07 February 2017
Report no: CPC2017/1/61
Draft Budget 2017/18
Purpose of Report
1. This report provides a draft budget summary for the Committee’s consideration and adoption.
The Committee recommends that the Council:
(i) adopts the draft summary budget and capital project plan attached as appendices 1 and 2;
(ii) agrees to a draft increase in rates by an average of 2.3% in 2017/18;
(iii) agrees to the proposal to change the Financial Strategy, to;
(a) rates increases limited to the Local Government Cost Index;
(b) net Debt to be no more than;
(aa) 150% of Total Revenue in years 1-3 of the plan; (bb) 130% of Total Revenue in years 4-6 of the plan; (cc) 110% of Total Revenue in years 7-9 of the plan; (dd) 90% of Total Revenue in year 10 of the plan and beyond;
(c) net Debt can be increased to 170% of Total Revenue should the need arise following a significant natural disaster; and
(iv) considers the list of additional items not currently included in the draft budget.
2. The Local Government Act 2002 requires the Council to prepare an Annual Plan in between updates to the Long Term Plan. The Long Term Plan 2015-25 (LTP) was approved in June 2015. The Annual Plan and associated budget for 2017/18 implements year 3 of the LTP.
3. The long term financial model has been updated and as in previous years, a spreadsheet will be displayed at the meeting showing the impact on rates and debt of any changes proposed by the Committee.
4. The current Financial Strategy was approved in June 2015 as part of the LTP process. This Financial Strategy places limits on future rates increases and the level of Net Debt. The current limits are;
· Rates revenue - any increase is limited to the Consumer Price Index (CPI) plus an additional 1% (for three years) to fund rejuvenation projects, and a further 1% to allow for growth in the rates base.
· Limits on Borrowing – Net Debt is limited to $125M in 2020, 2025 and 2025. In additional Net Interest must be below 10% of Total Revenue and Net Debt must be below 100% of Total Revenue.
5. The draft 2017/18 Budget has been prepared on the basis that recommended changes to the current Financial Strategy will be adopted by Council after consultation with the public. The recommended changes are;
· Rates revenue - any increase is limited to the Local Government Cost Index (LGCI), and a further 1% to allow for growth in the rates base.
· Limits on Borrowing – For planning purposes, Net Debt must be below 150% of Total Revenue in years 1-3 of the plan, below 130% in years 4-6, below 110% in years 7-9, and below 90% in year 10 and beyond. The $125M limits in 2020, 2025 and 2025 are removed. In addition, the requirement for Net Interest to be below 10% of Total Revenue will continue. Further, the Financial Strategy will allow for Net Debt to increase to 170% of Total Revenue should the need arise following a significant natural disaster.
Proposed Rates Increase
6. The draft budget assumes an average rates increase of 2.3% in 2017/18. This is based on actual LGCI of 1.3% for the year ending 30 June 2016, plus an additional 1% approved in the 2016/17 Annual Plan to fund additional rejuvenation projects. This was supported by the community via the 2016/17 Annual Plan consultation process.
7. By comparison, CPI for the 12 months ending 31 December 2016 was also 1.3%.
8. The average rates increase of 2.3% is less than the 2.6% increase included for 2017/18 in the 2016/17 Annual Plan approved in June 2016, and is likely to be one of the lowest if not the lowest rates increase in the Wellington Region.
9. In addition to the increase in general rates from existing properties, the draft budget assumes that rates revenue will increase by a further 1% per annum as a result of new builds and property investment. This will increase the rates revenue earned without impacting on existing ratepayers. This 1% growth target is currently on track to being achieved. The actual percentage will be reviewed and adjusted if necessary immediately prior to the final 2017/18 budget being approved in June 2017.
10. Following a review in 2012 of Council’s Revenue and Financing Policy, Council commenced a 10 year transition to revised differential factors for each category of property used in the general rate calculation. The underlying objectives of the transition were to rebalance over time, the rates requirement from each category of property, to better reflect the benefits (and costs to service), received by each category.
11. The 3 yearly property revaluations in 2016 (on which the general rates for 2017/18 will be assessed), resulted in significantly higher increases across the city in rating valuations for residential properties compared to all other property categories.
12. The impact on residential ratepayers in 2017/18 from both the new rating valuations and a further year of transition in the differential factor is something that Council could consider. Officers will provide analysis for all property categories.
Budget Changes to Year 2 of 2016/17 Annual Plan
13. The draft Operating budget, as attached in appendices 1 and 2, contains a number of changes compared to the budget for year 2 (2017/18) approved in June 2016 as part of the 2016/17 Annual Plan process.
14. The following changes are included in the draft Operating budget;
· Rates Income
The difference is mainly due to the lower average rates increase. CPI of 1.6% was assumed for 2017/18 in the 2016/17 Annual Plan, whereas the draft budget uses 1.3% for LGCI.
· User Charges
Overall an increase of $329k comprising increases in Landfill and Regulatory, partially offset by pushing out to subsequent years (due to construction delays), Councils expected share of revenues from the Events Centre, and reductions in Libraries, Museums and Acquatics & Recreation to more likely budget levels.
· Operating Costs
The remaining Making Places budget of $2,550k previously included in the capital budget in 2017/18 has now been included in the operational budget due to the type of expenditure this programme incurs. The $2,550k transferred from capital has been re-phased over three years with $1,050k in 2017/18, and $750k in each of 2018/19 & 2019/20.
Legislative changes are pending to amend the Building Act to require owners of unreinforced masonry buildings (URM’s), in certain areas with a heightened risk of earthquakes, to secure within 12 months, their buildings street-facing URM parapets and facades. Under the proposed scheme, the Local Authorities in the areas specified (Hutt City being one), would be liable to reimburse owners of URM’s, up to one-sixth of the costs to secure their building. The claim on Council per URM building will be capped. Based on an early assessment, Officers estimate Council could be liable for claims totaling $375k which is included in the draft budget.
An additional $39k in 2017/18 (and in each of the next five years), has been included for HCC’s share of the funding requirements of the Wellington Region Waste Management and Minimisation Plan. There is a separate report on this for the Community Plan Committee to consider.
· Interest Expense
$790k lower due to lower average cost of funds from existing interest rate swaps and lower projected rates for new borrowings, plus a lower projected 2017/18 opening debt position due to carryovers within existing capital projects.
This non-cash variance and is mainly due to more accurate forecasting this year through the use of new budgeting software, but also due to delays in the expected completion dates of specific capital projects.
15. The draft capital budget, as attached in appendix 2, also contains a number of significant changes compared to the budget for year 2 (2017/18) approved in June 2016 as part of the 2016/17 Annual Plan process.
16. The following are the major changes included in the draft Capital budget;
· Making Places
$2,550k has been transferred out of capital in 2017/18 and included in operating budgets (refer previous).
· Civic Events Centre
At the concept design phase, it was estimated that the operational development of the Civic Events Centre would cost $5M. As detailed design has progressed and a more complete assessment of requirements has been compiled, it has become clear that the initial estimate is unlikely to be sufficient, particularly as regards the provision of food and beverage facilities. Council have a contractual obligation to provide a turn-key facility that will match USAR’s four star hotel operation. Officers have engaged Horwath International Ltd to assist reviewing the list of items that comprise the additional funding requirement, to ensure an optimal balance of capital outlay vs required levels of service provision.
At this stage, additional budget of $3.7M has been included in 2017/18. This is expected to be the ‘worse case’ estimate and cost reductions and savings continue to be explored. The possibility of additional funding being needed for this was alluded to in the 2016/17 draft budget report.
· Parks and Reserves
An additional $250k in 2019/20 for demolition and reinstatement works at Fraser Park.
An additional $300k in 2023/24 and $400k in 2026/27 for renewal of the sand based grass field and replacement of the artificial turf at Hutt Rec.
The bulk ($250k) of the additional $402k funding request is in recognition of the growing complexity of the consenting requirements/processes and thereby costs, of the consent application for the Waiwhetu Bypass Options project about which Council was briefed on 14th February. The balance is a one-off cost for improvements to Wellington Water’s SCADA system, which is essential for the monitoring and control of the city’s wastewater systems.
· Landfill Capital Expenditure
An additional $500k per annum for five years from 2020/21 is required for Silverstream landfill works. As reported to Council last year, H G Leach Ltd were successful in tendering for a 5 year contract, (2015-2020), for the ongoing development of space at the Silverstream Landfill, and that work is underway. Tonkin and Taylor Ltd, the consultants who we use for design and management of the landfill, have used the rates tendered by H G Leach for the current contract, to update their estimates of future capital development costs. The additional budget now proposed represents a prudent budget provision for those future works.
17. A complete list of capital budget changes from the 2016/17 Annual Plan, that have been included in the draft 2017/18 capital budget is attached in appendix 3.
18. In the 2016/17 Annual Plan, the Net Debt projection for 2019/20 was $124.9M, ie, just under the $125M limit in the current Financial Strategy.
19. The 2017/18 draft budget forecasts Net Debt in 2019/20 will be $132.2M, an increase of $7.3M. The main items contributing to the increase are;
· $3.7M more for Events Centre
· $1.0M less in rates revenue – 3 year effect of lower increase in 2017/18
· $0.9M less in expected operating & capital subsidies
· $0.4M additional for wastewater
· $0.2M for Fraser Park demolition and reinstatement works
· $0.4M for unreinforced masonry buildings fund.
Additional Projects not included in Draft Budget
20. Funding for the following projects is not included in the draft budget. The Committee can recommend to Council that these projects are included in the draft budget or are consulted on in the Consultation Document (making clear funding is not included in the draft budget), or are not progressed any further.
21. The unfunded projects are;
· Wharves - Refurbishment / Replacement / Demolition
As an option to just repairing the damage sustained by the Council owned wharves during the November 2016 earthquake (an additional unbudgeted $750k would be required), Officers recommend Council consider the longer term options for each wharf. Each of the wharves is nearing the end of its economic life, such that long term maintenance costs will exceed the cost of replacement. Funding in the current LTP is insufficient to maintain the wharves to the required standards.
A separate Community Plan Committee report considers this issue and the future options for the wharves. The following table is a summary of the estimated costs associated with the various options for each wharf. Where no value is shown against an option, that option is not considered appropriate for that wharf.
Demolish & don’t replace
· Riverlink (Promenade) Project
$39M, staged over various financial years to coincide with infrastructure work, is requested for Council’s Promenade Project which is the key project in the Making Places programme – Council’s approved long term development strategy for the CBD. The Promenade is enabled by and has critical dependencies upon the infrastructure projects of Greater Wellington Regional Council (CBD flood protection upgrades), and New Zealand Transport Agency (SH2 Improvements at Melling).
The Promenade is being progressed through ‘Riverlink’, which is the GWRC, NZTA, and Council joint project whereby the three agencies are closely working together to achieve their core objectives and to optimise many other benefits which cannot be achieved through the standalone actions of any individual agency. The Promenade is widely viewed as the catalyst for desired CBD growth and to connect the river and CBD together. This is in the interests of all three Riverlink partner agencies and consistently has received very strong support from the community.
A $39M funding allocation would send a clear signal that Council is committed to the Promenade, giving GWRC and NZTA some certainty for their project planning to proceed and to give some confidence to developers and the community.
Council could chose to fund all stages of the Promenade for $39M, or stage one only for $28M including the pedestrian bridge.
· Valley Floor Review 10 Year Plan
No additional money is required for this, but Officers are proposing that budget provision in the LTP be brought forward in order to implement the works programme earlier than currently planned. There is a separate Community Plan Committee report on this.
· District Plan Work Programme
A detailed report on the District Plan Work Programme is being considered by the District Plan Committee on 20 February 2017. The Work Programme is being driven by Council’s strategic goals including those of the Urban Growth Strategy and Environmental Sustainability Strategy, Council and community desires to achieve a fit for purpose planning regime, statutory obligations in the Resource Management Act and Regional Policy Statement and ongoing RMA reforms. A two-year allocation of an additional staff member plus $300,000 per year ends in June 2017. The District Plan Committee is being asked to recommend to the Community Plan Committee that an additional $200,000 for District Plan work is provided in the Long Term Plan for each of the next three years so that significant progress on the Work Programme can be achieved.
· Significant Eco-sites, Landscape Areas and Coastal Natural Character Areas
A detailed report on Council’s obligations towards significant eco-sites, landscape areas and coastal natural character areas is being considered by the District Plan Committee on 20 February 2017. The report recommends that the District Plan Committee and then Council adopt a comprehensive management approach complementing regulations in the District Plan with non-regulatory methods including:
· a new Parks and Gardens Division role to work on biodiversity and landscape matters on Council land and to work with private landowners on property management plans and access to funding and information;
· a fund for land management and enhancement works including planting, fencing, weed and pest management, and covenanting assistance;
· consent fee remission including where consent requirements are triggered solely by eco-site, landscape or coastal natural character District Plan provisions or activities are being carried out in accordance with an agreed management plan; and
· amendment (via Special Consultative Procedure) of the existing rates remission policy for protected culturally significant sites, historic buildings, structures and places, and archaeological sites to address significant eco-sites, landscapes areas and coastal natural character areas;
While the Parks and Gardens Division is able to provide for some of the new work from existing resources, the District Plan Committee will be asked to recommend to the Community Plan Committee that an additional $87k per year for Parks and Gardens work and consent fee remission is provided for in the Long Term Plan.
· Economic Development Stimulus Package
A report will be on the agenda for the next City Development Committee recommending the modification and an extension for 3 more years, of the rates remission and economic stimulus policies as part of Council’s Urban Growth Strategy and Economic Development Plan.
$1M for the Development Incentives Fund, $100k for wages and $30k for marketing, for three years is being requested.
· Living Wage
A report will be on the agenda for the next Finance & Performance Committee in relation to the Living Wage. This is in response to a request made at the Community Plan Committee meeting on 17 May 2016.
The report will seek a recommendation from the Committee to Council regarding the possible implementation of the Living Wage at Hutt City Council.
The cost of implementing the Living Wage to all Council employees, and excluding contractors, is estimated to be $600k. This assumes and includes about $100k per annum of flow on costs to employees paid only marginally above the Living Wage at present, but who would need reasonable recognition for the greater responsibility and qualifications needed for their roles in relation to those currently paid below the Living Wage.
Pending input from the Finance & Performance Committee, this Community Plan Committee may wish to include questions in relation to possible adoption of a Living Wage policy in the Annual Plan consultation process. The results of that consultation, together with recommendations from the Finance & Performance Committee, could then be considered by Council in June this year, prior to finalising the Annual Plan including budgets for wages and salaries.
· Petone 2040 Spatial Plan
At the recent Councillors briefing, 15 significant projects were identified. Four were recommended for immediate development as these start to address pertinent issues such as delivery of the Urban Growth Strategy (appropriate new housing), community’s appetite to enhance heritage/character, pressures to plan work on Jackson Street, and leveraging large NZTA and GWRC infrastructure projects, eg., Petone to Grenada, Cross Valley Link, and public transport planning. NZTA especially are seeking a Petone ‘story’ or spatial plan to inform their strategies and assist them in prioritising investment within and between regions. $50k in 2017/18 and in 2018/19 is requested for these four projects.
· War Memorial Library Major Upgrade
$2M in 2018/19. The War Memorial Library (WML) was refurbished and earthquake strengthened in 2003. Overall the building is looking tired and no longer supports the increased programming demands, services and other products todays’ libraries offer: spaces and power to operate customer devices, programme space, 3D printing and makerspaces, display spaces, quiet study spaces, and interactive learning spaces. The Children’s floor in particular limits flexible multiple modes of learning and activities including interactive learning.
The WML, particularly for its 700,000 plus annual visitors, requires a revamp to reflect 21st century libraries and to maximise the public spaces. The WML will continue to be the central city library and is significantly smaller than comparable other city libraries. A significant opportunity exists to open up the third floor (currently office space), to add to the usable public space.
· Petone Library Upgrade
$2M in 2021/22. This represents a provisional amount only to complete important works on the existing building - mechanical services, fire protection, structure and internal refit etc. Limited investment has been put into this building since 1985. Note: this will fund important works only as opposed to significant improvements.
· Dowse Museum Major Upgrade
$2M in 2018/19. It has been 10 years since the last significant investment was made to The Dowse. This provisional budget amount would be utilised to fund important capital maintenance on the roof, internal gallery spaces and mechanical services. It would also be used to fund further enhancements to the public foyer space, venue hire spaces as well as create public access to the currently off-limits collection storage.
· Naenae Community Hub
Additional $4M in 2020/21. Council’s existing approved LTP includes $4M for a new Community Hub in Naenae. This amount would be more than enough to fund a major upgrade and refurbishment to the existing library building, but not enough to develop a new community hub offering broader community, social and other services.
Based on experiences with the Walter Nash Centre ($12M) and Stokes Valley Hub ($6.5M), Officers estimate another $4M would be required to develop a multi-functional community hub that is able to serve the local community for the next 50 plus years.
· Wainuiomata Community Hub
$7M in 2020/21. There is currently no budget provision for a Community Hub development in Wainuiomata. The existing community hub facilities are adequate, albeit disjointed and dated. Officers believe at this stage a budget provision of $7M alongside the future funding identified for Wainuiomata Pool redevelopment would provide for this. Ultimately plans, budgets and locations for community facilities in Wainuiomata should be subject to significantly more strategic thinking, broader spatial planning and community consultation. Wainuiomata presents a significant and exciting opportunity for community facility rejuvenation to contribute to broader economic and social benefits.
· Naenae Pool Refurbishment
Additional $2M in 2021/22. Based on recent work and projects, Officers believe an additional $2M is required to complete the important upgrade and refurbishment work currently planned for 2020/21 (existing budget of $7M). Naenae pool turned 60 in 2016. It has served the community well, firstly as an outdoor pool and then as a major indoor pool since 1987. A learners pool was added in 1997 and a fitness Suite in 2008. Current visits total in excess of 470,000 per annum.
The main part of the building and the Olympic size pool is original. The facility is currently the aquatic hub for the swimming and water polo community and doesn’t meet modern requirements. Major areas of work include:
· Complete refurbishment of the main pool tank, water treatment plant and pipes. With an enlargement to add accessible ramps and extra land to the current main pool.
· Earthquake strengthening of the current building – including major work to the roof.
· Realignment of building to allow more pool space, levelling of pool deck, seating and extension of the Fitness Suite.
· Better connectedness with Walter Mildenhall Park.
· New Hydro slide.
$4.8M for Wainuiomata over 2017/18 to 2019/20 and $7.4M for Petone over 2017/18 to 2019/20.
Sportsvilles are a partnership initiative to bring sports clubs together in different locations, creating a number of sports ‘villages’ or communities, making it easier for sports clubs to attract new members, offer new programmes and control operational costs by pooling resources. Utlimately they are about promoting and driving participation in sport, recreation and physical activity.
Three Sportsvilles have been formally established; in Petone, Fraser Park and Wainuiomata. The focus is on collaboration, not amalgamation. Clubs retain their own history and identity, but now within a strong and supportive network.
The cost of running clubs and managing buildings is constantly increasing. Clubs throughout New Zealand are struggling with a lack of funding, decreasing membership and fewer volunteers. Sportsville provides us with a strong concept to help us protect and foster our clubs through partnerships.
Council strategy identifies Fraser Park as Hutt City’s major city sport and recreation hub – not only supporting local clubs but also offering a venue for significant regional, national and international events. Wainui and Petone Sportsvilles are more aimed at supporting local community needs.
Following submissions made to the 2016/17 Annual Plan by respective Sportsville Boards, Council approved funding for Officers to lead on-going feasibility work for both Petone and Wainuiomata. This work is coming to completion and indicative cost estimates prepared by consultants have been presented.
Based on the general principle of Council meeting 70% of the upfront capital costs, Officers believe that a budget provision of $4.8M and $7M for Wainuomata and Petone respectively would be required to support these initiatives. The remaining 30% would need to be funded and fundraised by clubs, local community and the CFT.
The CFT would provide an excellent vehicle to lead these projects once endorsed by Council. While they would lead fundraising, in both cases the CFT can only be successful with significant support, fundraising efforts and or ‘skin in the game’ from Sportsville Boards, clubs and local communities.
The Petone Sportsville development is proposed for North Park. The Wainui proposal remains on Fredrick Wide Park.
As has been consistently communicated to Sporstville Boards, key stakeholders and the community, any Council funding will essentially be subject to key council conditions including and not limited to: community support, robust business cases that demonstrate on-going operational sustainability (without reliance on rate-payer funding), and the majority if not all of the necessary funding being in place.
· Avalon Park
$1M in 2017/18 for phase 4. This would cover replacement of the main electrical switchboard, extending the existing toilet block, adding trackside features for model train passengers, and extending the skate facility so that it includes a hard court.
· Riddiford Gardens
$1M in 2017/18 for phase 4. Phase 4 work scope includes quality paving in front of the Little Theatre, a new path beside the Shapeshifter Lawn, site wide signage (directional and interpretational), a replacement bridge, and additional streamside planting.
· Science & Technology
One of 4 areas of focus in Councils Economic Development Plan 2015-2020, $80k per annum for three years from 2017/18 is required to continue initiatives Council has already established in this area including STEMM Festival, Primary Science scholarships, Hutt Valley Primary Science network, Weltec engineering scholarships, and Technology Valley support. Continued funding will also enable planned new initiatives, eg., Fresh Thinkers 3, to encourage young people into STEMM careers and other research, with secondary schools to assist in increasing the number of students studying science and technology subjects; plus investigate city wide technology requirements; and development of a Makerspace.
· 1st Assembly
1st Assembly is a collaboration between Creative HQ and Hutt City Council based on proven international start up development and incubation processes focused on the rapid development of hardware and technology start-up businesses in Lower Hutt. Following a successful pilot it is proposed to continue 1st Assembly as a mechanism and space to support and locate STEM businesses in the city and also continue the programme of startup meet-ups, manufacturing meet-ups and hardware themed workshops. 1st Assembly also runs monthly "hardware sessions" that link into Creative HQ's 1400 member "Startup Garage" meet-up group.
The space at 125 High Street now accommodates six ventures and its first graduate business is now established in Petone. Awareness within the business community has grown significantly as a result of the strong links that Lightning Lab Manufacturing has now formed with other stakeholders, eg, the Hutt Valley Chamber of Commerce, Technology Valley Group, and Callaghan Innovation.
Funding for 2017/18 is from existing budgets but new funding is required for 2018/19 ($300k) and 2019/20 ($200k) on a reducing scale as it is intended that 1st Assembly increasingly source funding from external sources, eg, tenant rentals, corporate sponsorship and Government funding for incubation/accelerator programmes. This is typical of mature incubator/accelerator programmes/space.
22. Consultation is a statutory requirement of the annual planning process and has been included in the planning timetable.
23. As well as consulting on the which projects to include in the budget the following policies will also be consulted on;
· Financial Strategy
· Rates Remission for Economic Development
· Hutt City Development Charges Remissions
· Central Business District Development Charges and Rates Remission
24. The Local Government Act states in section 10 that the purpose of local government, among other things, 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 is defined as infrastructure, services and performance that are efficient, and effective, and appropriate to present and anticipated future circumstances.
25. The draft budget developed for 2017/18 takes cognisance of this purpose statement.
26. Should the recommended changes to the Financial Strategy not be adopted, the draft budget will be in breach of the Net Debt limits in the current Financial Strategy.
27. Carry-overs of current year budgets into 2017/18 have not been considered at this stage. These will be reviewed and considered by the Community Plan Committee and Council during the final 2017/18 budget approval process in June 2017.
28. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that producing a draft budget each year provides the opportunity for members of the public to comment on the manner in which Council proposes to meet the current and future needs of the community.
29. A number of water related issues are looming:
· Resilience projects, which may attract partial Government funding;
· Security of water supply quality, prompted by the Havelock contamination scare;
· Increasing environmental standards, and in particular the forthcoming Whaitua process and potential impacts on stormwater quality standards; and
· The GW bulk water levy which could potentially significantly increase as a result of some large capital projects – mostly targeted at regional resilience.
30. Officers believe it prudent to make budget provision for these items even though specific costs are not known yet.
2017/18 Draft Budgets - Activity Statements
2017/18 Draft Budgets - Project List
2017/18 Draft Budgets - Capital Project Differences
Author: Brent Kibblewhite
Chief Financial Officer
Approved By: Tony Stallinger