Agenda of Finance and Performance Committee

FINANCE AND PERFORMANCE COMMITTEE
Membership:	10
Meeting Cycle:	Meets on a six weekly basis, as required or at the requisition of the Chair
Quorum:	Half of the members
Reports to:	Council

HUTT CITY COUNCIL

Finance and Performance Committee

Meeting to be held in the Council Chambers,

2nd Floor, 30 Laings Road, Lower Hutt on

Wednesday 2 May 2018 commencing at 5.30pm.

ORDER PAPER

Public Business

1. APOLOGIES

Cr J Briggs

2. PUBLIC COMMENT

Generally up to 30 minutes is set aside for public comment (three minutes per speaker on items appearing on the agenda). Speakers may be asked questions on the matters they raise.

3. CONFLICT OF INTEREST DECLARATIONS

4. For Committee input prior to Community Plan Committee referral – 6 June 2018

Business Case - Technology One SaaS Proposal (18/598)

Report No. FPC2018/2/115 by the Chief Information Officer 9

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

5. Recommendations to Council - 22 May 2018

i) Lending to Council Controlled Organisations (18/559)

Report No. FPC2018/2/117 by the General Manager Corporate Services 27

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

ii) Tax Risk Governance Framework and Tax Risk Management Strategy (18/620)

Report No. FPC2018/2/131 by the Financial Accounting Manager 33

Chair’s Recommendation:

“That the recommendation contained in the report be endorsed.”

6. Revolving Cash Advances Facility - Refinancing Options (18/588)

Report No. FPC2018/2/134 by the Chief Financial Officer 44

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

7. HCC Group Asset Revaluation as at 31 December 2017 (18/621)

Report No. FPC2018/2/130 by the Financial Accounting Manager 50

Chair’s Recommendation:

“That the recommendation contained in the report be endorsed.”

8. Update on the Rates Collection Agreement with Greater Wellington Regional Council (18/617)

Report No. FPC2018/2/132 by the Chief Financial Officer 60

Chair’s Recommendation:

“That the recommendation contained in the report be endorsed.”

9. Education Delegation to Minoh, Japan and Taizhou, China (18/561)

Report No. FPC2018/2/127 by the Divisional Manager City Growth 64

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

10. Finance Update (18/622)

Report No. FPC2018/2/129 by the Budgeting and Reporting Manager 72

Chair’s Recommendation:

“That the recommendation contained in the report be endorsed.”

11. Information Item

Finance and Performance Work Programme 2018 (18/331)

Report No. FPC2018/2/62 by the Committee Advisor 118

Chair’s Recommendation:

“That the programme be noted and received.”

12. QUESTIONS

With reference to section 32 of Standing Orders, before putting a question a member shall endeavour to obtain the information. Questions shall be concise and in writing and handed to the Chair prior to the commencement of the meeting.

13. EXCLUSION OF THE PUBLIC

CHAIR'S RECOMMENDATION:

“That the public be excluded from the following parts of the proceedings of this meeting, namely:

14. Hutt City Community Facilities Trust – Appointment Of Directors (18/506)

15. Strategic Property Portfolio - six Monthly Update (18/496)

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

(A)	(B)	(C)

General subject of the matter to be considered.	Reason for passing this resolution in relation to each matter.	Ground under section 48(1) for the passing of this resolution.


Hutt City Community Facilities Trust – Appointment Of Directors.	The withholding of the information is necessary to protect the privacy of natural persons. (s7(2)(a)).	That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding exist.

Strategic Property Portfolio - Six Monthly Update.	The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities (s7(2)(h)).	That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding exist.

This resolution is made in reliance on section 48(1) of the Local Government Official Information and Meetings Act 1987 and the particular interest or interests protected by section 6 or 7 of that Act which would be prejudiced by the holding of the whole or the relevant part of the proceedings of the meeting in public are as specified in Column (B) above.”

Annie Doornebosch

COMMITTEE ADVISOR DEMOCRATIC SERVICES

Attachment 1

Business Case - TechnologyOne SaaS Proposal

1. Executive Summary. 3

1.1 Purpose. 3

1.2 Introduction. 3

1.3 Context 3

1.4 Software as a Service (SaaS) - Definition. 4

2. Overview.. 5

2.1 TechnologyOne Enterprise Software as a Service (SaaS) 6

2.2 CiAnywhere. 6

3. Alternatives. 7

4. Benefits. 8

4.1 Resilience. 8

4.2 Efficiency. 8

4.3 Cost Savings. 9

4.4 Strategic Opportunities. 9

5. Risks. 10

5.1 Operational Risks. 10

5.2 Transition Risks. 10

6. Implementation Approach / Timeline. 11

6.1 Stage One – Cloud Readiness. 11

6.2 Stage Two – Cloud Transition. 11

6.3 Implementation Timing. 12

7. Financials. 13

7.1 Cost 13

7.2 Savings. 13

7.3 Financial Tables. 14

1. Executive Summary

1.1 Purpose

This Business Case seeks approval for an initial investment of $1.5M and additional operating expenditure of $0.204M per year to implement TechnologyOne Enterprise Software as a Service (SaaS).

1.2 Introduction

Council’s Information Technology Strategic Roadmap consists of four phases. This business case supports the delivery of Phase One, which is the founding basis for the delivery of subsequent phases and the Roadmap overall. Individual business cases will be developed in support of each Roadmap phase or major component.

This business case is for the provision of a resilient, modern and cost-effective technology solution for the systems that support the majority of Council’s business processes. The solution will minimise risk to Council and provide the foundation to keep pace with technology advancements, which in turn will contribute to future efficiency gains and the ongoing ability to meet customer service expectations.

Three options were considered and evaluated. TechnologyOne Enterprise SaaS (option 3) is the recommended option as it provides predictable costs, lower risks, simplified technology solution, and allows resources to re-focus effort from tactical operational tasks to strategic initiatives. This option also supports Council’s Information Services Strategic principle of Enterprise First, where the return on investment made to date is maximised through utilisation, expansion and enhancement of the enterprise system.

There are a number of TechnologyOne customers in both New Zealand and Australia who have completed the transition to TechnologyOne Enterprise SaaS, and are operating successfully. Within New Zealand Local Government both Wellington City Council and Whangarei District Council transitioned in 2016.

TechnologyOne Enterprise SaaS simplifies the running of the TechnologyOne enterprise systems and provides a longer term reliable and secure platform. Elimination of ongoing technical upgrade cycles, the maintenance of complex database infrastructure, the security risks around web servers, together with a highly available solution ensures Council is able to meet business continuity and audit compliance requirements.

1.3 Context

Local Government in New Zealand is facing major challenges, in particular the growing fiscal pressure to continue to deliver existing and new services to the community, better manage their corporate systems and resources, and strive for continuous improvement and productivity whilst finding solutions that ensure property rates remain affordable.

Technology is an enabler that improves transparency, efficiency and empowers the community.

The community interacts with council in a number of ways. Through technology advancement the way of interacting and service expectations are changing in the areas of self-service 24/7 (get information when needed) and request, submit, complain or discuss something today and get it resolved instantly.

For Council staff, keeping pace with technology and providing flexible working options are important. Self-service and mobile technology solutions are now standard ways of operating for many organisations.

TechnologyOne Enterprise SaaS, and this business case, allows for:

· Focus to be placed on supporting the key strategic areas of Council

· Resilience in the platform and infrastructure to provide flexibility and scale

· Internal effort to be focused directly on supporting the key strategic areas, instead of maintaining and supporting internal business hardware and software

TechnologyOne Enterprise SaaS aligns with Council’s vision and key strategies for Making our City a Great Place to Live, Work and Play, along with the requirements and needs of the Best Local Government Services (BLGS) programme of work.

1.4 Software as a Service (SaaS) - Definition

Software as a Service (SaaS) can be defined as business or consumer software applications, and all of their associated data, provided on demand over the internet. The software applications are also referred to as ‘cloud apps’ for short, or just ‘apps’.

The services these apps provide are available on any device, as long as you have access to the internet. Normally the services are accessed through a browser, or through an app you download to your mobile device, but the data is stored in a ‘cloud’.

Apps such as Facebook, Gmail and YouTube are common examples of software applications using cloud computing (or software as a service). All the files or data associated with these apps (such as photos, emails, videos etc) and the software are stored in the data centres (cloud) of Facebook or Google.

2. Overview

Hutt City Council’s integrated vision of Making our City a Great Place to Live, Work and Play is to build on foundations to create a city with an attractive proposition for residents, businesses and visitors.

All of Council’s work ties back to the integrated vision, and the four key strategies, of:

· Environmental Sustainability

· Infrastructure

· Leisure and Wellbeing

· Urban Growth

Technology plays a key part in underpinning the strategic intent within organisations. It is important Council keeps pace with technology developments to continue to improve services through efficiency, resilience and meeting customer expectations.

Council's Information Technology Strategic Roadmap (figure 1) places focus on delivering business outcomes against the four key Council strategies. A key outcome for Council is to ensure its administrative processes are underpinned by modern, reliable, leading-edge and evolving technology.

The first phase of the Information Technology (IT) Strategic Roadmap, and this business case, is for TechnologyOne Enterprise Software as a Service. The transition to Software as a Service is a step change for Council that will provide a stable, resilient and future-proofed IT platform.

This business case is for Phase 1 only. Phases 2 to 4 have not been fully assessed so we are not able to provide an accurate estimate however the investment is expected to be in the range of $6M – $10M.

Figure 1 – Hutt City Council Information Technology Strategic Roadmap

2.1 TechnologyOne Enterprise Software as a Service (SaaS)

TechnologyOne is Council’s core enterprise system for Property and Rating, and Finance. The system supports the majority of Council’s business processes including building consents, health licenses, parking infringements and animal licensing.

Council currently operates the TechnologyOne system ‘on-premise’, meaning the associated hardware is owned, supported and operated by Council.

TechnologyOne SaaS is built, supported and run by TechnologyOne, and hosted by Amazon Web Services (AWS). Amazon Web Services offers a broad set of global compute, storage, database, analytics, application and deployment services that help organisations move faster, lower costs and scale applications.

The transition to TechnologyOne Enterprise Software as a Service is defined as moving Council’s TechnologyOne software applications:

· From being hosted On-Premise, to being hosted in the TechnologyOne Cloud

· From a specific number of user software licences, to enterprise-wide software licencing

· From ad-hoc application support, to a formal and managed support arrangement

· From the Ci software application platform, to the next evolution CiAnywhere (Phases 2, 3 and 4)

TechnologyOne Enterprise SaaS includes a roadmap of ongoing enhancements and performance benefits hosted on AWS. TechnologyOne has built their SaaS solution, combining software and hardware, into a purpose-architected and designed environment which they support and run.

In moving to SaaS, Council would not be responsible for the infrastructure required to run TechnologyOne software or software installations. Using the same principles as Google and Facebook, TechnologyOne Enterprise SaaS will provide Council with a continually evolving and improving software solution that benefits from economies of scale.

2.2 CiAnywhere

Moving the TechnologyOne Ci suite to the cloud provides the pathway to move to the CiAnywhere product over the next 2 – 3 years. Ci Anywhere is TechnologyOne’s latest software solution.

Transitioning from the TechnologyOne Ci platform to the CiAnywhere platform enables the use of smart mobile devices, introduces flexible working options and unlocks enhanced functionality such as Customer Portals. CiAnywhere is a part of TechnologyOne Enterprise SaaS, where the software is delivered through a browser (HTML5).

CiAnywhere supports users moving from one device to another to complete tasks, ensuring the data being accessed is instantly available on any device as there is no need to synchronise the information. CiAnywhere understands the device it is operating on, with the software automatically adapting and rendering to fit the screen size of the mobile, PC or laptop.

The implementation of CiAnywhere applications will provide Council the opportunity to review its business processes to ensure they are efficient.

3. Alternatives

The alternative options considered and evaluated for this business case are 1. Do Nothing and 2. On-Premise Development

OPTION 1	DO NOTHING Continue to run and manage infrastructure and applications on-premise with current license and support agreements
Benefits	· No investment required (transition or SaaS service) · No impact on changes to the business · No new costs associated with technology developments
Dis-benefits, Risks and Issues	· Unable to achieve Council vision or BLGS · No savings or efficiency gains · Barrier for technology to support business process improvement initiatives · Immediate IT infrastructure resilience risk, increasing over time · CiAnywhere upgrade more complex and expensive · TechnologyOne will eventually cease support of current platform · Reduced ability to benefit from shared innovations between other TechnologyOne customers · Unable to scale in terms of users, customers, data and transactional volumes · Updates will be received later than SaaS customers · Council will lose reputation for good online services , and customer service ability would reduce · Risk associated with current complex hardware and infrastructure
Cost	$1.7M over 5 years (refer Section 7. Financials – Option 1). Current operational costs are $1.7M over 5 years, with no additional cost required for Option 1.

OPTION 1

DO NOTHING

Continue to run and manage infrastructure and applications on-premise with current license and support agreements

Benefits

· No investment required (transition or SaaS service)

· No impact on changes to the business

· No new costs associated with technology developments

Dis-benefits, Risks and Issues

· Unable to achieve Council vision or BLGS

· No savings or efficiency gains

· Barrier for technology to support business process improvement initiatives

· Immediate IT infrastructure resilience risk, increasing over time

· CiAnywhere upgrade more complex and expensive

· TechnologyOne will eventually cease support of current platform

· Reduced ability to benefit from shared innovations between other TechnologyOne customers

· Unable to scale in terms of users, customers, data and transactional volumes

· Updates will be received later than SaaS customers

· Council will lose reputation for good online services , and customer service ability would reduce

· Risk associated with current complex hardware and infrastructure

Cost

$1.7M over 5 years (refer Section 7. Financials – Option 1).

Current operational costs are $1.7M over 5 years, with no additional cost required for Option 1.

OPTION 2	DEVELOP ON-PREMISE SOLUTION In-house development and ongoing management of full infrastructure and disaster recovery, with management of on-premise application enhancements
Benefits	· Fully customised infrastructure and disaster recovery solution
Dis-benefits, Risks and Issues	· Cost of in-house transition and management resource · No reduction in current operational costs · Management of bespoke solution · Staff training and requirement to maintain IT resource skill levels · Full management end to end of all infrastructure and resilience components · CiAnywhere upgrade more complex and expensive · TechnologyOne will cease support of current platform · Reduced ability to benefit from shared innovations between other TechnologyOne customers · Updates will be received later than SaaS customers · Risk associated with current complex hardware and infrastructure
Cost	$3.752M over 5 years (refer Section 7. Financials – Option 2). Additional cost inclusion: · like for like disaster recovery solution to the resilience levels provided by TechnologyOne. Disaster recovery replication to a Cloud provider (e.g. Microsoft) · purchase of additional software application licenses with additional consulting support required · like for like security

OPTION 2

DEVELOP ON-PREMISE SOLUTION

In-house development and ongoing management of full infrastructure and disaster recovery, with management of on-premise application enhancements

Benefits

· Fully customised infrastructure and disaster recovery solution

Dis-benefits, Risks and Issues

· Cost of in-house transition and management resource

· No reduction in current operational costs

· Management of bespoke solution

· Staff training and requirement to maintain IT resource skill levels

· Full management end to end of all infrastructure and resilience components

· CiAnywhere upgrade more complex and expensive

· TechnologyOne will cease support of current platform

· Reduced ability to benefit from shared innovations between other TechnologyOne customers

· Updates will be received later than SaaS customers

· Risk associated with current complex hardware and infrastructure

Cost

$3.752M over 5 years (refer Section 7. Financials – Option 2).

Additional cost inclusion:

· like for like disaster recovery solution to the resilience levels provided by TechnologyOne. Disaster recovery replication to a Cloud provider (e.g. Microsoft)

· purchase of additional software application licenses with additional consulting support required

· like for like security

4. Benefits

The transition to TechnologyOne Enterprise SaaS provides to Council more predictable costs, lower risks, and simplified IT. Additionally, it will allow staff time to be liberated from performing tactical operational tasks to being able to be focus on strategic initiatives.

Council is currently managing cost and risk areas that TechnologyOne Enterprise SAAS will remove. The challenge of not being able to identify all direct costs (mainly due to non-dedicated resource or time tracking) also suggests a heightened organisational risk.

The following benefits of TechnologyOne Enterprise SaaS have been categorised into 4 main areas of Resilience, Efficiency, Cost Savings and Strategic Opportunities.

4.1 Resilience

Resilience is the ability to provide and maintain an acceptable level of service in the face of faults and challenges to normal operation. Threats and challenges for services can range from simple technical system faults to large scale natural disasters to targeted attacks. The benefits are:

Business Continuity and Disaster Recovery - little or no system outage in the event of an emergency, and staff will be able to access systems easily, from anywhere with an internet connection. This means, for example, that Council will be able to provide up to date building and safety data, and continue supporting the city in the event of an emergency. The current situation is that Council does not have guaranteed support for the applications and associated data in terms of infrastructure replication (hardware, software, network, storage) at another data centre in an appropriate location.

Availability – the TechnologyOne Cloud is built on a policy of High Availability – an active-active-active architecture distributed across two datacentres which ensures an SLA of 99.5% availability. A robust backup regime will ensure systems and data are recoverable if required.

Security – the TechnologyOne Cloud is ISO27001, ISAE3402, and IRAP certified and provides enhanced levels of data security. There is a standard and secure way of accessing information reducing the business risk for data and ensures certified security and change management processes are maintained.

Compliance and Audits - TechnologyOne provides the ISAE3402 SOC 1 and SOC 2 audit reports and the ISO27001 certification on a yearly basis to support the audit and compliance requirements for accessibility of applications from anywhere on any device at any time.

Scalability and Performance – the TechnologyOne SaaS infrastructure automatically scales to meet demand at peak times. This is provided using an economy of scale flexible architecture. For Council to replicate this for peak demand times, such as rates strikes, hardware and software resources would need to be kept spare.

4.2 Efficiency

TechnologyOne Enterprise SaaS will simplify the running of the TechnologyOne enterprise systems for Council. This will liberate staff time to focus on initiatives that contribute to efficiencies and improving customers’ interactions with Council.

IT Resource - IT staff who focus on supporting the running of applications will be able to apply their knowledge of the applications and understanding of business processes to work with the business to deliver improved efficiencies. The operating system, SQL database, and anti-virus software are included in the service which eliminates the need for in-house expertise to administer, support, upgrade, patch, and secure the application and software internally. Additionally, upskilling of staff will not be required for the introduction of new architecture as technology evolves over time.

Mobility and Accessibility – an internet connection, browser and unrestricted licencing ensures users can access the system anywhere, anytime on any device, therefore facilitating increased productivity and output. Additionally, the transition allows the use of the same username and password that is used today. Upgrading to the latest software release with the transition to TechnologyOne Enterprise SaaS provides the ability to rollout key capability that will modernise and increase the efficiency of key business processes.

Support Service Levels – moving from ad-hoc application support, to a formal and managed support arrangement means business requirements will be met in a faster, flexible way and improve IT service levels. The current situation of TechnologyOne supporting the applications on-premise, and the difficulty in obtaining consulting resource, impacts the ability to provide a high-quality and consistent service.

4.3 Cost Savings

Infrastructure – the cost associated with maintaining on-premise infrastructure (hardware, software, network, storage) is no longer required. This cost includes support contracts, site costs (facilities as well as utilities), adhoc consulting fees and internal support staff costs.

Licensing - users will only require an internet connection and a browser to access the TechnologyOne applications. All licensing for the database, Operating System (Windows Server), monitoring, anti-virus etc. is included in TechnologyOne Enterprise SaaS. Additionally, moving from a specific number of user software licences to enterprise-wide software licencing removes restrictions, barriers and administration effort for staff to have access to applications.

Upgrades and Continuous Improvement – future upgrades and continuous improvements are included in TechnologyOne Enterprise SaaS. This removes the need to plan and budget for improving hardware, infrastructure or application architecture.

4.4 Strategic Opportunities

Best Local Government Services (BLGS) – TechnologyOne Enterprise SaaS aligns with the requirements and needs of the Best Local Government Services (BLGS) programme of work which delivers improvements both internally and to ratepayers / customers.

Enterprise First – the IT Strategy principle of Enterprise First ensures the return on the investment made to date for the TechnologyOne enterprise system is maximised through utilisation, expansion and enhancement. TechnologyOne Enterprise SaaS contributes to the future-proofing the strategic direction of Information Technology.

Efficiency and Modernisation – through the upgrade to the latest release and a transition to TechnologyOne Enterprise SaaS, Council can rollout key capability within CiAnywhere that will modernise and increase the efficiency of key business processes. Additionally the efficient ability to scale in terms of users, customers, data and transactional volumes will have little to no impact on day to day business operations.

Investment Certainty – the transition to TechnologyOne Enterprise SaaS will remove the need for future significant investment in the TechnologyOne infrastructure and platform. The latest infrastructure and software updates are automatically deployed to the TechnologyOne Cloud ready for Council deployment into their production environment. No additional investment will be required for licences if we wish to add more users to existing applications.

5. Risks

The risks associated with TechnologyOne Enterprise SaaS fall into two categories, SaaS Operational Risks and Transition Risks.

5.1 Operational Risks

The TechnologyOne Enterprise SaaS operational risks are around the day to day operation, management and support of the new platform, which is the responsibility of TechnologyOne.

Although there are a number of TechnologyOne customers successfully operating TechnologyOne Enterprise SaaS there is still risk present for Council. Strong vendor management is necessary to ensure the contracted support and service levels are maintained, especially in the areas of availability and performance.

Additionally, it is important to keep up to date with the strategic direction of TechnologyOne, along with technology improvements, in order to understand the impact on Council’s current and future operations.

5.2 Transition Risks

Although the TechnologyOne Cloud Transition team is responsible for the implementation, the knowledge and input from experienced Council IT staff is critical for success.

Within Council, the new proposed Business Improvement Team combined with the experience and knowledge of existing IT staff will minimise the transition risk for Council. Additionally, the completion of the Cloud Readiness assessment during 2017 has identified areas of risk which allows for elimination or appropriate mitigation prior or during the transition.

Rigorous testing and strong project management by Council will ensure transition risks are kept at a manageable level.

6. Implementation Approach / Timeline

The implementation approach for minimum disruption to users, includes the following phases:

6.1 Stage One – Cloud Readiness

The Cloud Readiness Assessment was completed in 2017 to further understand transition risks. All interfaces need to be cloud-friendly to be re-enabled in the cloud.

This stage is to prepare Council to transition to the Cloud. This preparation work removes or redevelops any solutions that are not “cloud friendly” with the goal to reduce the amount of work and risk associated with the actual Cloud transition phase.

The Cloud Readiness Assessment and Interface Inventory documents contain the result of the assessment of the existing application architecture and infrastructure. The assessment highlighted a number of areas that require interfaces to be developed or a change in current process. These requirements will be included and delivered as part of the project.

6.2 Stage Two – Cloud Transition

This phase is to transition Core Enterprise Suite - Finance (CES) and Property and Rating (P&R) TechnologyOne software to the cloud, and complete any redevelopment or implementation of any technology required to continue to operate after Cloud transition, e.g. Document management (CM9) integration.

TechnologyOne has changed their approach under the SaaS offering SaaS removes the option for custom development and direct interaction with the databases. Interfacing with the software and data will now be completed using industry standard functions reducing risk and complexity.

Transition to Cloud

· Transition CES and P&R to the Cloud including upgrade to latest software.

· Transition to the TechnologyOne Cloud using the following Cloud Transition Process.

Testing Strategy

· Review of existing test strategy, plans and scripts.

· Update all artefacts to create an agile and efficient test regime that will support the SaaS Software Feature Release process.

Implement CiAnywhere Basic Applications

Where practical we will implement the following CES CiAnywhere applications for quick wins with minimal or no reconfiguration:

o MyTasks (Workflow) – quick and easy to use on any device

o Actioning Tasks via Email – removing the need for users to even log into the application

o Enterprise Enquiries – quick and easy to use on any device

o Simple Reports, My Reports (Run XLOne / Crystal) – removing the need for MS Excel to be installed on the device

Document Management (CM9) Integration

TechnologyOne supports the Content Management Interoperability Services (CMIS) open standard for document exchange. The enables documents created in TechnologyOne to be automatically transferred and stored in the Councils document management system (CM9).

The CMIS interface connector is licenced separately. Custom development will be required to build the interfaces.

6.3 Implementation Timing

Stage one was completed during 2017.

Stage Two is estimated to take 3 - 5 months, with the exact start date still to be determined. Confirmation of the start date will be based on the availability of skilled and knowledgeable Council IT resource and ensuring there will be minimal risk of disruption to Council IT operations during the transition period.

7. Financials

7.1 Cost

The requested initial investment of $1.5M :

· TechnologyOne Enterprise Software as a Service ($1.3M); plus

· Application Managed Services – Ongoing Consulting Support ($45K)

· Integration Connector / API ($135K)

· Project Resource (20K)

Capital expenditure of $1.5M in year 1 relates to the transition. Operating expenditure of $0.524M is the continued annual cost.

CPI is not applicable for the TechnologyOne contract. It is assumed that CPI is not applicable for the Integration Connector / API.

7.2 Savings

Option 1 – Do Nothing

· $2,165M savings against budget over 5 years. Realised due to:

o The budget allocated for the implementation and ongoing maintenance of TechnologyOne SaaS solution would not be used.

Option 2 – Develop On-Premise Solution

· $0.115M savings against budget over 5 years. Realised due to:

o The budget allocated for the implementation and ongoing maintenance of TechnologyOne SaaS solution would not be used.

o There is an additional investment required in setting up and maintaining the infrastructure required for Disaster Recovery that offsets the majority of the savings made through not implementing TechnologyOne SaaS.

Option 3 – Implement TechnologyOne SaaS Solution

· $0.271M savings against budget over 5 years. Realised due to:

o Reduction in Microsoft Server licence costs

o First year licence fees for TechnologyOne SaaS which have been budgeted will be covered by the Capital Investment.

7.3 Financial Tables

Option 1 – Do Nothing

	18/19 $000	19/20 $000	20/21 $000	21/22 $000	22/23 $000	5 Year Total $000	5 Year Budget $000	Variance $000

Operating	320,500	320,500	320,500	320,500	320,500	1,602,500	2,367,500	-765,000

Capital	-	-	-	-	100,000	100,000	1,500,000	-1,400,000

Total	320,500	320,500	320,500	320,500	420,500	1,702,500	3,867,500	-2,165,000

Option 2 – Develop On-Premise Solution

	18/19 $000	19/20 $000	20/21 $000	21/22 $000	22/23 $000	5 Year Total $000	5 Year Budget $000	Variance $000

Operating	320,500	580,500	580,500	580,500	580,500	2,642,500	2,367,500	275,000

Capital	250,000	-	-	-	100,000	350,000	1,500,000	-1,150,000

Total	570,500	770,500	770,500	770,500	870,500	3,752,500	3,867,500	-115,000

Option 3 – Implement TechnologyOne Software as a Service Solution (SaaS)

	18/19 $000	19/20 $000	20/21 $000	21/22 $000	22/23 $000	5 Year Total $000	5 Year Budget $000	Variance $000

Operating	-	523,976	523,976	523,976	523,976	2,095,904	2,367,500	-271,596

Capital	1,500,000	-	-	-	-	1,500,000	1,500,000	-

Total	1,500,000	523,976	523,976	523,976	523,976	3,545,904	3,867,500	-271,596

26 02 May 2018

Finance and Performance Committee

09 April 2018

File: (18/559)

Report no: FPC2018/2/117

Lending to Council Controlled Organisations

Purpose of Report

1. To obtain authority for Council to continue to borrow funds for on-lending to Council Controlled Trading Organisations (CCTO's) and (non-trading) Council Controlled Organisations (CCO’s), at agreed margins.

Recommendations

That the Committee recommends that Council:

(i) approves extending the maturity of existing loan agreements to allow Council to continue on-lending up to;

(a) $3.5M to Seaview Marina Limited (SML);

(b) $13.0M to Urban Plus Limited (UPL); and

(ii) approves a further short term funding facility of $5.0M to UPL for project financing of property developed for resale by UPL included in the UPL Statement of Intent (SOI);

(iii) agrees that these approvals will cover the period up to 30 June 2021;

(iv) agrees that the maximum maturity date for any loan is limited to three years from the date the loan is arranged;

(v) agrees that the margins on loans to CCTO’s (SML and UPL) be 1.0%, and 0.5% for CCO’s (CFT);

(vi) requests officers to draw up formal agreements between Council and the CCTO’s/CCO’s outlining the terms and conditions associated with these loans; and

(vii) agrees that any amount borrowed by Council and on-lent to a CCTO/CCO be treated as an investment for the purposes of calculating the Councils net debt figure when considering the Financial Strategy Limits.

For the reasons that SML, UPL and CFT require loan funding to deliver the outcomes contained in their respective SOI’s, and that Council due to its strong credit rating and access to debt funding via the Local Government Funding Agency (LGFA), can provide the required loan funding at the lowest cost to the Hutt City Council group.

Background

2. In December 2014, Council approved identical recommendations to recommendations (i), and (iv) to (vii), to cover the period up to 30 June 2018.

3. Formal loan agreements between Council and the CCO’s were executed and remain in place. The respective CCO loan balances have remained at the same amounts since the last Council approval and are:

a. $2.7M for SML;

b. $9.0M for UPL (comprising one loan for $4M and another for $5M); and

c. $3.0M for CFT.

4. Approval is sought to continue with the current loan funding arrangements between Council and the CCO’s, and for a further short term funding facility for UPL to provide project financing for property it plans to develop for resale.

5. The draft SOI’s presented to Council in March by each of the CCO’s and the draft 2018-2028 Long Term Plan (LTP) budgets approved by Council assume that the current loan funding in paragraph 3, continue.

Discussion

SML

6. Approval to on-lend up to $3.5M to fund SML’s planned in-water developments, was granted in 2009 and further approved in 2014.

7. SML’s in-water and property developments to date have been very successful as evidenced by SML’s strong financial performance, balance sheet, and growing cashflows from operations.

8. SML’s capital plans include further in-water developments which will further strengthen SML’s financial results and significantly improve the CCTO’s value and future dividends to Council. Continued loan (or equity) funding is required and appropriate to realise SML’s planned value improvement.

UPL

9. Approval to on-lend up to $13M currently exists, of which $9M has been drawn down by UPL.

10. UPL plans to grow its residential rental portfolio from its current holding of 149 units to 220 units by 2021. It intends to fund this growth through a combination of the existing Council loan facility, proceeds from the sale of rental units no-longer deemed suitable, and from profits on properties developed for resale like the current and very successful Fairfield Waters residential development.

11. Profits from property developed for resale will in time fund the planned growth in the UPL residential rental portfolio. To achieve the 220 units target by 2021, residential rental developments and property developed for resale will need to happen concurrently over the next 3-4 years and to do this both the undrawn amount of the current loan agreement ($4M), plus additional short term ‘project’ funding (up to $5M) for property developed for resale, will be required from time to time. This is illustrated in the following graph per UPL’s 2018 SOI.

12. UPL has a very strong balance sheet with $36M in total assets, $22M of equity and the current $9M loan balance with Council.

CFT

13. The 2014/15 Annual Plan approved the Walter Nash Stadium development with the understanding that CFT would need to borrow up to $3M to complete the development. Council previously approved Officers to borrowing this money directly and on-lend it to CFT.

14. CFT intended to repay the loan over 20 years from the annual operating grant it receives from Council. Due to some external sponsorship funds being progressively received after CFT facility(s) are completed and suppliers paid, CFT now plan to repay the loan over the next 18 years.

Funding via Council

15. Having been given authority via their SOI’s to undertake both the capital development and the associated borrowing to fund their development programmes, the CCTO’s/CCO’s are under an obligation to obtain funding on the most favourable terms possible.

16. The most favourable terms for the CCTO’s/CCO’s is to borrow money from Council. In order to facilitate this arrangement, Council needs to be authorised to on-lend money to CCTO’s/CCO’s. This is allowed under the Local Government Act subject to the following restriction for CCTO’s:

63 Restriction on lending to council-controlled trading organisation

A local authority must not lend money, or provide any other financial accommodation, to a council-controlled trading organisation on terms and conditions that are more favourable to the council-controlled trading organisation than those that would apply if the local authority were (without charging any rate or rate revenue as security) borrowing the money or obtaining the financial accommodation.

There is no such requirement for CCO’s

17. The recommended option allows the CCTO’s to benefit from better interest rates due to the strong credit rating of Council and Councils access to debt funding via the LGFA. It is recommended that Council charge a margin of 1.0% for this service whilst still retaining a financial benefit for the CCTO. This margin ensures that the arrangement complies with section 63 of the Local Government Act.

18. Section 63 of the Local Government Act only applies to CCTO’s, therefore a margin of 0.5% is proposed for CFT because this more closely represents the actual cost to Council.

19. It is recommended that Council and CCTO/CCO loan agreements are time limited. A sensible time to review CCTO/CCO funding arrangements would be during each LTP review period. Therefore it is recommended that the current authorisation is extended to 30 June 2021.

20. If authorisation is extended, Council will continue to organise funding on behalf of the CCTO’s/CCO’s with a maximum maturity date of 3 years. This may mean that some loans may extend beyond the 30 June 2021 review date. If at the review date Council decides not to renew the ability for Council to on-lend to the CCTO’s/CCO’s, these loans will need to be transferred. Any re-arranged loans will be at higher interest rates because the CCTO’s/CCO’s will no longer be able to benefit from Council's lower average cost of borrowing.

21. It is necessary to allow loans that extend beyond the review date, to ensure that best interest rates are obtained and to minimise the risks associated with refinancing a large amount of debt maturing at the same time.

22. In order to remain within the debt limits as laid out in the Financial Strategy it is recommended that this on-lending continues to be treated as an investment.

23. If the recommendations are approved then formal agreements outlining the terms and conditions associated with the current and future loans will be drawn up and signed by Council's Chief Executive and the relevant CCTO/CCO Chief Executive or General Manager.

24. In addition to any long term loans arranged on behalf of the CCOs, both UPL and SML run a current account with Council. This is because all UPL and SML invoices are initially paid from Council's bank account and after each month-end, Council seeks reimbursement from UPL’s and SML’s respective bank accounts. Should the unlikely situation arise where there are insufficient funds in the relevant bank account, Council will not remove more funds than are available. In these situations, Council is effectively providing an overdraft facility and will charge the CCO at the 30 day rate available to Council plus a 1% margin. This situation does not occur in the case of CFT because all invoices are paid directly from the CFT bank account.

Options

25. An alternative is to require the CCTO’s/CCO’s to obtain debt funding from financial institutions directly. While financial institutions have advised they are prepared to do this, this will be at higher interest rates to the CCTO’s/CCO’s unless Council provides a guarantee.

26. However section 62 of the Local Government Act 2002 (LGA), prohibits Council providing such a guarantee - "A local authority must not give any guarantee, indemnity, or security in respect of the performance of any obligation by a council-controlled trading organisation."

27. The recommended option allows the CCTO’s/CCO’s to benefit from better interest rates due to the strong credit rating of Council and Councils access to lower cost debt funding via the LGFA.

Consultation

28. Public consultation is not required.

29. Officers have consulted with Councils treasury advisors who recommend the continuation of allowing Councils CCTO’s/CCO’s the option to make use of Councils on-lending ability.

30. Officers have had discussions with the boards of the CCTO’s/CCO’s who support the continued ability to obtain loan funding from Council as this is the most cost effective way for them to obtain the debt funding they require.

Legal Considerations

31. Section 63 of the Local Government Act allows Council to on-lend to a CCTO as long as it is not at more favourable terms than the local authority could obtain if it were unable to use rate revenue as security. This limitation does not apply to CCO’s.

32. Councils Legal Counsel will review and approve the required loan agreements and any supporting documentation.

Financial Considerations

33. It will cost the group less for Council to borrow the money and on-lend to the CCO’s than it would for them to borrow direct from a financial institution.

34. Council will charge SML and UPL an additional 1.0% above the rate it obtains to ensure compliance with section 63 of the Local Government Act. Even with this additional margin these CCO’s are able to obtain the required finance more cost effectively than they would if they approached the financial institutions directly.

35. The margin for CFT is proposed at 0.5% to reflect the cost of arranging the loan and the cost of running the treasury function.

36. The CCO’s draft 2018-2020 SOI’s have been prepared on the basis of the current lending arrangements continuing, plus for UPL, the ability to draw on further short term funds for its planned property developed for resale projects.

Other Considerations

37. 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 the local government in that it ensures services are delivered in the most cost effective way through obtaining the lowest borrowing costs possible.

Appendices

There are no appendices for this report.

Author: Brent Kibblewhite

General Manager Corporate Services

Reviewed By: Mark de Haast

Chief Financial Officer

Approved By: Tony Stallinger

Chief Executive

32 02 May 2018

Finance and Performance Committee

13 April 2018

File: (18/620)

Report no: FPC2018/2/131

Tax Risk Governance Framework and Tax Risk Management Strategy

Purpose of Report

1. This report informs the Committee of the Tax Governance Framework and Tax Risk Management Strategy for Hutt City Council (Council) and its Council Controlled Organisations (CCO’s), collectively referred to as the “Group”.

Recommendations

That the Committee recommends that Council approves the Tax Risk Governance Framework and associated Tax Risk Management Strategy attached as Appendix 1 to the report.

Background

2. Council is currently exempt from paying corporate income tax with the exception for income derived from Council Controlled Organisations (CCO’s). CCO’s (with the exception of The Hutt City Community Facilities Trust), are however subject to corporate income tax. All entities in the Group are subject to and required to correctly account for all indirect taxes including:

· Goods and Services Tax (GST);

· Fringe Benefit Tax (FBT);

· Pay As You Earn Tax (PAYE); and

· A range of other withholding taxes (WHT).

3. Over recent years, the Inland Revenue Department (IRD) has targeted the local government sector and a number of Councils have been subject to reviews and in some cases, subsequent audits. An IRD audit is extremely detailed and resource intensive that can often last up to 12 months or longer.

4. Inland Revenue has signalled its expectation that all large organisations should have tax risk management incorporated within their governance framework. This is consistent with international best practice and tax authorities in foreign jurisdictions, including Australia and the United Kingdom, advocating that this approach is taken by large public and private sector organisations.

5. The New Zealand taxation regime is a complex area and to keep abreast of developments, the Group has worked with The Tax Team (Council’s tax advisors of many years), who are now part of PricewaterhouseCoopers (PwC), to develop a tax governance framework and tax risk management strategy that outlines the Group’s approach and/or controls to tax risk management.

Tax Governance Framework

6. The Group’s tax governance framework has been developed to best ensure that the Group effectively manages its tax obligations and potential risks and achieves an open and honest working relationship with the IRD.

7. The tax governance framework is based on a “best practice” framework for the delegation, review and reporting of tax responsibilities and includes the following key aspects:

· Responsibility for Tax Issues: The Chief Financial Officer has the overall responsibility for the management of the tax issues for the Group. As appropriate, this may be delegated to appropriately qualified person/s.

· Reporting Tax Risk to the Finance and Performance Committee: Any significant tax risks will be reported to the Chair of the Finance and Performance Committee within two weeks of being identified.

· Tax Awareness and Training: All relevant staff will be provided with adequate trainings and resources to effectively identify and manage the Group’s tax obligations and risks.

· Meeting and Correspondence with the Inland Revenue Department: The Group will endeavour to maintain strong working relationships with the Inland Revenue Department, other government bodies and related third parties.

· Tax advice and rulings: The Group will seek external expert tax advice if any uncertainty in respect of a filing position where the amount of tax exceeds $50,000.

· Tax Returns and Payments: The Group will file all tax returns and pay any resulting tax liabilities on, or before, the stipulated due dates. All returns will be supported by detailed tax computations.

· Filing and Record Keeping: The Group will retain all tax records in terms of the Tax Administration Act 1994. To enable efficient retrieval, the Group will maintain a detailed Index of relevant tax files.

· Regular reviews: To ensure that the tax compliance procedures used by the Group are up to date and accurate, an independent external review of indirect taxes should be undertaken every three years.

· Penalties and voluntary disclosures: The Group must make a voluntary disclosure when a tax discrepancy is identified and thereby minimise any penalties and Use of Money Interest.

· Tax policies: The Group must maintain a tax policy that ensures consistent treatment and application across the organisation.

Tax Risk Management Strategy

8. The tax governance framework includes a tax risk management strategy which Officers recommend be reviewed every three years and formally adopted by the Finance and Performance Committee. This strategy identities the following:

· Key areas of tax compliance risk relevant to the Group

· Details the required actions to reduce and/or mitigate these risks; and

· Provides clear timeframes to complete these actions.

9. Officers have worked with PwC to develop the tax risk management strategy included within appendix 1 attached to this report.

Consultation

10. Consultation is not required.

Legal Considerations

11. There are no legal considerations arising from this report.

Financial Considerations

12. There are no financial consideration arising from this report

Other Considerations

13. 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 the local government in that it ensures Council and Groups awareness of tax matters is raised and that a tax governance framework is in place.

Appendices

No.	Title	Page
1 ⇩	Draft Tax Risk Governance Framework and Strategy	37

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Mark de Haast

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

Attachment 1

Draft Tax Risk Governance Framework and Strategy

tax risk governance framework

Division	Finance
Date created	April 2018
Owner	Role
Approved by	Finance and Performance Committee

Version	Author	Date	Description
V 1.0	Darrin Newth	18/4/18	Approved by Finance and Performance Committee.

Contents

1. Purpose. 3

1.1 Background. 3

1.2 Risk Management 3

2. Tax Risk Profile. 4

3. Tax Risk Management Strategies. 4

3.1 Responsibility For Tax Issues. 4

3.2 Reporting Tax Risks To Finance And Performance Committee. 4

3.3 Tax Awareness And Training. 5

3.4 Meetings And Correspondence With Inland Revenue. 5

3.5 Tax Advice And Rulings. 5

3.6 Tax Returns And Payments. 5

3.7 Filing And Record Keeping. 6

3.8 Regular Reviews. 6

3.9 Penalties And Voluntary Disclosures. 6

3.10 Tax Policies. 6

4. Hutt City Council’s Tax Risk Management Strategy. 7

1. purpose

This document establishes the tax governance framework for Hutt City Council's (Council) Finance and Performance Committee.

1.1 Background

Council is a large, high profile, organisation that is responsible for providing services to the New Zealand public. As such, Council must maintain exemplary governance and tax compliance standards.

Although Council is largely exempt from paying corporate income tax, it is required to correctly account for Goods and Services Tax, Fringe Benefit Tax, PAYE, and a range of other withholding taxes. These taxes make up a significant portion of the New Zealand Government's annual tax take. Accordingly, the tax obligations of Council cannot be taken lightly.

Inland Revenue has signalled its expectation that all large organisations should have tax risk management incorporated within their governance framework. This is consistent with international best practice; tax authorities in foreign jurisdictions, including Australia and the United Kingdom, have been advocating this approach is taken by large Public and Private sector organisations.

1.2 Risk Management

The Finance and Performance Committee is, along with other responsibilities, tasked to:

§ Assist Council to determine its appetite for risk.

§ Review whether management has in place a current and comprehensive risk management framework and associated procedures for effective identification and management of Council's significant risks.

§ Consider whether appropriate action is being taken by management to mitigate Council's significant risks.

§ Ensure that management is kept appraised of Council's governance body's views on uncontrolled risk.

§ Ensure management are keeping the Finance and Performance Committee fully appraised of all independent sources of assurance, via the risk management framework.

Proactive tax risk management can facilitate mitigation of:

§ Operational risk – by way of reducing the potential for reputational damage befalling Council as a result of non-compliance, and the possible negative impacts on various stakeholders, such as employees and suppliers.

§ Financial risk - through minimising the financial impact of non-compliance, and the costs associated with over or under-paying tax by Council.

§ Compliance risk- in terms of ensuring areas of non-compliance are identified, thereby minimising any penalties or interest being imposed by Inland Revenue and reducing the risk of Council being subject to an Inland Revenue Performance.

2. tax risk profile

Council has an obligation to fulfil its tax compliance obligations as required by tax legislation, including the Income Tax Act 2007, Goods and Services Tax Act 1985 and Tax Administration Act 1994.

Given the high profile and public nature of Council, there is a need to adopt a conservative approach towards tax compliance. Accordingly, Council will adopt a "LOW" tax risk profile such that it has an open and honest working relationship with Inland Revenue.

3. tax risk management strategies

The following strategies will be adopted by Council to ensure that it maintains a low tax risk profile and effectively manages its tax obligations and potential tax risks.

Council will develop a tax risk management strategy to be formally adopted by the Finance and Performance Committee. The strategy will be reviewed at least every three years. The strategy will:

§ Identify key areas of tax compliance risk that are faced by Council

§ Establish the steps required to effectively manage or mitigate each risk area

§ Provide clear and realistic time frames to carry out the steps.

3.1 Responsibility for tax issues

The Chief Financial Officer has overall responsibility for the management of the tax issues of Council. As appropriate, the Chief Financial Officer may delegate responsibility for tax issues to another appropriately qualified person.

3.2 Reporting tax risks to Finance and Performance Committee

As the Finance and Performance Committee meets on a six weekly basis, any significant tax risks will be reported in the first instance to the Chief Financial Officer as soon as they are identified and where appropriate, to the chair of the Finance and Performance Committee within two weeks of being identified.

A 'significant tax risk' to Council may be where an incorrect interpretation is made that results in:

§ A situation where penalties and interest could be imposed against Council

§ A situation where a tax liability outside of routine operating tax liabilities, is required to be settled that is in excess of $20,000

§ A situation where Council could be subject to prosecution

§ A situation where an accusation of tax avoidance could be levied.

Council will report on all tax risk management matters to the Finance and Performance Committee at least once a year. As part of that report, a summary should be prepared and presented to the Finance and Performance Committee setting out key issues, and may include the following:

§ Key financial information including any outstanding taxes due, and any interest or penalties imposed during the year

§ Particulars of any proposed legislative tax changes which could impact on Council

§ Details of any significant outstanding taxes in dispute with Inland Revenue

§ Details of advice sought and future matters to consider

§ A table of tax tools and services used and whether each aligns with Council's 'LOW' risk tax profile i.e. Strategy vs Achievement.

3.3 Tax awareness and training

Council will ensure that all relevant staff are provided with adequate training and resources to effectively identify and manage its tax obligations and risks. Where appropriate, this may involve sending selective staff on external courses or engaging an external speaker to conduct in-house training.

3.4 Meetings and correspondence with Inland Revenue

Council will endeavour to maintain strong working relationships with Inland Revenue, other government bodies, and related third parties. All dealings with external parties will be undertaken in a professional and timely manner.

Apart from routine PAYE, FBT and GST returns and payments, all other correspondence, meeting requests or queries from Inland Revenue must be immediately referred to the Chief Financial Officer. The Chief Financial Officer is the only person authorised to correspond or meet with Inland Revenue to discuss the tax matters of Council - although they may delegate this responsibility to others where appropriate.

3.5 Tax advice and rulings

Council will maintain detailed information and computations supporting all tax return filing positions. If there is any uncertainty in respect of a filing position where the amount of tax exceeds $50,000 or if there is political or public risk the Chief Financial Officer will seek written advice from external tax advisors.

In some instances, the degree of uncertainty over a particular tax issue may warrant seeking a Binding Ruling from Inland Revenue. No approach should be made for a Binding Ruling without the prior approval of the Chief Financial Officer. However, the Chief Financial Officer may obtain agreement from the Finance and Performance Committee if considered appropriate.

3.6 Tax returns and payments

Council will file all returns and pay any resulting tax liability on, or before, the stipulated due dates. When preparing and filing tax returns, Council will be transparent, and fully disclose all relevant information supporting a tax position in a tax return. Council will only adopt tax positions that are highly likely to be correct based on current law. Notwithstanding this, Council will endeavour to ensure that the most tax efficient position is adopted.

Tax payment s must be authorised in accordance with Council’s delegated authorities. Any tax payments in excess of $20,000 must be authorised by the Chief Financial Officer. However, the Chief Financial Officer may delegate this in accordance with Council’s delegation authorities.

Tax payments must be supported by detailed tax computations and explanations which are initialled by the preparer and then countersigned by that person's superior prior to payment.

3.7 Filing and record keeping

In terms of the Tax Administration Act 1994, Council is required to retain tax records for several years. To assist in archiving and the subsequent retrieval of relevant tax records, Council will separately file each tax return and supporting computation and advisory correspondence based on the year of assessment and tax type.

In addition, Council will maintain a detailed index of the relevant tax files to enable their efficient retrieval should they be requested by Inland Revenue in later years. Specifically, the index should contain details relating to the file reference, relevant tax period, tax type, subject of the document on file and location of the file, and evidence of review by the Chief Financial Officer. This index should be maintained irrespective of whether the information is in electronic or hard copy format.

3.8 Regular reviews

The tax risks of Council potentially increase over time through a combination of personnel and legislative changes. To ensure the tax compliance procedures of Council are kept up to date and accurate, an independent external review of GST, PAYE/Withholding Taxes and FBT and other areas of tax risk should be undertaken every three years. This review will tend to be undertaken in a 'rolling' format, with a different tax type being reviewed each year.

3.9 Penalties and voluntary disclosures

Wherever possible Council should endeavour to minimise any penalties and Use of Money Interest. Accordingly, any tax discrepancies identified should be addressed and disclosed to Inland Revenue as soon as possible. Unless the discrepancy has been identified pursuant to a (current) tax investigation, Council (in consultation with the Finance and Performance Committee) should always consider making a Voluntary Disclosure as a means of minimising any potential penalties.

3.10 Tax policies

To assist staff with the day to day tax treatment of issues specific to Council and to ensure a consistent tax treatment of items across the organisation, Council subscribes to PwC's Online Tax Policies. PwC maintains PAYE, GST, FBT, and KiwiSaver tax policies, and are regularly updated for legislative changes.

These tax policies will provide an outline of common tax issues arising and how they should be treated in the various tax returns of Council.

tax services	financial year ending 30/06/2016	financial year ending 30/06/2017	financial year ending 30/06/2018	financial year ending 30/06/2019
Tax helpdesk facility	ü	ü	ü	ü
Access to online taxation policies	ü	ü	ü	ü
Tax compliance reviews undertaken^{^[1]}
§ Tax fixed asset register review for council controlled organisations			ü
§ FBT		ü
§ PAYE/withholding taxes				ü
§ GST	ü
Income tax return independently reviewed	ü	ü	ü	ü
Tax disclosure notes – external support when required	ü	ü	ü	ü
Tax agency – income tax	ü	ü	ü	ü
External advice sought on major tax issues	ü	ü	ü	ü
Tax training provided to staff			As required

43 02 May 2018

Finance and Performance Committee

11 April 2018

File: (18/588)

Report no: FPC2018/2/134

Revolving Cash Advances Facility - Refinancing Options

Purpose of Report

1. To provide the Committee with relevant and necessary information to consider whether Council’s current cash advances facility (credit facility) should be held at $15M, or alternatively increased to $35M, for a term of three years ending 31 July 2021.

Recommendations

That the Committee

(i) receives the report;

(ii) notes that Council’s current $15M credit facility expires on 31 July 2018;

(iii) notes that a larger credit facility will enable officers to run a larger commercial paper programme without beaching the liquidity ratio limit, the potential benefit of which could be a lowering of Council’s average cost of borrowings;

(iv) consistent with Councils Treasury Risk Management Policy, authorises the Chief Financial Officer to negotiate refinancing terms for a credit facility with a line fee not exceeding 30 basis points (0.30%), for a three year term; and

(v) subject to part (iii) above:

(a) authorises a credit facility of $15M with a term of three years to be in place by no later than 31 July 2018; or

(b) authorises a credit facility of $35M with a term of three years to be in place by no later than 31 July 2018 (Officers recommendation).

Background

2. Council currently has a credit facility of $15M, which expires on 31 July 2018. The main purpose of the credit facility is to provide Council with guaranteed and instant short-term debt funding only in the event of a large scale natural disaster(s) and/or major emergency event. To date, no monies have been borrowed from the credit facility.

3. Prior to September 2012, Council had a credit facility of $25M. Since then, the credit facility has been steadily reduced. Between September 2012 and June 2015, Council had a credit facility of $20M which was then further reduced to $15M.

4. Historically, a larger credit facility was essential to safeguard Council’s access to debt funding, this was particularly important following the 2008 global financial crisis and, a larger credit facility also enabled Council to diversify its lending book, to best minimise its average cost of borrowings.

5. The establishment of the Local Government Funding Agency (LGFA) in December 2011, to guarantee access to lower cost debt funding for local authorities, has been hugely successful and over time, has negated the need for Council to have a credit facility in excess of $15M.

6. Officers now believe that significant changes to our environment: Council’s higher levels of borrowing to deliver the revitalisation and rejuvenation programme for the city and the increased frequency of natural disaster events, now warrants consideration of increasing Council’s credit facility.

7. Council currently has a Standard and Poor’s (S&P) credit rating of AA/Stable. Credit risk management is a key requirement to maintaining a strong credit rating. It is prudent financial management to demonstrate to S&P that Council’s credit facilities and any upcoming term debt maturities, are actively managed and re-negotiated prior to maturity and within timeframes that allows Council to realise competitive pricing.

8. Council must negotiate a new facility by no later than 31 July 2018 to ensure that Council has guaranteed access to instant and sizeable debt funding, which can be drawn on if required. In reality, any debt drawn down from the facility would subsequently be refinanced by lower cost term debt probably from the LGFA.

9. Council’s Treasury Risk Management Policy requires the Committee to authorise any new credit facilities or the renewal of existing credit facilities.

Options

10. The cost of a credit facility includes an annual “line fee” which is the cost to Council of having instant access to debt funding, and a “margin” which is an additional cost added to the bank’s 90 day bank bill rate (BKBM) , charged only against amounts borrowed from the credit facility.

11. To minimise Council’s overall cost of borrowings, Council needs to access debt at least cost. Officers recommend that the new credit facility be agreed for a term not less than three years for the following reasons:

· Pricing will be held for three years, thereby providing Council with medium term price certainty; and

· Council is guaranteed instant access to debt funding for three years.

12. There are two options to consider further: negotiating a new credit facility with a three year term for $35M or for $15M. These are considered separately below.

Option 1 - $35M credit facility with a three year term ending 31 July 2021

13. A $35M credit facility would allow officers to run a larger commercial paper programme to fund Council’s short-term working capital funding requirements at least cost; and

14. A larger credit facility will increase Council’s resilience to a potential central government insurance policy change amidst a tightening insurance market already showing signs of increased costs and reduced domestic and off-shore insurance capacity.

Commercial Paper Programme

15. Commercial paper is unsecured and short term debt (1 month to 1 year), typically used to fund Council’s working capital funding requirements, in between the bi-monthly rates installments.

16. 100 basis points (bps) is equivalent to a borrowing rate of 1%.

17. At the time of writing this report, commercial paper offered by the LGFA was 9bps over BKBM for lending up to 181 days and 14bps over BKBM for lending terms ranging from 182 days up to 364 days.

18. Liquidity risk is the risk that Council will encounter difficulty in obtaining sufficient debt funding to meet commitments as they fall due. Council’s Treasury Risk Management Policy requires Council to maintain a minimum liquidity ratio of 110%.

19. When calculating liquidity, commercial paper is treated as a drawdown of debt against the credit facility. Hence, the size of the credit facility becomes a key component of the liquidity ratio determination and compliance.

20. Simply, a larger credit facility will enable officers to run a larger commercial paper programme without beaching the liquidity ratio limit, the potential benefit of which could be a lowering of Council’s average cost of borrowings.

Increased resilience to potential policy change by central government

21. Council currently insures up to 40% of its Maximum Probable Loss (MPL) for material damage to its infrastructure (below ground) assets caused from natural disaster(s). Currently, central government, subject to an insurance levy, will cover the remaining material damage costs to infrastructure assets from natural disaster(s) up to 60% of Council’s MPL.

22. Since late 2016, Treasury has initiated a review of central governments exposure to these events and local government was advised that potentially, central government may transition to a model whereby it only provides financial support for uninsured losses in excess of Council’s MPL. At the time of writing this report, central government’s position on this remains unclear.

23. With increasingly more natural disaster events, both domestic and off-shore insurance markets are tightening, meaning that the cost of insurance is increasing and total insurance capacity is decreasing as investors are starting to seek higher returns on their investments and recoup recent losses.

24. Increasing the credit facility to $35M provides Council with guaranteed and instant access to debt funding in order to respond immediately to any potential uninsured loss event(s), and for losses that are covered, the period between event, insurance claim preparation, negotiation and settlement.

25. Council must seek to realise the most competitive pricing for a $35M credit facility for a term of three years ending 30 June 2021. Officers requested one, two and three year pricing from a panel of banking institutions. The table below shows the pricing obtained.

26. Council uses PricewaterhouseCoopers (PwC) for independent and expert treasury management advice. PwC advised that for comparably credit rated Councils with similar debt size and tenors, all–up credit facility pricing in the last month have been circa 80bps (1 and 2 years) and 90 to 120 bps (3 years).

27. PwC have advised Council to seek better pricing, particularly from its current banker, to realise an annual line fee of no more than 25bps or $87,500 per annum. Potentially this may be possible but should not be taken as a given.

28. Should this be the Committee’s preferred option, the draft 2018-28 Long Term Plan budget, whilst cost neutral, will need to be adjusted to reflect the additional line fee and lower interest expense prior to final adoption by Council on 28 June 2018. Please see “Financial Considerations” for further explanation.

Option 2 - $15M credit facility with a three year term ending 31 July 2021

29. Alternatively, a credit facility of only $15M could be negotiated for a term of three years. However, this facility level would not facilitate Council Officers to run a larger commercial paper programme.

30. The line fee for the current facility is $34,500 per annum. Whilst pricing still needs to be confirmed, a line fee of 25 bps would be $37,500 per annum. This level of operating expense has been included in the draft 2018-28 Long Term Budgets.

Consultation

31. There is no need for consultation.

Legal Considerations

32. The new credit facility agreement will require legal review to best protect the Council.

Financial Considerations

33. Council currently incurs a credit facility line fee of $34,500 per annum. Increasing the credit facility to $35M will increase the line fee to at least $87,500 per annum (calculated on 25 bps), representing an annual line fee increase of at least $53,000.

34. As already noted, commercial paper currently incurs a margin of 14bps over BKM for up to 1 year. This compares favourably to the LGFA’s 1 year term loan margin of 19 bps.

35. In order to break even against a line fee increase of $53,000 per annum, a total commercial programme of say $11M would need to be run over a 12 month period.

36. Currently, Council is running a $5M commercial paper programme and cannot increase this further without breaching its minimum liquidity ratio limit of 110%.

37. Council’s operating revenues and expenditure both exceed $100M per annum and Council can easily run a commercial paper programme of $11M over 12 months to better fund its working capital requirements.

38. Officers believe that a credit facility of $35M can be cost neutral for Council as the additional line fee costs can easily be off-set by lower interest costs by using a larger commercial paper programme. Therefore, the added benefit for Council is guaranteed and instant access to larger debt funding, in the event of a natural disaster(s).

Other Considerations

39. 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 the local government in that it provides best value for money for the ratepayers.

Appendices

There are no appendices for this report.

Author: Mark de Haast

Chief Financial Officer

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Tony Stallinger

Chief Executive

49 02 May 2018

Finance and Performance Committee

09 April 2018

File: (18/621)

Report no: FPC2018/2/130

HCC Group Asset Revaluation as at 31 December 2017

Purpose of Report

1. The purpose of this report is to provide the Committee with a summary of the fixed asset revaluations as at 31 December 2017, including explanations for significant valuation increases and/or decreases.

Recommendations

That the report be noted and received.

Background

2. Hutt City Council and it’s Council Controlled Organisations: The Hutt City Community Facilities Trust, Seaview Marina Limited and Urban Plus Limited, collectively referred to as the “Group”, are required to revalue their significant asset categories on a regular basis, sufficient to ensure that the net book value of those assets does not materially differ to the fair value of those assets, as at reporting date.

3. The Group revalues its assets every three years to 31 December, unless market conditions warrant an additional revaluation during the interim years. Asset revaluations as at 31 December 2017 were completed by Aon New Zealand Limited, an independent and registered valuer.

Discussion

4. The 31 December 2017 revaluation has realised an uplift of $77.55M to the net book value of the Group’s assets. A breakdown by asset category, is provided below:

Net Book value

Revaluation

Movement

Uplift / (Decrease)

Notes

Hutt City Council (HCC)

Art Collection

Land

Buildings/Site Improvements

Waste Water

Storm Water

Water Supply

Roading

Seawall

Breakwater

17,591,664

159,403,816

102,715,899

216,827,629

170,202,208

108,237,159

412,988,348

4,846,944

4,876,134

13,590,113

179,167,600

107,482,000

236,819,064

184,431,308

114,487,203

424,035,224

5,185,100

5,100,000

(4,001,551)

19,763,784

4,766,101

19,991,435

14,229,100

6,250,044

11,046,876

338,166

223,866

-22.7

12.4

4.6

9.2

8.4

5.8

2.7

7.0

4.6

HCC Total

1,197,689,801

1,270,297,612

72,607,811

Urban Plus Limited (UPL)

Land

Buildings/Site Improvements

11,335,000

12,854,569

11,520,000

13,960,000

185,000

1,105,431

1.6

8.6

Seaview Marina Limited (SML)

Land

Buildings/Site Improvements

447,158

3,347,121

2,800,000

3,305,700

2,352,842

(41,421)

526.2
-1.2

Hutt City Community Facilities Trust (CFT)

Buildings/Site Improvements

27,956,784

29,300,700

1,343,916

4.8

Total

1,253,630,433

1,331,184,012

77,553,579

6.2

Note 1 - Infrastructure Network Assets

5. Infrastructure network assets include:

· Waste Water: pipelines, storage tanks, manholes, structures, nodes, telemetry and pump stations and waste water treatment plants

· Storm Water: pipeline, pump stations, nodes, conduits, telemetry, control and structures.

· Water Supply: Valves, fire hydrants, service connections, meters, telemetry, control, pump stations, storage reservoirs and significant features (example: Petone water feature)

· Roading: pavements, roads, footpaths, berms, bridges, culverts, retaining walls, seawalls, breakwater, street lighting traffic services, traffic islands and similar assets.

6. Infrastructure assets are highly specialised assets for which there is no active market. As a consequence, these assets are valued on the basis of their Optimised Depreciated Replacement Cost (ODRC).

7. The ODRC is calculated based on the current replacement cost of modern equivalent replacement assets (generally based on an industry based standard unit price) that are adjusted for any over-design, over-capacity and/or redundant assets, less an allowance for depreciation, to reflect the same age as the Council’s current assets.

8. The valuation movement mainly reflects increased unit costs over the three year period. The November 2016 Kaikoura earthquake has resulted in a steep increase in construction costs in the Wellington CBD due to lack of suitably qualified resources. Due to its close proximity to the Wellington CBD, Aon advised that fair value of the Council’s assets would be based on Wellington central rates adjusted to reflect the installation costs for the Hutt Valley terrain. Further, rates are discounted to reflect large commissioning of works (example: as would be required after a major event) as opposed to one-off smaller jobs (example: routine renewals).

Note 2 - Land

9. Land for valuation purposes includes land under buildings, parks and reserves but excludes land under roads. The Council’s total land valuation has been derived from values of comparably zoned land in surrounding areas, making due allowance for the size, character of location and any other constraints.

10. Where it is identified that the land is designated reserve, appropriate adjustments to the valuation were made to reflect the nature of any constraints (example: restriction on the ability to sell) and future development potential.

11. Council land asset value movements were in line with expectations for the three year period.

12. Urban Plus Limited (UPL) - due to material movement in market values, UPL land assets were revalued as recently as 30 June 2017, which resulted in a revaluation uplift of $2.6M recognized by UPL in 2017/18. The movement noted in the previous table reflects the market movement in value from 30 June 2017 to 31 December 2017.

13. Seaview Marina Limited (SML) - land assets were revalued for the first time since November 2003 when ownership passed to the company from HCC.

14. The Hutt City Community Facilities Trust (CFT) - only own the buildings and selected site improvements, not the land where they reside which is owned by HCC.

Note 3 - Buildings and Site Improvements

15. Some of the Buildings owned by the Group include the following:

· specialised buildings (i.e. pools, stadiums, toilets);

· non-specialised/commercial (i.e. administration and library buildings);

· UPL - residential buildings;

· SML: non-specialised/commercial buildings; and

· CFT - specialised buildings (i.e. Walter Mildenhall Regional Bowls Centre, Walter Nash Stadium).

16. The value of the non-specialised and residential buildings (i:e: buildings that have an active buyer/seller’s market), and associated site improvements, has been determined by assessing comparable sales evidence taking into account location, marketability, condition and tenant quality/rental income (if appropriate).

17. The value of the specialised buildings (i.e: buildings that do not have an active buyer/seller’s market), and associated site improvements, has been determined by first establishing their estimated cost to replace with an equivalent new asset less depreciation for their physical, functional and economic obsolescence.

18. Overall, the revaluation was in line with expectations except for the Council Administration Building located at 30 Laings Road. The net book value of the building as at 31 December 2017 was $20.57M against a total revaluation of $9.02M as at the same date, resulting in an unrealised revaluation decrease of $11.55M.

19. This is because the Administration Building is predominantly a non-specialised commercial building with an active market and was therefore predominantly valued on an income approach, rather than a cost approach. The specialised areas of the building include the Council Chambers, ground floor open spaces and meeting rooms, and have been valued separately on a depreciated replacement cost basis.

20. The income approach reflects what a potential buyer would expect to pay for a similar building based on the level of rental income that would be expected to be earned. The improvement value in the income approach is calculated based on the total fair value less land value. It is important to note, that the valuation methodology does not factor in:

· the heritage nature of the building;

· additional costs associated with refitting a heritage building compared to a new build;

· additional features added to the building (example: ground heating source); and

· Additional strengthening to 100% level of the building code.

21. Whilst the latter have benefits in terms of lower operating costs and safety, valuation is based on prevailing, comparable market rates.

22. UPL – similar to land, residential building assets were also revalued as at 30 June 2017 and resulted in a revaluation uplift of $3.4M recognised by UPL in 2017/18. The revaluation movement in the earlier table only reflects the market movement from 30 June 2017 to 31 December 2017.

23. SML – As already noted, these assets were revalued for the first time since November 2003. The revaluation of the buildings reflects a “Capitalised Income” valuation. This reflects what a potential buyer would expect to pay for a similar building based on the level of rental income that would be expected to be earned. As this is the first valuation and resulted in a decreased, this amount will be an expense in the Surplus/Deficit of the company.

24. CFT – all assets are considered to be specialised assets with no active market and therefore the valuation is based on replacement cost of the asset less an allowance for depreciation (based on age). The revaluation uplift mainly reflects increase cost of materials to replace the asset.

Note 4 – Art Collection

25. The collection is made up of artworks held at the Dowse Museum and Settlers Museums, along with public sculptures located around the city.

26. The valuation considers market based evidence (recent sales trends and auctions) and comparisons to similar artworks held in other institutions in Australasia.

27. During the previous three yearly revaluation in December 2014, questions were raised concerning the ownership of “Pataka Nuku Tewhatewha”. It was unclear at that time and was assumed to have been owned by Council, and resulted in a value of $4.5M being added to the Art Collection.

28. The 31 December 2017 revaluation includes a reduction of $4.5M from the revaluation reserve, which would represent a “correction” if it is confirmed that actual ownership resides with local iwi and their descendants. At the time of writing this report, this is currently insured by the Council and Officers are seeking confirmation of ownership as well as any obligations and/or expectations from/of Council in relation to “Pataka Nuku Tewhatewha”. Officers will provide an update at the committee meeting.

Financial Impacts

Depreciation

29. The following table sets out the annual depreciation per asset category for both the pre and post 31 December 2017 asset revaluation.

30. The Group’s 2018/19 and beyond total annual depreciation has been reduced by $567,428 (HCC only: reduced by $745,317). This is mainly due to the impacts of a revaluation which includes a re-assessment of the carrying amount of the assets and the remaining useful lives of those assets. Typically, depreciation will reduce when either the asset value(s) are reduced and/or the remaining useful lives of the assets are increased.

Annual depreciation charge pre-revaluation

$ vs %

Annual depreciation change post-revaluation

$ vs %

Movement

$ vs %

Hutt City Council

Art Collection

Land

Buildings/Site Improvements

Waste Water

Storm Water

Water Supply

Roading

Seawall

Breakwater

N/A

5,750,123

8,997,932

3,103,082

3,844,884

12,653,549

112,719

75,013

5.0

3.7

1.7

3.2

2.8

2.2

1.5

N/A

4,871,228

8,780,559

4,205,202

3,919,808

11,827,474

112,719

74,995

4.5

3.7

2.3

3.4

2.8

2.2

1.5

N/A

-878,895

-217,373

1,102,120

74,924

-826,075

-18

-15.3

-2.4

35.5

1.9

-6.5

0.0

Total HCC

34,537,302

33,791,985

-745,317

Urban Plus Limited

Land

Buildings/Site Improvements

N/A

581,257

4.4

N/A

637,999

4.6

N/A

56,742

9.8

Seaview Marina Limited

Land

Buildings/Site Improvements

N/A

104,665

2.7

N/A

78,718

2.4

N/A

-25,947

-24.8

Hutt City Community Facilities Trust

Buildings/Site Improvements

559,275

1.9

706,369

2.4

147,094

26.3

Total

35,782,499

35,215,071

-567,428

-1.6

Revaluation Reserves

31. The following table sets out the impact of the revaluation on the financial statements. The net accumulation of asset uplifts or decreases (by asset class) passes directly to the revaluation reserve of each entity, provided the revaluation reserve for each asset class has a sufficient equity balance.

32. As noted above, Seaview Marina Limited buildings have not been revalued in the past. Accordingly, the revaluation reserve has no equity balance and the revaluation decrease is expensed to the Statement of Comprehensive Revenue and Expense immediately.

Revaluation Reserve (Equity)	Opening balance	Revaluation movement	Closing balance
Hutt City Council Land – Operational/Site Improvements Land - Infrastructure Land - Restricted Buildings Waste Water Storm Water Water Supply Roading Other – Art, Seawall, Breakwater	11,326,349 71,736,184 52,809,612 15,768,219 78,792,087 85,455,344 42,161,227 150,848,602 11,561,363	4,234,958 988,700 14,200,344 5,105,883 19,991,435 14,229,100 6,250,044 11,046,876 -3,439,529	15,561,308 72,724,884 67,009,955 20,874,102 98,783,522 99,684,444 48,411,272 161,895,478 8,121,835
	520,458,987	72,607,811	593,066,800
Urban Plus Limited Land Building/Site Improvements	6,969,904 4,489,563	185,000 1,105,431	7,154,904 5,594,994
Seaview Marina Limited Land Building	0 0	2,352,842 0	2,352,842 0
Hutt City Community Facilities Trust Building	0	1,343,916	1,343,916
Total movement in revaluation reserves	531,918,454	77,595,000	609,513,456
Charged to Surplus/Deficit
Seaview Marina Limited Impairment on revaluation of assets	0	-41,421	-41,421
	531,918,454	77,553,579	609,472,035

Consultation

33. There are no consultation requirements arising from this report.

Legal Considerations

34. There are no legal considerations arising from this report.

Financial Considerations

35. There are no financial considerations in addition to those already outlined in this report.

Other Considerations

36. 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 the local government in that it ensures council’s assets are recognized at fair value and are not materially misstated.

Appendices

There are no appendices for this report.

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Mark de Haast

Chief Financial Officer

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Tony Stallinger

Chief Executive

63 02 May 2018

Finance and Performance Committee

10 April 2018

File: (18/561)

Report no: FPC2018/2/127

Education Delegation to Minoh, Japan and Taizhou, China

Purpose of Report

1. To seek the Committee’s approval in principle for The Mayor to lead an education delegation to Lower Hutt’s Sister Cities of Minoh, Japan and Taizhou, China in October 2018, to further strengthen relationships, establish new educational programmes and celebrate the 10^th Anniversary of the Hutt-Taizhou Sister City relationship.

Recommendations

That the Committee:

(i) notes that in May 2018 Minoh City’s Mayor Kurata will lead a delegation of five officials and a Council officer to Lower Hutt to attend the Sister Cities New Zealand Conference and that a group of Minoh citizens will join the official delegation in Lower Hutt;

(ii) notes that representatives from Sacred Heart College and Wainuiomata High School will be in Minoh the first week of October 2018;

(iii) notes that the two Lower Hutt teachers on Council’s ‘Hutt-Minoh Teacher Exchange’ programme, will be in Minoh the first two weeks of October 2018;

(iv) notes that Assumption Kokusai High School in Minoh is developing an International English Course Programme to bring a group of Students to Lower Hutt for one term in 2019, and again in 2020;

(v) notes that in May 2018 Taizhou will bring a delegation of five senior officials to Lower Hutt to attend the Sister Cities New Zealand Conference; and that October 2018 marks a significant milestone in the Sister City relationship between Taizhou and Lower Hutt being the 10^th Anniversary;

(vi) approves Mayor Ray Wallace and Mayoress, Linda Goss-Wallace leading an education delegation to Minoh and Taizhou between 2 and 12 October 2018, at an estimated cost of up to $12,000;

(vii) approves an amount of funding capped at $6,000 to be split equally among any Councilors who wish to accompany the Mayor as part of the official delegation to Minoh and Taizhou; and

(viii) notes that the costs totaling up to $18,000 above will be met from existing budgets.

For the reason(s)

To strengthen the long standing Sister City Relationship with Minoh City; and

To acknowledge and celebrate the 10th Anniversary of the Sister City relationship with Taizhou; and

Support and focus on our existing sister city relationships as outlined in Council’s international relationships work programme 2017-2019.

Background

2. Minoh City and Lower Hutt have had a 24 year Sister City relationship and over the most recent years the following activities have increased and strengthened this longstanding relationship:

· Mayor Tetsuro Kurata visited Lower Hutt in January 2012 with a group of 15 officials and citizens – discussions took place on how to connect our young people, to increase their international understanding and global connectivity.

· Several current education programmes between schools and libraries in our cities enable citizens to develop their global internationalisation, understanding and experiences; including

o The school to school Skype programme established in 2013 between Tui Glen School, Epuni Primary School and two Minoh schools;

o Hosting four Minoh teachers in August 2013 from the two Minoh schools in the Skype programme;

o Citizens in Minoh and Lower Hutt connect monthly on Skype in our War Memorial Library, enhancing the people-to-people relationships between our cities;

o Tui Glen School takes a small group of students, parents and teachers to Minoh every two years to experience the culture and education. The students are intermediate age, and are home hosted, and attend school during their stay in Minoh;

· In January 2015 Mayor Tetsuro Kurata returned to Lower Hutt with a group of 21 officials and citizens to celebrate the 20^th anniversary of the Sister City relationship. A formal/public festival named “Tomodachi Day” (meaning ‘Day of Friends’) was held in the Civic Gardens and Little Theatre to celebrate their visit with more than 300 locals attending;

· Mayor Wallace led a delegation visit to Minoh in October 2015 – that focused on Education and Art; formalising the “Hutt-Minoh Teacher Exchange”, visiting the schools involved in the Skype programme with Epuni and Tui Glen Schools, connecting Hutt Art Society with Minoh Art Association and connecting Hutt Valley Rotary Club with Minoh Rotary Club;

· In August 2016, five young university graduates from Lower Hutt were assigned to Minoh for one year as ALT (Assistant Language Teachers) as part of the Japanese Government’s JET (Japanese English Teaching) programme. Four of them have extended their contracts and are still living in Minoh, teaching English;

· In October 2016 the Hutt Minoh Teacher Exchange programme commenced with two Lower Hutt teachers going to Minoh for two weeks and in August 2017 Minoh sent two teachers to Lower Hutt as the reciprocal exchange;

· Hutt Art Society sent more than 20 pieces of Art to Minoh in 2016 for exhibition for two weeks and in May 2017 Hutt Art exhibited 35 pieces from Minoh Art Association. A delegation of artists from Minoh came for the official opening of the Exhibition in Lower Hutt;

· In May 2018 Minoh Mayor Kurata will lead a delegation of Council Officials to Lower Hutt to attend the Sister Cities New Zealand Conference and a group of Minoh citizens will join the official delegation in Lower Hutt;

· In June 2018 The Wellington Region Karate Association based in Wainuiomata will take a group of 24 members to Minoh to train with the Minoh Karate Association as part of their trip through Japan;

· We have just selected the next two Lower Hutt teachers on the Hutt-Minoh Teacher Exchange who will travel to Minoh on 29^th September 2018 for two weeks of teaching, learning and sharing culture, education and language;

· In the first week of October 2018 the International Director of Sacred Heart College will be in Minoh to discuss arrangements with Assumption Kokusai High School; and

· In the first week of October 2018 Wainuiomata High School’s International Director, Teachers and students in the Kapa Haka Roopu will be in Minoh performing at various events.

Taizhou and Lower Hutt signed a Sister City Agreement on 30 October 2008. Over the last ten years there have been a number of inbound visits to Lower Hutt, such as:

· November 2015 a delegation interested in Technology and Construction visited The Lightening Lab and Walter Nash Centre;

· April 2016 a delegation interested in medical research visited Callaghan Innovation, connecting with the China Medical City situated in Taizhou;

· Jiangsu Province of which Taizhou is a city, sent members of their Commerce Department to Lower Hutt in November 2016. Hutt City Council officers’ presentations covered Urban Development and Environmental Sustainability;

· In April 2018 the Sister Cities NZ – Youth Committee’s “China Youth Tour” group will visit Taizhou for one day. There are eight students and two youth leaders in the group, of which four reside in Lower Hutt; and

· In May 2018 Taizhou will bring a delegation of five senior officials to Lower Hutt to attend the Sister Cities New Zealand Conference and discuss virtual connection programmes between our schools.

Discussion

3. The first week of October 2018, will see many visitors from Lower Hutt in Minoh including:

a. The International Director of Sacred Heart College;

b. The International Director, Teachers and Students in the Kapa Haka Roopu from Wainuiomata High School; and

c. The two Hutt-Minoh Teacher Exchange delegates.

4. The Wainuiomata High School Kapa Haka Roopu will perform at a ceremony in Maple Hall where the Maori Po gifted from Lower Hutt to Minoh in 1999 stands, to represent the Hutt-Minoh Sister City relationship.

5. Mayor Kurata has invited Mayor Wallace to bring a delegation to Minoh in October 2018 to strengthen the educational and art exchange programmes and develop further opportunities between our two cities.

6. 30 October 2018 marks the 10^th Anniversary of the Sister City relationship of Lower Hutt and Taizhou:

a. While there have been invitations to visit, there has been no outbound Lower Hutt Mayoral delegations to Taizhou since 2008;

b. Mayor Wallace has been invited to bring a delegation to Taizhou in October 2018 to celebrate the 10^th Anniversary; and

c. It is appropriate that a Mayoral led delegation visits Taizhou to mark this significant anniversary to further strengthen the relationship and investigate further educational and business-to-business opportunities.

7. Taizhou has made real advancements in Medical Research and Development in recent years with the ‘China Medical City’ the first and largest medical hi-tech zone in China that is located in Taizhou. Opportunities may exist for connecting businesses in the region to the China Medical City.

8. Taizhou Foreign Affairs office is currently working with us to establish a school to school Virtual Connection Programme between Konini Primary and Wainuiomata High School with two Taizhou schools.

9. The International Director from Wainuiomata High School will be in Minoh the first week of October and is keen to visit Taizhou the following week with the Mayoral delegation, to have a face-to-face visit with the school selected to connect with Wainuiomata High School in the school to school Virtual Connection Programme.

10. Making connections with Mayor led visits to schools will provide further opportunities to promote Lower Hutt as a place to study for international students.

11. Council can enable and help facilitate further education activity between our Sister Cities that will provide opportunities for students, teachers and citizens.

12. Goals:

The Mayoral led delegation visit will enhance and deepen the city’s relationships with Minoh and Taizhou and assist in developing new and strengthening current activities between our cities. This includes the following:

Minoh, Japan

· Enhance current education connections in Minoh City, visiting schools that currently connect with Lower Hutt schools;

· Visit Assumption Kokusai High School that is developing an International English programme for their students in Lower Hutt schools in 2019 and 2020;

· Support and attend performances by the Wainuiomata High School students’ Kapa Haka Roopu who will be in Minoh;

· Attend the New Zealand Fair Festival that Minoh City is hosting in honour of the Mayor and Lower Hutt visitors;

· Support the two Lower Hutt delegates in their first week of the Hutt-Minoh Teacher Exchange;

· Visit a nominated Minoh City Lion’s Club to link with a nominated Hutt Lion’s Club to potentially support and strengthen the ongoing sustainability of the Hutt-Minoh Teacher Exchange Programme; and

· Enrich the relationship between Hutt Art Centre and Minoh Art Association to continue annual art exchanges between our cities.

Taizhou, China

· Celebrate the 10^th Anniversary of the Sister City relationship;

· Formalise a school to school Virtual Connection Programme between two Lower Hutt and two Taizhou schools;

· Discuss other potential education, art and cultural exchanges;

· Visit the China Medical City to establish potential connections for Hutt and regional businesses; and

· Explore further economic/business opportunities.

13. Other areas of interest for our city includes:

· Promoting Lower Hutt as a tourist destination to both the Japanese and Chinese markets;

· Opportunities to establish an Art/Cultural exchange with Taizhou; and

· Open the doors for potential business exchange.

14. Value for local organisations

Mayor Wallace will formally invite members of The Hutt Valley Chamber of Commerce, Hutt Art Society and local Lion’s and Rotary Clubs to join the delegation.

Options

15. Council has the option to either;

a. further enhance the sister city relationships with Minoh and Taizhou and support the educational programmes and exchanges of art, students and teachers.

or;

b. decline the invitations to visit to Minoh and Taizhou which would limit effective engagement and not support the desire to encourage and grow links between our cities.

Consultation

16. The International Relations and Project Manager has had regular contact and discussion with members of the Lower Hutt school community and Senior Lion’s and Hutt Art Society Representatives who are all supportive of the proposed delegation visit.

17. Invitations from Minoh and Taizhou have expressed a strong desire for an inbound Mayoral led delegation to each city this year.

Legal Considerations

18. There are no legal considerations.

Financial Considerations

19. The official delegation estimated costs of $18,000 can be met from within existing budgets for FY2018/19.

Other Considerations

20. 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 the local government in that it will encourage cultural and economic development, strengthen our community’s culture and provide an opportunity not otherwise available to communities. It does this in a way that is cost-effective leveraging of existing relationships and connections with our sister cities.

Appendices

There are no appendices for this report.

Author: Gary Craig

Divisional Manager City Growth

Approved By: Kim Kelly

General Manager, City Transformation

70 02 May 2018

Finance and Performance Committee

16 April 2018

File: (18/622)

Report no: FPC2018/2/129

Finance Update

Purpose of Report

1. The purpose of this report is to present the Council’s year to date financial performance for the nine month period ended 31 March 2018 as well as the forecast for the year ended 30 June 2018.

Recommendations

That the Committee notes Council’s March 2018 year to date financial performance and the full year forecast for the year ending 30 June 2018.

Financial Performance Summary

2. Council’s March 2018 year-to-date performance as well as a full-year forecast to 30 June 2018 is attached as Appendix 1 to the report. A high level summary is provided below.

3. A list of operating and capital works projects is attached as Appendix 2 to the report. A high level summary is provided below.

4. Council’s treasury compliance report as at 31 March 2018 is attached as Appendix 3 to the report.

Net Operating Result – March Year to Date

5. Excluding CFT grants, capital subsidies, depreciation and unrealised gains and losses, Council is $2.19M favourable to budget as at 31 March 2018. This is due to additional revenue of $1.03M mainly from additional reserve contributions, consents fees, metered water charges and landfill fees. Additionally, operating expenditure is $1.20M less than planned mainly due to timing of some operating costs and savings in interest expense.

6. Including CFT grants, capital subsidies and depreciation, Council is $2.95M unfavorable to budget. This is mainly due to lower capital subsidies than planned due to the cycleway project delays. Additionally, depreciation is significantly higher than planned due to a budgeting error.

7. Year to date, depreciation is $2.08M unfavourable to budget. A new budgeting system (Technology One Enterprise Budgeting) was used for the first time to calculate depreciation in 2017/18. The budget was erroneously set too low as it has recently been determined that the system was calculating depreciation using the same depreciation rate for all asset classes. The actual depreciation costs for 2017/18 use varying depreciation rates depending on the asset class.

Net Operating Result – Full Year Forecast

8. Excluding CFT grants, capital subsidies, depreciation and unrealised gains and losses, Council is currently expected to finish the financial year $1.18M favourable to budget. As noted above, this is mainly due to estimated additional revenue of $2.21M from reserve contributions, consents fees, metered water charges and landfill fees. However, this is offset by operating expenditure estimated to be of $1.03M over budget mainly due to additional employee costs, operating software license costs, capital project costs now being correctly expensed and additional costs being incurred for water supply and solid waste.

9. Including CFT grants, capital subsidies and depreciation, Council is expected to finish the financial year $6.26M unfavourable to budget. As noted above, this is mainly due to lower capital subsidies and higher depreciation than planned. Additionally, this is also due to a delayed grant payment of $1.4M to the Community Facilities Trust (CFT) for the Stokes Valley Community Hub. $1.7M was budgeted in 2016/17 and a $2M underspend was achieved last year.

Gains/Losses on Revaluation of Financial Instruments and Property Revaluations

10. Council has a number of interest rate swap agreements in place to comply with its treasury management policy and to provide some certainty with future interest costs.

11. Due to fluctuations in the interest rate market, the overall value of these agreements is constantly changing. Year to date, there has been a $2.12M unrealised loss in the revaluation of Council’s total interest rate swaps as interest rates have fallen. Council has no intention to realise any interest rate swaps and this revaluation is a non-cash item.

12. The revaluation of Council’s infrastructure assets, land and buildings and parks and reserves for the three years ended 31 December 2017 has now been completed. In summary, the total revaluation increase to Council’s assets was $72.61M against an expected uplift of $72.31M. For more detailed information, please refer to the 2 May 2018 Finance and Performance Committee report “HCC Group Asset Revaluation as at 31 December 2017”.

Capital Expenditure – March Year to Date

13. Excluding external subsidies, Council is $23.74M favourable to budget. This is mainly due to delays in a number of projects including $4M for the Events Centre, $7M for the Strategic Property Purchases, $3.6M for the cycleway projects, $2.2M for the Integrated Community Services projects, $2.8M relates to Parks and Reserves projects, and the balance is spread across a number of other activities.

Capital Expenditure – Full Year Forecast

14. Excluding external subsidies, Council is currently expecting to carry-over $11.88M of the 2017/18 capital works to 2018/19. This is mainly due to delays on the cycleway projects, strategic property purchases and the Making Places projects.

Asset Sales

15. Asset sales are forecast to be $7.1M under budget mainly due to delays in the sale of Mitchell Park and strategic properties, as well as the likely option to lease rather than sell the seawall/breakwater to Seaview Marina Limited (SML).

Net Debt

16. Net Debt is currently forecast to be $168.08M at year end. This is $8.43M more than planned mainly due to estimated operating cost overspends, delays in asset sales and a potential change in direction regards sale of the seawall to SML as noted above.

Annual Leave Liability

17. Annual leave liability at the end of March is slightly higher than March last year. Over the past two years the overall liability has shown a slight downward trend as reflected in the chart below.

Treasury Compliance

18. All limits within the Treasury Risk Management Policy have been fully complied with including debt limits.

Consultation

19. There are no consultation requirements arising from this report.

Legal Considerations

20. There are no legal considerations arising from this report.

Financial Considerations

21. There are no financial considerations in addition to those already noted in this report.

Other Considerations

22. 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 the local government in that it provides Councilors with the necessary information to effectively undertake their governance role.

Appendices