revenue, the costs will exceed budget leaving a funding deficit
against budget for the year. A separate report will be prepared to advise
on the activities and likely financial result for the year.
5.0 FORECAST to 30
June 2024
5.1 Financial forecasts to year end have been undertaken by
officers based off actuals to 31st December 2023 and projections for
the remaining 6 months and are based on the best information available at that
time. Preparing year-end forecasts requires a number of assumptions to be made.
The purpose of the forecast is to give an indication of Council year-end
financial position and provide Council with the ability to adjust activities in
response to what is being forecast if that is achievable. There are still
a number of uncertainties that may influence the final year-end result.
5.2 The following table shows the overall position with a
year-end forecast in the right-hand column.
Note: See statement of capital expenditure for the forecast
capital expenditure for the year.
5.3 The table below highlights the main drivers for the
forecasted variance to annual plan:
5.3.1 There
has been continuing pressure on revenues from Development Contributions, along
with increased costs of capital spend leading to higher debt, therefore higher
finance costs.
5.3.2
When the non-cash item (depreciation) is excluded the cash shortfall, the
amount that will be funded from additional Council borrowing, is projected to
be $14.522m for the year exclusive of the net cost of cyclone recovery.
6.0 Cyclone Gabrielle
summary of funding received and spend committed
6.1 As
at 31 December ten months have passed since Cyclone Gabrielle hit the
Hawke’s Bay region on the 13-14 February 2023. The initial response and
early recovery have focussed on restoring basic services to the community and
meeting critical needs.
6.2 As
reported in the last quarter, Council is now able to move from the reactive
stages of recovery which focussed on restoration, to a more proactive,
strategic phase, where the council can properly plan, monitor, and report on
its recovery programme.
6.3 Coordination
of the recovery work will be achieved through the framework of the Recovery
Pou. Pou are workstreams where agencies with closely aligned work programmes
can achieve oversight and synchronisation of the work. Council has decided to
use the Pou in its reporting framework as much of the work needs to be achieved
in partnership with other agencies.
6.4 This
section is to give the committee an ongoing overview of the impact of the
cyclone in terms of the Council finances and shows the funding received and the
expenditure incurred or committed on a “to date” basis. It is
not designed to be a complete overview section of the operational activities
that Council are currently engaged in relating to the cyclone, as there is a
specific recovery project that will report to the Strategy and Recovery
Committee on a regular basis.
6.5 The
table below shows what costs have been incurred for the current year along with
what reimbursements or subsidies have been received for those costs. Note that
in some areas like the Category 3 buyouts and the Whanau Community Resilience
Pou, funding has been received in advance of it being spent and by year end
related expenses will match off against the revenue received.
6.6 The
following table shows the forecast cyclone recovery expenditure and revenues
for the full year.
6.7 The
forecast shows a net cyclone recovery cost of $41m for the year that will need
to be funded from additional Council borrowings. The main driver for this
is the estimated cost of property compensation payments. While
expenditures for the first 3 months were low activity is ramping up and Council
must fund 50% of the cost of these transactions. Staff are working with Crown
Infrastructure Partners to redirect funding previously allocated from the 3
Waters Better Off Funding ($7.8m) to support Councils recovery costs. Current
indications are that this request is being treated favourably and any receipt
of funds will be used to reduce operational deficits incurred through the
community recovery efforts and debt funding required for the local share of the
transport recovery programme.
7.0 Additional
expenditure approved by Council
7.1 There
are a number of additional expenditure items that have been approved across
Council activities, both in BAU (Business as usual) and also due to Cyclone
Gabrielle. Councillors has asked for visibility of these additional items
in our quarterly financial reporting.
7.2 The
table below shows the additional approved spend by Opex, Capex.
7.3 Cyclone
Gabrielle costs are being reported separately in the previous section.
The cyclone recovery costs and funding were not included in the 2023-24 Annual
Plan budgets.
7.4 The
following table shows additional expenditure approvals (excluding cyclone
costs) that were not included in the 2023-24 Annual Plan. These form part
of the variances against budget reflected in the result to date and in the
forecast end year result.
8.0 Capital Spend
8.1 Council’s
total revised capital budget (including carry forwards, renewals, new works and
growth projects) for 2023/24 is $148m. This compares to the Annual Plan budget
of $149m. This level of expenditure is a significant increase on what has
been delivered previously by Council and there is risk associated with the
ability of Council to deliver on this programme.
8.2 While
to total size of the programme is similar to the annual plan the mix and
funding has changed with the growth related spend dropping by $23m and new
works increasing by $21m. Part of the change in the revised budget is
linked to subsidies and grants received for capital projects that were not in
the original Annual
Plan.
8.3 As
noted in the table below actual capital spend against budget for BAU shows a
$49m spend against year-to-date budget of $71m. Renewals for BAU are
$9.5m behind expected spend YTD, with infrastructure for transport and sewerage
the main contributors to the underspend.
8.4 In
New works BAU whilst water supply and Building management are ahead of budget,
Transport has a $6m underspend. $26.7m of Transport capital spend has
occurred under for the Cyclone Gabrielle infrastructure projects. In
addition, as noted in the lower subsidies and grants revenue comment some
projects that were budgeted for that were to be subsidised by Waka Kotahi are
now not going to be completed due to the reduction in funding.
8.5 The
forecast total spend for BAU currently sits at $136.7m which is $11m lower than
the budget. This compares to a $20m under-delivery currently being
assumed in modelling for the 2024-34 LTP. Given the continuing challenges in
delivering on the capital plan it is quite likely that the actual capital spend
as at June 2024 will be lower than that forecast.
8.6 Projects
by Activity within the three types of capital spend are shown below:
Treasury
8.7 Council’s
total gross debt position as at 31st December was $353m. Liquidity level
was 111% as at the end of December. The forecast year end debt position is
expected to be approximately $400m.
8.8 With
the expectation that debt will continue to increase in line with budgets and that
forecast, officers have increased the stand-by banking facility held with
Westpac from $30m to $45m in order to maintain liquidity levels within
Council’s Treasury Policy.
8.9 Council
is currently compliant with its Treasury Management Policy limits. The Risk and
Assurance Committee reviews and monitors Council’s treasury performance
and policy on a quarterly basis with advice from Bancorp Treasury Services.
Attachments:
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1⇩
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Quarterly Dashboard 2nd Quarter December 2023
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FIN-09-01-24-219
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