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 28 November 2018 commencing at 5.30pm.

ORDER PAPER

Public Business

1. APOLOGIES

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. Recommendations to Council - 11 December 2018

i) 2019/20 Annual Plan (18/1720)

Report No. FPC2018/5/325 by the Corporate Planner 9

Chair’s Recommendation:

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

ii) Formation of Innovative Young Minds Charitable Trust (18/1854)

Report No. FPC2018/5/340 by the STEMM Sector Development Manager 17

5. Risk and Assurance Update and Strategic Risk Register 2018 (18/1725)

Report No. FPC2018/5/326 by the Risk and Assurance Manager 47

Chair’s Recommendation:

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

6. Financial Report for the Quarter Ended 30 September 2018 (18/1758)

Report No. FPC2018/5/330 by the Budgeting and Reporting Manager 68

Chair’s Recommendation:

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

7. Audit New Zealand Final Management Report For The Year Ended 30 June 2018 (18/1549)

Report No. FPC2018/5/327 by the Financial Accounting Manager 110

Chair’s Recommendation:

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

8. 2018 Insurance Renewal Update (18/1597)

Report No. FPC2018/5/328 by the Chief Financial Officer 140

Chair’s Recommendation:

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

9. 2019/20 Revenue Increase and Cost Reduction Target Update (18/1734)

Report No. FPC2018/5/329 by the Chief Financial Officer 159

Chair’s Recommendation:

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

10. Activity Reviews for City Leadership, City Governance and Corporate Services Group Update (18/1729)

Report No. FPC2018/5/331 by the General Manager, Corporate Services 164

Chair’s Recommendation:

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

11. Progress Update on the Re-design of Council's Combined Rates Invoice, Rates Postponement for Over 65s and Rates Remission Policies (18/1842)

Report No. FPC2018/5/339 by the Chief Financial Officer 181

Chair’s Recommendation:

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

12. Information Items

a) TechnologyOne SaaS Project Update (18/1753)

Report No. FPC2018/5/147 by the Business Transformation Manager 194

Chair’s Recommendation:

“That the information be received.”

b) Health & Safety Officer Due Diligence Report July 2018 to October 2018 (18/1798)

Report No. FPC2018/5/148 by the Health & Safety Manager 197

Chair’s Recommendation:

“That the information be received.”

c) Update on Asset Management Plans (18/1782)

Report No. FPC2018/5/149 by the General Manager City and Community Services 202

Chair’s Recommendation:

“That the information be received.”

d) Finance & Performance Committee Work Programme 2018 (18/1649)

Report No. FPC2018/5/150 by the Committee Advisor 208

Chair’s Recommendation:

“That the information be received.”

13. 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.

14. EXCLUSION OF THE PUBLIC

CHAIR'S RECOMMENDATION:

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

15. Hutt City Community Facilities Trust Board - Appointment of Director (18/1781)

16. Strategic Property Portfolio - Six Monthly Update (18/1749)

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 Board - Appointment of Director.	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.”

Donna Male

COMMITTEE ADVISOR

16 28 November 2018

Finance and Performance Committee

29 October 2018

File: (18/1720)

Report no: FPC2018/5/325

2019/20 Annual Plan

Purpose of Report

1. The purpose of this report is to seek Committee’s approval of both the proposed budget assumptions and community engagement approach for the 2019/20 Annual Plan.

Recommendations

That the Committee recommends that Council:

(i) notes there is no legislative requirement of public consultation for the 2019/20 Annual Plan if there are no significant changes from the Long Term Plan;

(ii) notes no significant changes from Year 2 of the 2018-2028 Long Term Plan are proposed for the 2019/20 Annual Plan;

(iii) agrees not to consult on the 2019/20 Annual Plan;

(iv) approves the high level budget assumptions outlined in the report;

(v) approves the high level community engagement approach for the 2019/20 Annual Plan; and

(vi) provides any further direction and guidance required for the 2019/20 Annual Plan.

Background

2. Every three years Council is required to prepare and adopt a Long Term Plan (LTP) and an Annual Plan each financial year.

3. Council adopted the 2018-2028 LTP on 28 June 2018. The upcoming financial year, 2019/20 is an Annual Plan year and is represented as year two in the 2018-2028 LTP. A separate standalone document for the 2019/20 Annual Plan must be prepared and adopted before the start of the new financial year.

4. The purpose of the Annual Plan is to:

a. present the proposed annual budget and funding impact statement including 2019/20 rates; and

b. identify any variations from the financial statements and funding impact statements from the LTP.

5. In 2014 a number of changes were made to the Local Government Act 2002 (the Act) that changed the approach to preparing and consulting on planning documents.

6. Under legislation there is no requirement to produce a “Draft Annual Plan”, Annual Plan Summary or consult on an Annual Plan if there are no significant or material differences to the year as it is set out in the LTP. Elected members make the decision on what is considered significant or material using the criteria outlined in Council’s Significance and Engagement Policy.

7. The purpose of the Annual Plan is to alert residents and ratepayers to any major differences in, or changes to the information and budgets agreed in the LTP. Consultation, if required, then focuses on these differences and/or anything else that Council wishes to consult on.

Proposed Approach to the 2019/20 Budget Determination

8. We are proposing a slightly different approach this year, to optimise the 2019/20 budget, being year 2 of the 2018-2028 LTP.

Revenue Assumptions

9. Except for total rates revenue and external subsidy revenue, all other operating revenue budgets for 2019/20 will include inflation as per the 2018-2028 LTP, as a starting point. Assumptions regarding total rates revenue and external subsidies will be discussed separately.

Total Rates Revenue

10. The maximum rates revenue for 2019/20 (net of rate refunds, rates remissions and internal rates on Council owned properties), is limited by Council’s financial strategy upper limit on rates. This provides that the increase from 2018/19 can be no more than the latest actual Local Government Cost Index (LGCI) plus actual growth.

11. LGCI as at 30 June 2018, as per the published 2018 BERL Update Report, is 1.8%. Whilst actual growth in 2017/18 was 1.04%, growth in the rating information database for 2018/19 will be assumed to be 1%, given 2017/18 was the first time the budgeted growth assumption was either reached or exceeded. Therefore, the total budgeted net rates revenue for 2019/20 will be the budgeted 2018/19 net rates revenue grossed up by 2.8%, which agrees to the 2018-2028 LTP.

12. Council’s financial strategy requires the total net rates revenue increases in the out-years (ie, 2020/21 and beyond), to be updated with the LGCI forecasts as per the latest BERL Update Report. The following table compares the 2018-2028 LTP net rates revenue increases to the LGCI forecasts as per the most recent 2018 BERL Update Report. These changes will be applied to the out-years (years 2 and beyond), of the 2019/20 budget scenario.

Note 1: the inflation increases shown in the table above include actual and forecast inflationary increases, as published by BERL. As noted previously, the maximum increase to rates revenue per year can be no more than the latest actual annual Local Government Cost Index (LGCI) plus actual growth. Therefore, for the 2019/20 Annual Plan budget scenario:

· the maximum 2019/20 rates increase = Actual 2017/18 LGCI plus actual growth (1% for budgeting purposes);

· the maximum 2020/21 rates increase = Forecast 2018/19 LGCI plus actual growth (0.5% for budget purposes) and so on.

The forecast increase in LGCI from 2.0% to 3.3% in 2018/19 (which then sets the upper limit for rates increases in 2020/21, plus actual growth), reflects a market correction to actual inflation (in 2013) being artificially low due to a one-off purchase of concrete pipes at extremely low prices. Officers are discussing this further with BERL and will provide a verbal update at the Committee meeting.

Note 2: the forecast growth (for rates purposes) included in the 2018-2028 LTP is variable, particularly from 2020/21. The reduction to 0.5% in 2020/21 reflects the planned demolition of properties as part of the RiverLink flood protection works. Conversely, the higher growth forecasts between 2022/23 to 2024/25 reflect Council’s Urban Growth Strategy developments as part of RiverLink. As part of the 2019/20 Annual Plan determination process, these growth forecasts will be reviewed to reflect any revised timings for the RiverLink project.

External Subsidy Revenue

13. External subsidy revenue is received mainly from NZTA for roading and transport works. Accordingly, these subsidies are linked to specific operating and capital project costs. These budgets will be re-set to the correct subsidy levels required for the specific projects planned in 2019/20.

Operating and Capital Expenditure Assumptions

14. There are definite additional cost pressures facing Council in 2019/20 and the out-years, specifically (but not limited to), Council insurance premiums. In addition, Council is in need of additional investment in Information Technology to modernise legacy systems and to enable process and system efficiencies through a business transformation programme. These two aspects will be further considered as part of the 2019/20 Annual Plan determination.

15. Except for employee costs, all other operating expenditure budgets and capital expenditure budgets for 2019/20 will as a starting point be the year 2 uninflated amounts per the 2018-2028 LTP. This will provide much needed budget capacity of approximately $2.5M to accommodate existing contractual cost escalations, new budget cost pressures and/or new funding requirements within the approved budget for 2019/20.

16. As a starting point, employee cost budgets (being staff salaries, KiwiSaver, ACC etc,), will be reset to reflect Council’s actual 2018 employee costs, including budgeted costs for all vacant approved positions.

17. Council’s remuneration advisors, Strategic Pay, have completed staff salary surveys, in order to advise Council on the likely market movement cost increases for 2019/20. Strategic Pay has recommended that Council budgets for a 2%market movement increase for all employee categories in the local government sector and a market movement increase of between 2.5% to 3% for those employee categories in the general market sector (these typically being corporate services type positions).

18. Following the 2018 remuneration review, employees’ average position in range (PIR) for their actual salaries now sits at 97.6% of their position salary midpoints (100%). This was 97.9%in 2016, meaning that Council’s remuneration continues to fall behind market movement increases. If Council simply budgets a 2% market movement increase for employee costs in 2019-20, employees average PIR for their actual salaries will likely fall further to 95.4% of their position salary midpoints.

19. The remuneration framework is designed to ensure people paid at the lower end of the salary range for a position make faster progress towards the salary midpoint of that position and Council can provide higher increases where required, for performance recognition, staff retention or other purposes.

20. To remain competitive in the market place, Officers recommend an overall 3% increase to current employee costs for 2019-20. This will allow Council to fully meet the current market movement increases and to also shift employees average PIR for their salaries to 98.4% of their position midpoints.

21. This will enable Council to partially “catch-up” and move closer towards a market median position and thereby comply with Council’s remuneration policy commitments. This is demonstrated by way of the chart below.

22. Council resolved, from 1 July 2018, to pay staff employed by Council the Living Wage of $20.55 per hour. Council will apply its remuneration framework in the first instance and top up any shortfall to the Living Wage level.

23. Officers expect the 2019 Living Wage to be confirmed in April 2019. The 2018 living wage of $20.55 per hour equates to an annual salary of $42,857 per annum. This can equate to a high PIR for some Council positions, eg, for lifeguards, this equates to a PIR of 102% of this Council’s position midpoint. At the time of writing this report, this represents a PIR of 116% of the national salary midpoint for Aquatic Centre Assistants of $36,794 (independently assessed using 440 positions across 21 organisations).

24. Council will best endeavour to ensure that all Council staff are paid at least the 2019 Living Wage. Further financial modelling by Officers will determine whether this can be accommodated within the recommended overall 3% labour budget increase for 2019-20.

Out-Year Inflation Assumptions

25. Except for the total net rates revenue determination, all other LGCI increases are based on the preceding year’s forecast inflation as published by the annual BERL Update Reports.

26. BERL is currently forecasting LGCI to be 3.3% for 2018/19. As previously already noted, this is due to a price correction (in 2013) and Officers are discussing this further with BERL. Nevertheless, BERL is now strongly indicating higher inflation in 2018/19 than the 2% provision used for 2019/20 in the 2018-2028 LTP.

27. Inflation adjustments to the budgets beyond 2019/20 will be reset to reflect the LGCI forecasts as per the 2018 BERL Update Report. These changes will be applied to the out-years of the 2019/20 budget scenario.

28. The following table compares 2017 LGCI forecasts included in the 2018-2028 LTP to the 2018 LGCI forecasts as per the 2018 BERL Update Report.

2018/19 Capital Project Carry-Over Budgets

29. In keeping with prior years, capital and operating project budget carry-overs that are likely to arise from 2018/19 will be identified and agreed as early as possible. Council approval for all budget carry-overs from 2018/19 to 2019/20 will be sought in due course.

Service Levels

30. There are no significant changes planned to Council’s current service levels.

Financial Strategy

31. There are no proposed changes to Council’s current Financial Strategy.

Revenue and Financing Policy

32. There are no proposed changes to Council’s current Revenue and Financing Policy.

Borrowings (Net Debt Limits)

33. Council’s Financial Strategy net debt limits are now set as a percentage of revenue with diminishing percentages in future years. This gives flexibility and scope to introduce new projects in the future. These net debt limits will be checked by Officers when preparing the draft budget.

Community Engagement and Consultation

34. Following extensive planning and consultation for the 2017/18 Annual Plan and 2018-2028 LTP, no significant changes are planned to what is detailed in Year 2 of the 2018-2028 LTP.

35. As there are no significant changes planned and our Financial Strategy does not accommodate any new spending, officers are proposing that Council undertakes a community engagement and communication process leading into the 2019/20 Annual Plan rather than a special consultative procedure following the publication of a draft Annual Plan. The special consultative procedure, consisting of formal public consultation and hearings, is only required when significant changes to the LTP are being proposed.

36. The community engagement and consultation process leading in to the 2019/20 Annual Plan will provide opportunity for community feedback in a less formal and prescribed manner. It will also provide a mechanism for updating the community on significant projects for the upcoming year, any changes to the LTP, and explaining how the community can have their say throughout the year including the funding process.

37. There are a number of different options for community engagement including:

a. Briefings with community boards and panels and encouraging them to act as champions for the process and representatives of their community.

b. Information or engagement brochure included in a new Council magazine that is mailed to every household. The brochure would inform the public on the 2019/20 Annual Plan process, any changes to year 2 of the LTP, and update them on key projects, as well as informing the public on how they can have their say. The brochure could have a dual role, educating the community on the planning and funding cycles and governance.

c. Regular updates on Council new communication platform, “Hutt at Heart”, monthly e-newsletters, Council website and Facebook page.

d. Councillor-led ward engagement with support and resources provided from Council officers. Councillors are encouraged to choose the communication approach best suited for their ward including face-to-face meetings, Facebook live).

38. To support Councillors with their own engagement approaches, Council officers will prepare a pack of resources that will include:

a. frequently asked questions on amendments to the Act and why Council is not formally consulting this year;

b. social media guidelines;

c. key messages for 2019/20 Annual Plan, including overview of key projects and the budget;

d. process diagram with key dates for 2019/20 Annual Plan;

e. funding process with calendar; and

f. anything else requested by Councillors.

Legal Considerations

39. The requirements of the Act will be followed in preparing the 2019/20 Annual Plan.

Financial Considerations

40. All work required as part of the 2019/20 Annual Plan will be undertaken within current budgets.

Other Considerations

41. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that engaging in the annual plan process provides the opportunity for members of the public to comment on the manner in which Council proposes to meet the current and future needs of the community. It does this in a way that is cost-effective, by leveraging off existing communication and engagement platforms and limiting the use of print material.

Appendices

There are no appendices for this report.

Author: Josie Askin

Corporate Planner

Author: Mark de Haast

Chief Financial Officer

Reviewed By: Wendy Moore

Divisional Manager, Strategy and Planning

Reviewed By: Kim Kelly

General Manager, City Transformation

Approved By: Brent Kibblewhite

General Manager Corporate Services

21 28 November 2018

Finance and Performance Committee

21 November 2018

File: (18/1854)

Report no: FPC2018/5/340

Formation of Innovative Young Minds Charitable Trust

Purpose of Report

1. To approve the formation of a charitable trust for the Innovative Young Minds programme, to exempt the trust from Council Controlled Organisation (CCO) status and to appoint three officers as founding trustees.

Recommendations

That the Committee recommends that Council:

(i) approves the establishment of the Innovative Young Minds Trust as a Council Controlled Organisation (CCO) and a charitable trust;

(ii) approves an exemption from CCO requirements for the Innovative Young Minds Trust for the purposes of section 6(4)(i) of the Local Government Act 2002, for the reasons set out in the report; and

(iii) approves not publically advertising for the founding trustees and approves the appointment of three officers as founding trustees for a period of two years.

Background

1. Innovative Young Minds (IYM) is a residential, one-week programme designed to encourage high school girls to pursue careers in science, technology and engineering. Rotary Hutt City initiated the programme in 2017, with primary sponsorship from Hutt City Council, as it aligns nicely with Council’s focus on STEMM education. In 2018, Council and Rotary partnered to manage the programme jointly.

2. Applications increased this year by 48% from the previous year, with 93 applications from throughout New Zealand for 40 places. Given this demand, Council and Rotary have agreed to expand the programme in 2019 to offer two sections with a total of 80 places. Half of these places will continue to be offered exclusively to students in the Greater Wellington Region, while the other half will be open to Year 11 and 12 girls throughout the country.

3. In addition, we are expanding our alumnae programme to ensure that the participants continue to be engaged in STEMM activities after the programme. We will be offering various events throughout the year, as well as a trip to Silicon Valley for 10 of our alumnae.

4. Because of this expansion in the programme and the participation of the two parties, we were advised by legal counsel (James Wilkinson, partner at Gibson Sheat) to create a charitable trust to facilitate administration and finance of the programme (see Appendix 3). The trust will ring-fence the IYM activities and finances of IYM so that they are separate from either entity. It will also make it possible for the programme to attain charitable status and thereby access additional funding.

Discussion

5. We recommend that Council approve the attached trust deed for the formation of the Innovative Young Minds trust, with both Rotary Hutt City and Hutt City Council appointing three founding trustees each. Legal advice has suggested that a charitable trust is the most appropriate structure for this entity to enable it to access funding and to facilitate administration of the programme.

6. The trust will be responsible for all aspects of the IYM programme, including all potential expansion of related activities. Its purpose, as set out in the trust deed is to foster young women’s interest and education in the STEMM sector and to increase opportunities for underrepresented groups in the STEMM sector.

7. The reason for exempting the trust as a CCO is its very small size and scope of activities (currently limited to one contractor and the management of one programme in Wellington and one alumnae programme in Silicon Valley). Being a CCO would place a large administrative burden on the trust, and exempting it from this status will relieve it of that burden and therefore benefit the community, the trust and the Council by saving time and resources.

8. The Council must review this exemption within three years and every three years thereafter.

9. The Council’s Appointment of Directors policy states that trustee positions must be publically advertised prior to appointments being made. However, given that a few officers have been highly involved in the IYM operations and governance to date, and that the trust will be a small entity with limited responsibilities, we recommend that Council adopt a streamlined procedure for appointing the initial founding trustees. In this case we are transitioning an existing programme into a new structure, and wish to maintain as much consistency and institutional knowledge of the programmes as possible to ensure this can be achieved as smoothly as possible.

10. We recommend that the following three officers be appointed as founding trustees for a fixed term of two years to enable this transition to proceed. After that time, Council could publically advertise for trustees once it is clear exactly what wider skills and experience the trust requires. The trustees we recommend for appointment are:

a. Gary Craig – As Divisional Manager, City Growth, he has a long-term perspective and deep knowledge of the STEMM sector in Lower Hutt and has acted in a governance role since IYM’s inception.

b. Dr Laura Sessions – As STEMM Sector Manager, she has managed the IYM programme in conjunction with Rotary Hutt City, and has the most detailed knowledge of the programme from Council perspective. Laura also has experience as a trustee on a similar charitable trust, Girls Mean Business.

c. Dr Anne Ryan – As Director of Hutt Science, Anne holds key relationships with schools throughout the region and brings deep knowledge of New Zealand’s educational system and how to best integrate IYM into the curriculum and connect it to other Council programmes such as Hutt Science.

11. Officers responsible for the programme and a representative from Rotary Hutt City will be present to answer any questions.

Options

12. The alternative to the formation of a trust is to operate the programme as it is currently, as an informal partnership between Hutt City Council and Rotary. The disadvantages of doing this are listed below.

13. The current structure is ineligible for many funding sources. A charitable trust structure will allow us to access other grants and funding schemes.

14. Rotary Hutt City has no obligation to continue to partner with the Council on the programme. Should they wish to take the programme elsewhere or to fundamentally change it, Council would have no control over these decisions. This is a risk since Council is currently investing resources in building the programme brand and reputation.

15. Rotary currently administers the finances for the programme, with no oversight from the Council. If Rotary wished to use IYM funding for other projects, they could do so.

16. The informal nature of the current relationship makes it difficult to make decisions at a governance level, because it is unclear exactly who is responsible and able to make decisions.

Legal Considerations

17. Before establishing a CCO, Council must undertake consultation in accordance with the principles set out in section 82 of the Local Government Act 2002 (the LGA). These principles do not require public consultation and how they are met is largely at the discretion of Council, having regard to the nature and significance of the decision. The focus is on making sure affected or interested people are aware of the decision and its likely impact and giving them a forum to present their views. In these circumstances the views of people affected, including Rotary, are already well known and support this initiative and the CCO. It is the opinion of officers that the cost of conducting any kind of formal consultation process here would have little benefit.

18. A CCO can be exempted from being considered a CCO for the purposes of the LGA by resolution from Council. Before granting an exemption, Council must take into account the following matters under s7(2)(5) of the Act:

a. the nature and scope of the activities provided by the organisation; and

b. the costs and benefits, if an exemption is granted, to the local authority, the council-controlled organisation and the community.

Financial Considerations

19. In 2018, the IYM programme was funded using $15,000 from the STEMM activity budget, sponsorship of approximately $15,000 from Rotary Clubs in the Greater Wellington region, approximately $15,000 in corporate and other sponsorship, and students each contributing $120.

20. Under the trust structure, we would be able to access additional funding sources, enabling us to lower the fee for participants and/or to accommodate more students.

Other Considerations

21. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that it assists in encouraging more young women into STEMM careers. It does this in a way that is cost-effective because it creates a charitable trust structure that can seek further funding.

Appendices

No.	Title	Page
1 ⇩	Innovative Young Minds Trust Deed	22
2 ⇩	Appointment of Directors Policy	40
3 ⇩	legal advice from Gibson Sheat to form charitable trust	45

Author: Laura Sessions

STEMM Sector Development Manager

Reviewed By: Bradley Cato

General Counsel

Reviewed By: Gary Craig

Divisional Manager City Growth

Approved By: Kim Kelly

General Manager, City Transformation

2. DIRECTION AND ACKNOWLEDGMENT OF TRUST

2.1 The Founders direct the Trustees to hold, and the Trustees acknowledge that the Trustees will hold, the Trust Fund upon the trusts and with powers set out in this Deed.

3. BACKGROUND, VISION, VALUES AND OBJECTS

3.1 For the last two years the Founders have operated a programme called Innovative Young Minds, designed to encourage young women to explore further studies and careers in science and technology. Females are under-represented in the STEMM sector (especially the physical sciences, ICT and engineering) and the Founders wish to change that. The Founders believe increasing female participation in STEMM will lead to greater innovation and economic success. The Innovative Young Minds programme is intended to inspire young women to consider careers they may not even know exist. It is designed to introduce them to the diverse STEMM businesses, research organisations and education providers for which New Zealand is known.

3.2 The vision of the founders and the Trustees is to expose course participants to the STEMM training and employment opportunities and so contribute to the future economic development of New Zealand and to increase opportunities for underrepresented groups in the sector.

3.3 In carrying out the Objects of the Trust, the Trustees will adhere to the following values:

(a) inclusivity diversity and accessibility;

(b) gender equality;

(d) respect, honesty and trust safety of participants; and

(e) pastoral care

3.4 The Objects for the Trust are:

(a) To attain the vision as set out in Clause 3.2;

(b) To foster young women’s interest and education in the STEMM sector across New Zealand;

· Develop an understanding of the academic subjects that can lead to a career in the STEMM sector

· Demonstrate the research, development and innovation opportunities available in STEMM

· Show the variety of study and career opportunities available in STEMM

· Inspire participants by exposing them to people who have successful careers in STEMM

· Develop and increase participants’ confidence and self-esteem

· Ensure the safety and well-being of participants;

(d) To foster Innovative Young Minds alumnae to continue in the STEMM sector through:

· Ongoing events, activities, and communication

· Mentorship from others at all levels in the sector.

· Internship and training opportunities

· A community of like-minded young people for peer support;

(e) For any other purposes within New Zealand (whether relating to the relief of poverty, the advancement of education or religion or any other matter beneficial to the community) which are charitable according to the laws of New Zealand;

in a manner consistent with the values set out in Clause 3.3.

4. NAME OF TRUST

4.1 The Trust is to be known as the Innovative Young Minds Charitable Trust but the Trustees may amend or change the name by deed.

4.2 The Trustees may apply for the Trust to be incorporated under the Charitable Trusts Act 1957.

5. APPLICATION OF INCOME

5.1 The Trustees may at any time, after payment of or provision for all costs, charges and expenses of the Trustees in relation to the establishment, management and administration of the Trust, pay or apply all or any of the income of the Trust to promote or advance such of the Objects as the Trustees determine.

6. APPLICATION OF CAPITAL

6.1 The Trustees may at any time pay or apply all or any of the capital of the Trust to promote or advance such of the Objects as the Trustees determine.

7. RECEIPT OF CHARITABLE RECIPIENT

7.1 The receipt of the secretary, treasurer or other officer of any Charity to which all of any of the Trust Fund is paid or applied will constitute a sufficient discharge to the Trustees for the payment or application.

8. DONATIONS

8.1 The Trustees may accept any Property that is donated to the Trust.

8.2 The Trustees must not accept any Property subject to any condition that is inconsistent with the achievement of the Objects of the Trust.

8.3 The Trustees may refuse to accept any Property which is subject to reservations, trusts, liabilities or obligations that the Trustees believe to be impractical or too onerous.

8.4 If Property is accepted by the Trustees subject to reservations, trusts, liabilities or obligations ("Donated Property Restrictions"), the Trustees must hold the Property (and any proceeds of disposition of it) as part of the Trust Fund and subject to the Donated Property Restrictions and must pay or apply (to the extent of the Trust Fund) such amounts as are required by the Donated Property Restrictions.

9. RESETTLEMENT

9.1 The Trustees have power in their discretion to settle or resettle any or all of the Trust Fund upon trust for the advancement or benefit of one or more of the Objects as the Trustees decide, but the settlement or resettlement must not breach the rule against perpetuities as it applies to charities.

10. TRUSTEES

10.1 There shall be a minimum of three Trustees and a maximum of ten Trustees.

10.2 A person is eligible to be a Trustee if the person is not disqualified by section 16 of the Charities Act 2005.

10.3 Each Founder shall have the powers, exercisable from time to time, to appoint three Trustees and to remove every Trustee appointed by that Founder. For the purposes of this clause [Trustee #1], [Trustee #2] and [Trustee #3] shall be deemed to have been appointed by the Hutt City Council, and [Trustee #4], [Trustee #5] and [Trustee #6] shall be deemed to have been appointed by the Rotary Club of Hutt City Incorporated.

10.4 A Founder may, by deed and on such terms as the Founder thinks fit, transfer the powers of appointment and removal of Trustees held by that Founder to any other person. Where such a transfer is made, it shall apply to both the powers of appointment and removal set out in Clause 10.3 and Clause 10.5 which are held by the Founder.

10.5 The holders of the powers of appointment and removal of Trustees shall jointly have the power to appoint and remove such additional and advisory Trustees as the holders may determine.

10.6 A person shall cease to be a Trustee if the Trustee:

(a) Resigns or retires by giving written notice to the other Trustees;

(b) Dies;

(d) Refuses to act in his or her capacity as a Trustee;

(e) Has been removed as a Trustee by notice under Clauses 10.3 or 10.5.

10.7 Upon a person commencing or ceasing to be a Trustee, the Trustees shall record that fact in the minute book of the Trust.

10.8 Meetings of the Trustees shall be governed by the rules contained in Schedule 2.

11. TRUSTEES' POWERS AND DECISIONS

11.1 The Trustees have all the powers of a natural person and all other powers that the law permits trustees to have.

11.2 Without limiting any of the powers of the Trustees, the Trustees have the powers set out in Schedule 1 and may in their discretion exercise any one or more of those powers in pursuit of the general administration of the Trust.

11.3 The Trustees may invest all or any of the Trust Fund in any Property that is permitted by the laws of New Zealand for the investment of the funds of trusts or as otherwise permitted by this Deed, including power to buy or acquire any Property and power to sell or dispose of any Property.

11.4 The Trustees in their absolute and uncontrolled discretion may exercise all powers and discretions of the Trustees at any time, on such terms and conditions and in such manner as the Trustees think fit.

11.5 Notwithstanding any other provision in this Clause 11 or elsewhere in this Deed the Trustees shall be bound by the provisions in sections 13A to 13Q inclusive of the Trustee Act 1956 (or any successor provisions, if that Act is amended or repealed) and, in particular, shall take into account the matters specified in section 13E thereof.

12. FINANCIAL RECORDS

12.1 The Trustees must ensure that financial records are kept.

12.2 The financial records must present the Trust's receipts, credits, payments, assets, liabilities and all other matters necessary or appropriate in a way that shows the true state and condition of the financial affairs of the Trust.

12.3 The financial records and annual accounts will be kept at the Trustees' office or at such other place, as the Trustees think fit.

12.4 The financial records and annual accounts must always be available to be inspected by the Trustees.

12.5 The Trustees shall prepare, or cause to be prepared, financial statements for each Financial Year.

12.6 The Trustees shall determine whether the financial statements shall be reviewed or audited.

13. ADVISORY TRUSTEE, CUSTODIAN TRUSTEE AND NOMINEE

13.1 The Trustees may, by resolution in writing, appoint any person as an advisory trustee of the Trust. The Advisory Trustee shall have the status and powers conferred on advisory trustees by the Trustee Act 1956.

13.2 The Trustees may, by resolution in writing, appoint any person as a custodian trustee or nominee of the Trust Fund. The provisions of the Trustee Act 1956 shall apply as if references in it to a custodian trustee were references to Custodian Trustee or Nominee, except as modified or extended as follows:

(a) All or any of the Trust Fund may be vested in the Custodian Trustee or Nominee as if the Custodian Trustee or Nominee were sole trustee;

(b) The portion of the Trust Fund that is from time to time vested in the Custodian Trustee or Nominee is the Custodial Trust Fund, and the provisions of section 50 of the Trustee Act 1956 shall apply as if references in it to the trust property were references to the Custodial Trust Fund;

(i) Get in and hold the Custodial Trust Fund;

(ii) Invest it and dispose of it in accordance with any direction in writing by the Trustees;

(iii) Execute all documents and perform all acts that the Trustees in writing direct.

13.3 The Trustees may, without needing to give any reason, remove any Advisory Trustee or Custodian Trustee or Nominee by resolution in writing.

13.4 The Trustees may pay a fee to the Advisory Trustee, Custodian Trustee or Nominee.

14. PECUNIARY PROFIT AND BENEFITS AND ADVANTAGES

14.1 No contract shall be entered into with a Trustee and no payment shall be made to any Trustee from the Trust without a resolution being passed at a meeting or in writing by the Trustees in compliance with Clauses 14.2 to 14.6. Such a resolution in writing may consist of several like documents each signed by one or more of the Trustees and may be sent by facsimile transmission or email. Any such Trustee shall recuse themselves from participation in any such decision making.

14.2 No private pecuniary profit shall be made by any person from the Trust, except that (but subject to Clause 14.4):

(a) Each Trustee may receive full reimbursement for all costs, charges and expenses properly incurred by the Trustee in connection with the affairs of the Trust;

(b) The Trustees may pay reasonable and proper remuneration to any person or firm or company (other than a Trustee) in return for services actually rendered to the Trust;

(c) Each Trustee may be paid all usual professional, business or trade charges for services rendered, time spent and acts done by the Trustee or by any firm or entity of which the Trustee is a member, employee or associate in connection with the affairs of the Trust.

14.3 The Trustees, in determining all reimbursements, remuneration and charges payable in terms of this Deed, must ensure that the restrictions imposed by Clause 14.4 are strictly observed.

14.4 Notwithstanding anything to the contrary in this Deed, no remuneration or benefit or advantage (regardless of whether it is convertible into money) or income of any of the kinds referred to in section CW 42(1)(c) and (5) to (8) of the Income Tax Act 2007 shall be paid or afforded to or received or gained or achieved or derived by any person (“the Determining Person”) if section CW 42(1) of the Income Tax Act 2007 denies the Trustees an exemption from tax on income derived by the Trustees from the carrying on of business by or on behalf of or for the benefit of the Trustees in the circumstances set out in Clause 14.5.

14.5 The circumstances referred to in Clause 14.4 are those in which the Determining Person is:

(a) a Founder or a Trustee of the Trust; or

(b) a shareholder or director of any company carrying on any business of or for the Trust; or

(c) a founder or trustee of any trust which is a shareholder of any company carrying on any business of or for the Trust; or

(d) an associated person (as defined by the Income Tax Act 2007) of any Trustee or any such Founder, shareholder, director or trustee –

and the Determining Person can, by virtue of being a Founder, a Trustee or such shareholder, director, trustee or associated person, determine, or materially influence the determination of, the nature or the amount of the remuneration or benefit or advantage or income referred to in Clause 14.4 or the circumstances in which it is or is to be received, gained, achieved, afforded or derived by the Determining Person.

14.6 A person who, in the course of and as part of the carrying on of his or her business of a professional public practice, renders professional services to the Trust, shall not, by reason only of his or her rendering professional services to the Trust, be in breach of Clause 14.4.

15. WINDING UP

15.1 If and when the Trust Fund shall no longer be used or be required for the Objects of the Trust, the Trust Fund shall be applied to such charitable purposes within New Zealand as the Trustees may determine or in default of such determination as may be determined by a Judge of the High Court of New Zealand on application by the Trustees or any Trustee, and the Trust Fund shall not be paid or distributed amongst the Trustees.

16. LIMITATION OF LIABILITY AND INDEMNITY

16.1 No Trustee is liable for the consequence of any act or omission or for any loss unless the consequence or loss is attributable to his or her dishonesty or to the wilful commission by him or her of a breach of trust.

16.2 No Trustee is bound to take any proceedings against a co-Trustee for any breach or alleged breach of trust by that co-Trustee.

16.3 The Trustees are not liable for any loss or cost to the Trust by any breaches of trust or defaults of any attorney, delegate, manager, agent, secretary, employee or any other person (including, without limitation, any expert or professional person) appointed or engaged or employed by them, despite any rule of law to the contrary.

16.4 Each Trustee is fully indemnified by and out of the Trust Fund (whether from capital or income) for any loss or liability that he or she incurs in the carrying out or omission of any function, duty, power or discretion of the Trustees under this Deed and in respect of any outlay or expenses incurred by him or her in the management and administration of the Trust unless the loss or liability is attributable to his or her dishonesty or to the wilful commission by him or her of a breach of trust.

16.5 The indemnity given by Clause 16.4 extends to any loss or liability which a person incurs, after ceasing to be a Trustee, through the carrying out of any function, duty, power or discretion of the Trustees, whether the carrying out took place before, during or after the period in which the person was a Trustee.

17. GOVERNING LAW

17.1 Deed and the Trust are governed by and construed in accordance with the laws of New Zealand, but the Trustees have power at any time by deed to change the governing law.

17.2 The courts of New Zealand have exclusive jurisdiction to decide all claims, actions or other proceedings in connection with the Trust or this Deed.

18. COUNTERPARTS

18.1 This Deed may be executed in any number of counterparts (including facsimile or scanned copies) all of which, when taken together will constitute one and the same instrument. A party may enter into this deed by executing any counterpart.

19. POWER OF AMENDMENT

19.1 Subject to any relevant legislation for the time being in force relating to charitable trusts and only with the prior written consent of the Founders, the Trustees have power by deed:

(a) to amend, revoke or add to any of the provisions of this Deed unless to do so would amend, revoke or add to the Objects or would enable a payment or application of any part of the Trust Fund in a manner that is inconsistent with the Objects; and

(b) notwithstanding paragraph (a) of this Clause, to amend, revoke or add to the Objects provided such amendment, revocation or addition is consistent with the values set out in clause 3.3 and does not disqualify the Trust from being recognised as charitable under the Income Tax Act 2007 or the Charities Act 2005.

EXECUTED as a deed

THE COMMON SEAL of Hutt City Council as a Founder was hereunto affixed by the authority of:

[position] signature [position] signature

[position] full name [position] full name

THE COMMON SEAL of Rotary Club of Hutt City Incorporated as a Founder was hereunto affixed by the authority of:

[position] signature [position] signature

[position] full name [position] full name

Attachment 2

Appointment of Directors Policy

APPOINTMENT AND REMUNERATION OF DIRECTORS POLICY

Division	General Manager, Governance and Regulatory
Date created	August 2008
Publication date	August 2008
Review period	August 2016
Owner	General Manager, Governance and Regulatory
Approved by	General Manager, Governance and Regulatory

Version	Author	Date	Description
V 1.0	Joycelyn Foo	25/8/2008	Approved by Council
V 2.0	Joycelyn Foo	22/8/2013	Reviewed
V 3.0	Joycelyn Raffills	11/8/2015	Format updates

Contents

1. Section 57 of the Local Government Act 2002 provides: 3

2. Appointment of Directors. 3

3. Process for making appointments. 3

3.1 Preparation of a person specification. 3

3.2 Advertising the position. 4

3.3 Assessment of candidates. 4

3.4 Exceptions. 4

4. Tenure and reappointment 5

5. Conflicts of interest 5

6. Remuneration of directors. 5

7. Terms. 6

1. Section 57 of the Local Government Act 2002 provides:

(1) A local authority must adopt a policy that sets out an objective and transparent process for---

(a) the identification and consideration of the skills, knowledge, and experience required of directors of a council organisation; and

(b) the appointment of directors to a council organisation; and

(c) the remuneration of directors of a council organisation.

(2) A local authority may appoint a person to be a director of a council organisation only if the person has, in the opinion of the local authority, the skills, knowledge, or experience to---

(a) guide the organisation, given the nature and scope of its activities; and

(b) contribute to the achievement of the objectives of the organisation.

Note: The term Director includes Trustee or Manager of a Council Organisation as per section 6 of the Local Government Act 2002.

2. Appointment of Directors

Council is empowered to make appointments to a wide range of organisations.

In all cases the decision as to the appointment will be made at a full Council meeting.

In each case, Council will appoint a person who Council considers to show the following:

§ The skills, knowledge and experience needed to undertake the relevant role;

§ Sound judgement.

§ A high standard of personal integrity.

§ An understanding of the governance requirements for the type of organisation concerned.

§ The ability to work as part of a team.

3. Process for making appointments

Identifying skills, knowledge, and experience required of directors

In each case, the selection and assessment process will involve the following:

3.1 Preparation of a person specification

In each case a person specification will be prepared setting out the skills, knowledge, and experience required of a director/s. In preparing this person specification consideration will be given to the following:

§ The nature and scope of Council organisation, its future direction and requirements in its constitutional documents.

§ The objectives of the organisation and the attributes, skills, knowledge, and experience required to contribute to the achievement of those objectives.

§ The skills of any existing directors.

§ Outstanding skills, knowledge, and experience required.

§ Any future skills, knowledge, and experience required.

3.2 Advertising the position

In most cases, the position will be advertised (at least in the local newspaper) and any potential candidates known to Council may be approached and asked if they would consider applying for the position.

3.3 Assessment of candidates

The assessment process will be as follows:

§ All applications will be assessed by a selection panel comprising an elected member, senior officer/s and if appropriate relevant external people and HR expertise (the panel). The panel will consider all applications received, shortlist, interview and prepare a report on the candidates for Council’s consideration. The panel may make a recommendation if it wishes to do so.

§ The final appointment/s will be made in committee (thus protecting the privacy of natural persons) by resolution of the full Council. Public announcement of the appointment will be made as soon as practicable after Council has made its decision.

§ If an elected member is under consideration to fill a particular vacancy, that elected member cannot take part in the discussion or vote on their appointment or on any other proposed appointees being considered for the same Board at the same meeting.

3.4 Exceptions

Elected member appointments

In the case where Council is considering the appointment of an elected member to a council organisation, there will be no need to advertise the position. This is because the potential pool of applicants for the position will be limited to elected members only. It will remain necessary for the assessment process to be followed in relation to the potential elected member candidates.

Existing pool of potential candidates

There may also be cases where, because of a recent appointment process, Council has a number of potential applicants for a position who have already submitted applications and who have agreed that their personal details could be used for consideration for future appointments. In such a case, the panel may elect not to advertise the position and may recommend to Council a potential appointee from this group of potential applicants. In such a case, the panel will include in its report to Council, for Council’s consideration, an explanation of the reasons that the advertising process was not followed. Where Council makes an appointment without advertising the position, Council will record that fact and the reasons for not advertising the position in the minutes of the relevant meeting.

Other situations where advertising not required

There may also be other situations where it is considered appropriate not to follow a full public advertising process in selecting potential applicants for appointment to Council organisations. In all cases where the decision is made not to advertise the vacancy publicly, the panel must include in its report to Council the reasons that a public advertising process was not followed. Where Council makes an appointment without advertising the position, Council will record that fact and the reasons for not advertising the position in the minutes of the relevant meeting.

4. Tenure and reappointment

All appointments will specify the term of the appointment. Council may decide that, to prevent unwanted vacancies occurring during an election period, an appointment will be specified to extend beyond the end of a local government triennium. In such a case, it is prudent to specify that the appointment will last until the first ordinary meeting of the new triennium.

Where an elected member is appointed to a Board because one of the conditions is that the director be an elected member, the term of the appointment will cease on the same date the elected member ceases to be an elected member, if that date is prior to the expiry date of the term of the appointment.

In relation to a Council Controlled Organisation, directors may be reappointed to a Board for a second term and, where there is a compelling reason, a director may be appointed for further periods. Second and third terms are not automatic, and Council will make its decision based on the company’s business needs, the availability of candidates for the role (including the incumbent), the incumbent’s performance and the make-up of the Board.

If a reappointment is made without having first completed the process outlined above, Council will record in the minutes of the meeting at which the appointment is made the reasons for not having followed that process.

5. Conflicts of interest

Hutt City Council expects that directors of council organisations will avoid situations where their actions could give rise to a conflict of interest. To minimise situations of conflict arising:

Council requires directors to be guided by the Institute of Directors in New Zealand’s Ethics (2003/1) and Conflicts of Interest (1996/3): Statements of Best Practice for New Zealand Directors.

Unless otherwise stated in the organisation’s constitutional documents, all directors are appointed at the pleasure of Council and may be dismissed for disregarding those guidelines.

6. Remuneration of directors

The remuneration of directors of a council organisation will be determined by the nature of the business of the organisation and the financial situation of the organisation.

Where Council is the sole shareholder in a particular organisation Council will set the directors’ remuneration either by resolution at the annual general meeting or resolution of Council. The resolution will state whether the remuneration is set as a fixed cap for Board remuneration, to be allocated by the Board, or specifying the salaries to be paid for directors and the Chairperson.

Remuneration for directors of council-controlled organisations will be determined by an analysis of market rates for comparable positions at the commencement of every triennium.^{^[1]}

Remuneration for directors of other council organisations (if any) will be determined on a case by case basis taking into account the form and purpose of the organisation and any previous level of fees paid by the shareholder.

7. Terms

The terms used in this policy have the meaning set out in section 6 of the Local Government Act 2002.

51 28 November 2018

Finance and Performance Committee

30 October 2018

File: (18/1725)

Report no: FPC2018/5/326

Risk and Assurance Update and Strategic Risk Register 2018

Purpose of Report

1. The purpose of this report is to update the Committee on risk and assurance actions and activities to maintain and improve Council’s internal control framework and to present the Strategic Risk Profile.

Recommendations

That the Committee:

(i) notes the information in this report; and

(ii) notes the Strategic Risk Profile 2018 as approved by the Strategic Leadership Team, attached as Appendix 1 to the report.

For the reason that risk reporting provides the Committee with information to support their governance role. Periodic reporting is stipulated in the internal audit charter and supports the internal audit functional reporting line to Finance and Performance Committee to support its authority, objectivity and independence.

Background

2. The Risk and Assurance Manager provides an update twice a year on the actions and activities to maintain and improve Council’s assurance and risk management framework. The Risk and Assurance Update was last presented to the Finance and Performance Committee meeting held on 4 July 2018.

Discussion

Strategic Risk Profile

3. Attached as Appendix 1 to the report is the annual Strategic Risk Profile for 2018 for Council as approved by the Strategic Leadership Team and the Risk Management Working Group.

4. Strategic risks are those that affect the achievement of Council’s strategies, strategic objectives, key goals and strategic execution.

5. This profile considers each key strategy and provides a high level snapshot of strategic risk context, plans and treatment actions.

6. Risk ratings are derived from a combination of consequence and likelihood assessments for the risk based on the risk ranking matrix. The risk status update provides an indication of a decrease, no change or increase in the risk ranking since the previous profile.

7. Some commentary has been included to detail how risk rankings have been derived. Also, additional narrative for risk likelihood criteria has been included, given the longer term nature of strategic risk (which differs from operational risk timeframes).

8. The risk treatment actions have been updated for activity since the previous profile. The underlying risk factors are dynamic and change overtime. In turn, awareness of changing circumstances and risk factors are met by corresponding activity and treatment actions to address emerging opportunities and threats.

9. Risk ratings have mostly remained unchanged. Refer to section following for details of the one change since the last Strategic Risk Profile presented to the Finance and Performance Committee on 29 November 2017.

10. Responsibilities and supporting processes of the risk management framework are reinforced regularly. Managers periodically review risk in their respective division, identifying emerging themes, and provide assurance on risk treatment actions in place and any issues. Processes are in place for escalation outside of the regular reporting channels. Divisional Managers will next report on risk in January 2019.

Risk Rating changes since the previous Strategic Risk Profile

11. The Environmental Sustainability Strategy risk rating has increased (worsened) as the likelihood rating has increased to possible or the ‘event might occur’. There is a possible upper range of 1m sea level rise by the end of the century. Although the timeframe extends further into the future than usual for risk likelihood criteria, action is required now to improve the impact of policy change and meaningful action to change behaviour and increase sustainability in the long term. Projections of sea level rise have varying impacts on Lower Hutt coastal assets and the community.

12. There is discussion around Council carbon targets to provide focus and meaning to address emissions (draft national targets are to reduce emissions to zero by 2050). Options for Council to reduce its carbon footprint are being investigated. Associate actions may be costly in the medium term, which will be weighed up against Council’s responsibilities to demonstrate stewardship and leadership in reducing the impacts of client change. A paper on Carbon Targets goes to the Policy and Regulatory Committee on 26 November 2018.

Internal Audit

13. The Fraud Review was completed in July 2018. This is a cyclical review undertaken on a two yearly basis. The overall objective was to assess the adequacy and effectiveness of management’s control of fraud risk, and to identify opportunities for improvement. Audit work aimed to avoid gaps and overlaps with other sources of assurance.

14. The Fraud Review internal audit opinion on management control is ‘effective’. The control framework is appropriate and effective. Controls are appropriately designed and executed as intended. One low rated finding was raised, that elements of the fraud control framework could be improved.

15. PwC have since been engaged to run fraud focussed data analytics to look for patterns in transactional data that may indicate fraud is present. This is common practice in large organisations. The data being reviewed covers the two year period to 31 August 2018.

16. This is a first time exercise. While we believe sound controls exist around vendor maintenance and invoice processing, undertaking this analysis from time to time provides another level of scrutiny and further peace of mind.

17. As part of the engagement, PwC will provide fraud awareness training/ workshops. This will be linked with the promotion of internal reporting lines and tip off (‘whistleblower’) avenues for employees to report suspicions.

18. The next fraud risk assessment will take place in 2020. The Fraud Policy is to be reviewed in 2019 and will be expanded to include a fraud control plan. The annual conflict of interests and gifts circulation (via survey monkey) in March 2019 will be expanded for staff to confirm they a) are aware of and have complied with the fraud policy, b) will comply with the policy over the ensuing 12 months, and c) have reported any known or suspected fraud.

19. The Business Continuity Plan template is being reviewed and work is underway to ensure divisions have robust continuity arrangements in place for all mission critical outputs and services.

20. Revenue (Non Rates), Fees and Charges internal audit is next on the internal audit plan for 2018/19.

21. Monitoring processes are in place to track and follow up findings from internal audits, to ensure corrective actions are cleared as the resolution date falls due. Outstanding findings include:

a) Public Records Act 2003 - Compliance Maturity Review - follow up review of September 2015 ‘medium’ rated finding that back up recovery testing has not been undertaken for CM9 document management system (this review focused primarily on records). There are various back up mechanisms in place. A level of confidence exists that content from CM9 could be recovered in a disaster situation. However, recovery from backups has not been tested. Information Systems group has various projects underway, including improving disaster recovery resilience through implementing a new replicated server architecture. The current estimated recovery time for CM9 document management system remains two days (and as reported in the Key Systems Recovery Times report to the Committee on 29 November 2017). A watching brief will continue to be maintained.

b) Fraud review July 2018, findings detailed above.

22. Monthly reporting continues to assess management’s compliance with legislative and regulatory requirements. For the 2018/19 year to date, there have been no significant breaches.

Risk Management Working Group

23. The Risk Management Working Group (RMWG) has met once since the 4 July 2018 update provided to the Finance and Performance Committee.

24. The external emergency power supply plugin for the Administration Building, Walter Nash Centre, Koraunui Stokes Valley Hub and Walter Mildenhall Naenae bowls have been successfully tested. A business case for generator requirements is being developed.

25. Future facilities, such as Fraser Park and plans for Naenae and Wainuiomata community hubs will also include emergency power.

26. Armed aggression emergency evacuation procedures for the Administration Building have been updated and will be tested in early 2019 once floor wardens have been trained.

27. The Asbestos portal, register and management plans are operational. Use of the portal particularly applies to facility management contractors. This supports Councils management of risk associated with asbestos per the new Health and Safety at Work (Asbestos) Regulations, in full effect from 4 April 2018.

Options

28. There are no options for this report.

Consultation

29. There are no consultation requirements for this report.

Legal Considerations

30. There are no legal considerations for this report.

Financial Considerations

31. There are no financial considerations for this report.

Other Considerations

32. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that it provides the Finance and Performance Committee with information to support their governance role. It does this in a way that is cost-effective because it provides assurance on the effective and efficient management of risk within Council.

Appendices

No.	Title	Page
1 ⇩	Strategic Risk Profile 2018	52

Author: Enid Davids

Risk and Assurance Manager

Approved By: Brent Kibblewhite

General Manager Corporate Services

82 28 November 2018

Finance and Performance Committee

07 November 2018

File: (18/1758)

Report no: FPC2018/5/330

Financial Report for the Quarter Ended 30 September 2018

Purpose of Report

1. The report sets out Hutt City Council’s (Council) financial performance and position for the quarter ended 30 June 2018, with explanations of key results and variances.

Recommendations

That the Committee notes Council’s performance and position for the quarter ended 30 September 2018.

Background

2. The Committee is provided with information on five broad areas of financial performance:

Part A: Statement of Comprehensive Revenue and Expense

Part B: Statement of Financial Position

Part C: Statement of Cash Flows

Part D: Capital Spending Programme

Part E: Treasury Management

3. In addition, Cost of Activity Statements and 2018/19 Activity Project Cost Summaries are attached as Appendix 1 to this report.

Financial Information

4. The information detailed in this report excludes all of Council’s Council Controlled Organisations (CCOs). Best endeavours have been made by all Council Officers to ensure the accuracy and completeness of the financial information contained within this report.

5. There are three quarters still remaining in the 2018/19 financial year. Council’s financial performance and position is subject to change in light of any new information.

6. At this stage, Officers wish to specifically advise the Committee of two financial pressures for 2018/19:

· Firstly, Council’s re-insurance programme for 2018/19 has been particularly challenging. Council has now successfully secured re-insurance from 1 October 2018 to 1 May 2020, however at significantly higher costs than the last renewal period. Mainly, this was due to the Wellington insurance market being deemed significantly high risk and underwriters either exiting the Wellington market or underwriting insurance at more expensive “technical rates”. This is covered in more detail by way of a separate report to the Committee on 28 November 2018 (Report No. FPC2018/5/328 – 2018 Insurance Renewal Update).

· Secondly, Wellington Water Limited (WWL) are forecasting that, based on year to date water consumption levels, the city is on track to consume more water than last year. WWL has advised that this is not due to leaks, either new or previously caused by the 2016 Kaikoura earthquake. Officers are following up on this with WWL.

· The Bulk Water Levy reflects the total costs to GWRC to store, treat and supply potable water to the metropolitan Wellington Region Councils. This cost is apportioned between the receiving Councils, based on their previous year’s actual consumption. A wash-up payment is made shortly after year-end to reflect actual consumption.

· WWL currently estimate that Council’s Bulk Water Levy costs could potentially be $600,000 unfavourable to budget. However, higher water consumption means that Council should receive more metered water fees than planned. This is currently forecast to be $247,000 favourable to budget. Therefore, at the time of writing this report, potentially, Council’s net cost of additional water consumption for 2018/19 may be in the order of $353,000.

Part A: Statement of Comprehensive Revenue and Expense

7. The Statement of Comprehensive Revenue and Expense below covers all of Council’s revenue and operating expenditure and provides the operating surplus or deficit for the first quarter ended 30 September 2018.

Financial Performance Summary

Year to Date

8. Excluding Gains/ (Losses) on Revaluations of Financial Instruments and Property Revaluations, Sales, and Disposals, Council’s financial performance for the first quarter was $1.1M favourable to budget. This was primarily due to an underspend on operating costs of $1.3M mainly due to temporary delays in some operating works, offset by reduced revenue mainly from less capital subsidies revenue than planned due to delays in certain capital projects.

9. To date Council has an unrealised loss of $1.2M on its financial derivatives which is due to derivative interest rates falling further since 30 June 2018. There is no intention to realise these fair value changes (whether gains or losses). This is recognised for accounting purposes only and does not represent a cash loss.

10. To date Council has realised gains of $1.9M on assets sales. Including all of the Gains/ (Losses), Council’s financial performance for the quarter was $1.8M favourable to budget.

Full Year Forecast

11. Excluding Gains/(Losses) on Revaluations of Financial Instruments and Property Revaluations, Sales, and Disposals, Council is currently forecast to be $1.1M unfavourable to budget at year end. This is mainly due to higher operating expenditure, partly offset by higher revenues from additional consents, water meter fees and landfill fees than planned.

12. Operating expenditure is forecast to exceed budget mainly due to the following (1) $1.9M of unbudgeted expenditure on the Development Stimulus Package (although this expenditure is offset by a corresponding underspend in the “Capital for Growth Infrastructure” capital budget), (2) the 2018/19 Bulk Water Levy is expected to cost $600,000 more than planned based on year-to-date consumption (partly off-set by higher metered water fees of $247,000), and (3) an unbudgeted operating grant payment of $750,000 to the Hutt City Community Facilities Trust (CFT) which was incorrectly treated as a loan (in 2018/19) in the 2018-2028 Long Term Plan.

Explanation of Key Revenue Variances

13. Rates

Brief Description	Rates include all rates earned by Council. Rates refunds, rates remissions and rates billed to Council owned properties are excluded.
Year to date variance:	In line with budget.
Full Year Forecast Variance:	$174,000 unfavourable to budget as actual growth in the rating information database when rates were set on 28 June 2018 was lower than planned (0.92% vs. 1%). However, actual growth as at 30 June 2018 was 1.04%, meaning that the internal rates set-off will be higher than expected, resulting in a lower net rates revenue for the year than planned.

14. User Charges

Brief Description	All non-rates revenue, (including metered water charges), for providing services to the Community. This also includes fines and penalties charged.
Year to date Variance:	$501,000 favourable to budget mainly due to additional revenue in consents and landfills.
Full Year Forecast Variance:	$1.2M favourable variance mainly due to expected additional revenue in consents, metered water and landfills.

15. Capital Subsidies

Brief Description	Includes subsidies received for capital works. The majority of subsidies are received from the New Zealand Transport Agency (NZTA) for their share of Council’s roading capital spending programme, plus the Shared Paths programmed spend.
Year to date Variance:	$495,000 unfavourable to budget mainly due to project delays, particularly on the Shared Paths programme.
Full Year Forecast Variance:	$290,000 favourable to budget mainly due to additional spend on the Shared Paths programme.

16. Other Revenue

Brief Description	Includes assets vested to Council, petrol tax, sale of goods, animal shelter fees and central government subsidies for Ministry of Health initiatives, Kiwi Sport and Waste Minimisation levies.
Year to date Variance:	$115,000 unfavourable to budget mainly due to an expected commercial contract to dispose waste at the landfill not eventuating. However, regular landfill fees (within Fees & Charges) are currently $707,000 favourable to budget.
Full Year Forecast Variance:	$150,000 unfavourable to budget mainly due to the expected one-off commercial contract not eventuating. Regular landfill fees (within Fees & Charges), however are expected to be $850,000 favourable to budget.

Explanation of Key Expenditure Variances

17. Employee Costs

Brief Description	Includes total costs of full time employees and fixed term contractors, including PAYE, Kiwi Saver contributions, annual leave entitlements and staff training and development.
Year to date Variance:	$132,000 favourable to budget mainly due to Council-wide staff vacancies.
Full Year Forecast Variance:	$247,000 favourable to budget mainly due to staff vacancies, particularly in the Environmental Consents team and Information Services. Best efforts are being made to fill Environmental Consents staff vacancies as Officers are working under significant pressure to meet the current demand.

18. Operating Costs

Brief Description

Includes direct operating costs, excluding internal rates, employee costs, operating grants to the Community Facilities Trust (CFT), finance charges, support costs and depreciation.

Year to date Variance:

$1.33M favourable to budget mainly due to project delays and temporary timing differences between planned and actual spend across a number of activities, being mainly in Integrated Community Services and Roads and Access ways.

Full Year Forecast Variance:

$3.4M unfavourable to budget mainly due to:

1. $1.9M of unbudgeted costs related to the Development Stimulus Package within City Development (offset by a corresponding reduction in the Capital for Growth Infrastructure capital budget;

2. based on current consumption levels, the 2018/19 bulk water levy is forecast to be $600,000 more than planned (partly offset by estimated additional water meter fees of $247,000); and

3. $450,000 of higher landfill operating costs due to higher commercial and domestic household waste than planned (offset by additional landfill fees of $850,000).

19. Hutt City Community Facilities Trust (CFT) Operating Grants

Brief Description	CFT is a Council Controlled Organisation that constructs (and manages) community facilities for and on behalf of Council. Payments made by Council to CFT for CFT capital projects are required to be treated by Council as operating expenditure for accounting purposes. [If these capital works were done directly by Council, they would be treated as capital expenditure and Council would achieve a balanced budget for 2018/19].
Year to date Variance:	In line with budget.
Full Year Forecast Variance:	$750,000 unfavourable to budget, but nil cash impact. In February 2018, Council agreed to advance CFT $750,000 for Fraser Park Sportsville, to be repaid to Council over a 15 year period, in return for the transfer from CFT to Council of the building naming rights. This was incorrectly treated as a loan in the 2018/19 Long Term/Annual Plan.

20. Gains/Losses on Revaluation of Financial Instruments

Brief Description

1. Council recognises its interest rate swaps at fair value each month.

2. The change in fair value between reporting date and 30 June 2018 is treated either as an unrealised gain (fair value has decreased) or an unrealised loss (fair value has increased).

Year to date Variance:

$1.2M unfavourable to budget because swap rates are lower when compared to 30 June 2018.

Full Year Variance:

Given the volatility of the financial markets, the full year forecast will always be aligned to the year-to-date fair value of Council’s committed swap portfolio.

21. Gains/Losses on Revaluation of Assets

Brief Description	Council revalues its property, plant and equipment every three years with the most recent revaluation completed on 31 December 2017. In addition, Council recognises either gains/losses on sale of its assets.
Year to date Variance:	$1.9M favourable due to realised gains made on recent asset sales, including land to the north of Avalon Park (to Urban Plus), and surplus land in Epuni for a Housing New Zealand development.
Full Year Variance:	$1.9M favourable to budget as per above.

Part B: Statement of Financial Position

22. Council’s financial position as at 30 September 2018 and the full-year forecast against budget are shown below, followed by a summary of key variances.

Overall Summary

23. Council’s financial position as at 30 September 2018 is sound with net assets of $1.3 billion.

24. Debtors and receivables of $130.4M includes $125M (including GST) of the combined rates of Council and Greater Wellington Regional Council for the remaining five instalments of 2018/19 (not yet due), plus rates in arrears. However, this is offset by the:

a. “Other liabilities” which includes $92.4M of Council rates revenue in advance; and

b. “Creditors and other payables” which includes $24.9M of Greater Wellington Regional Council share of rates.

25. $24M of existing debt matures in 2018/19 and $10M matured in the first quarter. This was pre-funded and Other Assets of $14M represents the remaining pre-funding held on term deposit until existing debt matures.

26. Investment in CCO’s represents $14.5M of shares in Council’s CCOs, $14.7M in loans to CCOs and $2.6M of LGFA borrower notes.

Net Debt

27. Year to date Net Debt is below budget mainly due to project delays. $14M of debt matures during the year and this will be funded from the pre-funding held on term deposit. Net debt is forecast to be $2.5M higher than budget at year end mainly because additional borrowings will be required to fund the additional operating expenditure discussed above.

28. At the time of writing this report, CCO lending is forecast to remain at $14.7M. Officers expect this to increase by 30 June 2019 with Urban Plus Limited (UPL) drawing down its approved credit lines to fund its planned property developments. The forecast will be updated for the half year results.

Part C: Statement of Cash Flows

29. Council’s cash flow for first quarter ended 30 September 2018 and the full year forecast against budget are shown below, followed by a summary of key variances.

Overall Summary

30. Council’s cash on hand as at 30 September 2018 was $1.9M plus a further $14.0M of pre-funding was held on short term deposit.

31. The main activities for the quarter ended 30 September 2018 included :

a. pre-funding $4M of existing Council debt maturing in 2018/19;

b. repayment of $10M of existing debt using debt pre-funding held on term deposit; and

c. refinancing $5M of Commercial Paper.

Part D: Capital Expenditure Programme and Asset Sales

32. A summary of the 2018/2019 capital works programme for the quarter ended 30 September 2018 is shown below.

33. Total budgeted capital expenditure for the year is $72.6M. At this stage we are forecasting to overspend slightly by year end mainly due to expected overspends in the following key projects.

34. The following are comments on the above forecast variances:

· Wharves Refurbishment ($302,000 unfavourable) – works planned for 2019/20 being brought forward.

· Avalon Park Development ($750,000 unfavourable) – works not completed last year when expected to be, resulting in a project underspend last year, for which a budget carry-over to 2018/19 was not provided for.

· Making Places Civic Event Centre Upgrade: ($589,000 unfavourable) - due to project delays in 2017/18 (mainly suppliers and labour shortage) pushing work into 2018/19.

· Making Places Projects ($186,000 unfavourable) – revised costings showing that Geotechnical and Consenting costs for the Riverlink Project will be higher than planned.

· Urban Growth Strategy Improvements ($1.9M unfavourable) – to offset agreed additional operating costs with the Development Stimulus Package for which there is an equivalent overspend.

· Cycleways / Shared Path Projects ($570,000 unfavourable) – additional costs as a result of the complexities of the work on the Wainuiomata Shared Path project. This is partly offset by additional subsidies.

35. No carryovers to 2019/20 have been identified at this stage. The wharves refurbishment spending brought forward from 2019/20 will in future reports be shown as a negative carry over.

Part E: Treasury Risk Management

Summary for the Year

36. The total amount of new debt issued in the first quarter was $14M, which includes $4M of new debt to partially prefund $24M of Council debt maturing in 2018/19. In addition, $10M of new debt was issued in the same period to part fund Council’s 2017/18 capital works programme, initially funded through Council’s commercial paper programme.

37. $10M of term debt matured in the first quarter and was repaid using Council’s pre-funding held on term deposit. $5M of commercial paper was refinanced in quarter 1 to retain the programme at $11M, necessary to offset the additional costs of Council’s credit facility of $35M (increased from $15M earlier this year).

38. The Official Cash Rate (OCR) has remained static at 1.75%. Council’s weighted average cost of borrowings has improved slowly as Council takes advantage of lower interest rates and as legacy loans and swaps with higher interest rates are replaced. The weighted average cost of borrowings as at 30 September 2018 was 3.7% (30 June 2018: 3.9%).

39. All of Council’s Treasury Risk Management Policy limits have been complied with and are shown below:

Item	Borrowing Limit	Calculated	Within Limit	Comments
Net External Debt / Total Revenue	<150%	105%	Yes	Based on annualised revenue
Net Interest on External Debt / Total Revenue	<10%	5%	Yes
Liquidity Ratio	<110%	112.92%	Yes

40. The table below presents Council’s debt maturity profile and compliance with its debt maturity buckets. “Linked assets” represent the loans on-lent to Council’s CCOs and “Available” represents Council’s credit line facility.

41. The table below presents Council’s hedging position and compliance with its floating/fixed hedging limits.

42. As at 30 September 2018, Council had $202M of gross borrowings (including borrowings on behalf of CCOs). Council borrows at least cost which is mainly at floating interest rates. The floating/fixed mix is shown below:

43. To mitigate interest rate risk, Council enters into notional interest rate swap agreements with banks. Council “pays” a fixed interest rate in “return” for a floating interest rate, rolled over quarterly for the term of the swap agreement.

44. Council’s interest rate swaps result in Council’s floating/fixed borrowings ratio now being 28% ($56M) floating and 72% ($146M) fixed. This is shown by way of a diagram below:

Consultation

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

Legal Considerations

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

Financial Considerations

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

Other Considerations

48. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that it provides Councillors with the necessary information to effectively undertake their governance role.

Appendices

No.	Title	Page
1 ⇩	Activity Statements and Projects	83

Author: Philip Benseman

Budgeting and Reporting Manager

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Mark de Haast

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

144 28 November 2018

Finance and Performance Committee

05 October 2018

File: (18/1597)

Report no: FPC2018/5/328

2018 Insurance Renewal Update

Purpose of Report

1. To provide the Committee with an update regarding Council’s 2018 insurance programme renewal and an overview of several work streams currently underway to best protect Council against continued insurance market tightening, both in terms of insurance cover capacity and cost.

Recommendations

That the Committee notes that Council has successfully renewed its insurance programme, with future renewal dates ranging between 1 October 2019 and 1 May 2020.

Background

2. Council together with Kapiti Coast District (KCDC), Porirua City (PCC) and Upper Hutt City Councils (UHCC), collectively known as the Outer Wellington Shared Services Insurance Group (OWSS), has been purchasing insurance for their respective assets on a combined basis since 2009.

3. Greater Wellington Regional Council (GWRC) joined the OWSS in 2016 to insure their above ground assets only through the collective. For insurance purposes only, the OWSS Councils and GWRC are collectively known as the Wellington Councils Insurance Group (WCIG).

4. Previous insurance updates provided to the Committee, (Report FPC 2017/2/124 on 2 August 2017 and Report FCP2017/5/304 on 29 November 2017), provided extensive background information regarding the nature of Council’s insurance programme and Council’s 2017 insurance renewal from 1 October 2017 to 1 October 2018. These are attached as Appendix 1 and 2 to this report.

5. Council’s 2017/18 insurance programme was due for renewal on 1 October 2018. Aon, Council’s insurance advisor, extended Council’s natural catastrophe damage to infrastructure assets (below ground assets) and material damage and business interruption (above ground assets) by one month to 1 November 2018. Primarily, this was done to extend insurance cover at existing rates, amidst a tightening insurance market, both in terms of price and cover capacity.

6. In addition, Aon was in London during September 2018, ahead of the 1 November 2018 renewal date, to present to underwriters and to obtain the best renewal options and terms for the WCIG. This year, Brent Kibblewhite, Hutt City Council’s General Manager, Corporate Services, represented the WCIG and accompanied Aon in London. Annual WCIG representation in London has always been well received by underwriters and further reinforces the WCIG’s strong commitment to its insurance requirements.

7. This report builds on previous insurance updates and seeks to provide the Committee with detailed information on Council’s 2018 insurance renewal challenges and highlight several work streams currently underway to best position Council against continued insurance market tightening, particularly for the Wellington region.

Discussion

2018/19 Insurance Renewal

Insurance Renewal Challenges

8. The 7.8 magnitude Kaikoura earthquake that occurred on 14 November 2016 was significant. Numerous claims were lodged with insurers resulting in significant losses, particularly to New Zealand insurers, with most of them placing embargos on writing new business or changing limits and/or deductibles for existing policy holders.

9. With the passage of time, underwriters have increasingly perceived the Wellington market as extremely high risk and many New Zealand insurers have now exited the Wellington market.

10. Regards international markets, Lloyd’s of London have not made an underwriting profit for the past three years and as a result, has mandated that all Lloyd’s syndicates review their books of business and submit business plans to return to profit.

11. One way Lloyd’s suggested doing this was to remove or significantly reduce the least profitable lines of business, which for a number of syndicates was property in known earthquake zones such as Wellington. This has resulted in a reduction of insurance capacity available and indications are that this capacity will continue to reduce into next year as Lloyd’s continues to review the business plans of syndicates.

12. In terms of pricing, most underwriters have reverted to their own (and more expensive) “technical rates” for insurance cover offered, to reflect the increased level of risk.

Summary of Council’s Insurance Programme

13. As in previous years, Council’s two largest insurance policies relate to Material Damage and Business Interruption (MDBI), for above ground assets, and Natural Catastrophe Damage to Infrastructure (NCDI), for below ground assets. The latter insurance cover is based on 40% of the city’s Probable Maximum Loss (PML), with the remaining 60% at this stage still covered by central government.

14. Given the strong indications that insurance capacity for the Wellington area will continue to reduce, Council’s 40% share of NCDI for 2018 remains placed 100% offshore and the renewal term is for 18 months to 1 May 2020. However, MDBI for 2018 is split between offshore underwriters (55%) and domestic New Zealand underwriters (45%). Similarly, the offshore placement (55%) is for a renewal term of 18 months to 1 May 2020. The domestic placement (45%) is for a renewal term of 12 months, being the maximum renewal term exposure currently tolerated by NZ underwriters, at this stage.

15. The following table provides a comparison between renewal terms for the 12 months commencing 1 November 2018 and the previous 12 months. This shows an overall cost increase of 39%. Mostly, this is due to increases for MDBI and NCDI, General Liability and Professional Indemnity, being Council’s more significant insurances within its total insurance programme. These cost increases will be discussed separately below.

Material Damage and Business Interruption (29% cost increase)

16. The significant increase is due to:

a. market driven premium increases;

b. a catch up of premium increases avoided at last renewal for offshore underwriters who honoured their two-year rate agreements;

c. having to seek new insurer capacity at higher “technical rates” to replace both domestic and offshore underwriters who withdrew cover; and

d. a $84M (30.5%) increase in sum insured values.

Infrastructure Assets - Natural Catastrophe (56% cost increase)

17. The 2018 insurance renewal was particularly challenging with limited insurer appetite for Natural Catastrophe risk in the Wellington region.

18. Similar to Material Damage and Business Interruption, the significant increase is due to:

a. market driven premium increases;

b. a catch up of premium increases avoided at last renewal for offshore underwriters who honoured their two-year rate agreements;

c. having to seek new insurer capacity at higher “technical rates” to replace offshore underwriters who withdrew cover; and

d. a $96M (8.2%) increase in sum insured values.

Professional Indemnity and General Liability

19. The deteriorating claims history over the last 10 years in the local government sector, (ie, building defects claims arising out of weather tightness issues, weather events (flooding), consenting issues (Tauranga), imported building materials from China such as plumbing, wiring, steel and concrete etc,), has resulted in significant premium increases to continue to provide protection and sustainability for Councils’ increased liability exposures.

Work Streams Underway to Best Position Council

20. OWSS place an order for insurance cover up to 40% of the Probable Maximum Loss (PML) for the Wellington region. The PML for the OWSS was last determined in 2015 and was estimated to be $634.9M, with Council’s PML estimated to be up to $350M.

21. The OWSS has engaged Aon to recalculate the PML (including landslide damage), for the OWSS and has engaged consultants to review and recommend the best methodology for allocating the total cost of insurance between the OWSS member Councils’ (currently based on PML).

22. In light of increasing risk of reduced insurance capacity for the Wellington market, OWSS has engaged Aon to complete a criticality and risk assessment of the three waters network, in partnership with Wellington Water Limited, for this Council, PCC and UHCC. The results of this analysis should enable OWSS to make informed decisions regards what assets Council might choose not to insure in the event that there was insufficient insurance capacity for the Wellington market, or as a means to reduce insurance premiums.

Consultation

23. There are no consultation matters arising from this report.

Legal Considerations

24. There are no legal matters arising from this report.

Financial Considerations

25. The insurance budget for 2018/19 was increased in the 2018-2028 Long Term Plan by $247,000 (13%) to $2.22M to accommodate expected (but at that stage unquantified) premium increases.

26. The total cost of insurance for 2018/19 will be $2.65M against a budget of $2.22M resulting in an unfavourable year-end budget variance of $439,000. This is less than the 2018 insurance renewal increase because eight months of the 2018 premiums will fall in 2018/19 and four months in 2019/20.

27. The only good thing with this years’ insurance renewal is the Fire Service Levy (FSL) and Earthquake Commission charges added to the 2018 premium renewal costs, are $38,000 less than they were in the 2017 renewal. This is mainly because the FSL is calculated on indemnity values (total replacement costs adjusted downwards for the age of the building).

Other Considerations

28. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that it provides elected members with the information needed to undertake their governance role.

Appendices

No.	Title	Page
1 ⇩	August 2017 Insurance Update	145
2 ⇩	November 2017 Insurance Update	153

Author: Mark de Haast

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

Background

2. Council together with Kapiti Coast District, Porirua City and Upper Hutt City Councils (collectively known as the Outer Wellington Shared Services Insurance Group or OWSS), has been purchasing insurance for their respective assets on a combined basis since 2009. This syndicate was necessary to provide the combined councils with scalability to benefit accessing wider domestic and off-shore insurers.

3. Greater Wellington Regional Council (GWRC) joined the OWSS in 2016 to insure their above ground assets only through the collective. For insurance purposes, the OWSS Councils and GWRC are collectively known as the Wellington Councils Insurance Group (WCIG).

4. As part of WCIG, Hutt City Council benefits from the expertise and resources made available to it through Aon Insurance Brokers (Aon). This includes extensive asset loss modelling, insurance risk profiling and insurance placements with off-shore insurers. Aon have been Council’s insurance advisor and broker since 2008 and Aon were appointed as OWSS’s insurance advisors and brokers in 2009 following a competitive tender.

5. Obtaining the most appropriate level of insurance cover involves weighing up risk against cost. For example it would be possible to have a more comprehensive insurance policy with lower excesses thus reducing risk to Council but the premiums could be exorbitant. Therefore the insurance cover taken out is designed to get the best possible balance between risk reduction and cost. Aon play a significant role for WCIG in this process.

6. One important factor in obtaining the most appropriate level of insurance cover at the best possible price is an accurate understanding of the risks involved and the probable maximum loss (PML) following an event. In order to better understand the earthquake and liquefaction risks to our infrastructure and be able to more accurately estimate the PML in the event of a natural catastrophe, Council engages consultants Tonkin and Taylor to undertake detailed geotechnical surveys. As a result of this work Council is able to present robust data to the underwriters when negotiating for insurance cover.

7. Representatives from Aon will be at the committee meeting to answer questions.

2016 Policy Renewal

8. Council has a comprehensive range of insurance policies which were renewed in June and October 2016. The policies and their annual premiums are:

Natural Catastrophe Damage to Infrastructure (for underground assets)	$896,568
Material Damage and Business Interruption (for aboveground assets)	$770,833
General Liability & Professional Indemnity	$70,000
Statutory and Employers Liability	$7,655
Residential Property	$15,806
Crime	$5,036
Hall Hirers’ Liability	$525
Motor Vehicle	$28,866
Overseas Travel	$407
Fine Arts	$38,898
Marine Hull	$1,440
Cyber Risks	$10,933

9. The Natural Catastrophe Damage (Infrastructure) policy (for underground assets) and the Material Damage and Business Interruption policy (for aboveground assets), account for 48 per cent and 42 per cent of Council’s $1.847 million of current insurance premiums. These two policies are discussed in more detail in the next section of this report.

10. Following several years of reducing insurance premiums, the insurance market had shown signs of tightening. During the 2016 renewal process, Aon recommended WCIG execute a Long Term Agreement (LTA) for both infrastructure assets (below ground) and above ground assets that secured insurance rates for two years from 1 October 2016 to 1 October 2018.

Significant Insurance Policies

Natural Catastrophe Damage (Infrastructure) Policy (below ground assets)

11. For this policy, a natural catastrophe event is defined as; earthquake, natural landslip, flood, tsunami, tornado, windstorm, volcanic eruption, hydrothermal and geothermal activity, and subterranean fire.

12. Collectively, the OWSS Group has a sum insured value of $2.768 billion for infrastructure assets. The sum insured value represents the full replacement costs of these assets. Whilst the full replacement cost considers technological advances in construction methods and materials, it assumes no change in the current level of service. Council’s infrastructure assets (including Hutt Valley Water Services) have a sum insured value of $1.173 billion.

13. Following extensive loss modelling and analysis, Aon has best estimated that an extreme earthquake event for the WCIG would be a magnitude 7.5 event on the Wellington fault that would likely result in a PML of $635 million across the Wellington Region (excluding GWRC infrastructure assets). The majority of the losses, $354 million, are expected to occur in the Hutt Valley.

14. Consequently, the OWSS has purchased natural catastrophe to infrastructure assets insurance cover with a Group Limit of $600 million per insurance renewal period (12 months). This includes maximum insurance cover of $350 million for Council’s (including Hutt Valley Water Services). Council has a $3 million deductible per claim per event.

15. Central government currently support local government by way of a 60/40 funding split for damage caused to infrastructure assets from natural catastrophe. This means that for each qualifying event, total insured losses suffered by Council that exceed a threshold of 0.0075% of the Council’s Net Rateable Value, will be 60% funded by central government. At the time of writing this report, the central government threshold for Council was approximately $810,000 based on the $10.8 billion rateable land value of Council’s General Rate.

16. The residual risks of natural catastrophe damage to infrastructure assets are managed by insurance. This means that for each qualifying event, total insured losses suffered by Council that exceed a threshold of $3 million, will be 40% funded from OWSS insurers, up to the PML of $350 million. Up to 40% of losses exceeding the PML will need to be fully funded by Council. This is explained by way of a diagram and examples below;

Material Damage and Business Interruption Policy (above ground assets)

17. The WCIG has a total sum insured value of $1.37 billion of above ground assets. Unlike natural catastrophe damage to infrastructure assets, the sum insured value provides for the estimated cost of replacement to the same levels of service and a Group Limit of $25 million of additional costs due to business interruption. In addition, HCC has up to $15 million of Enablement Costs to cover temporary rerouting of below ground assets to enable repairs of damage to line systems, eg., pump stations.

18. From their loss modelling analysis, Aon has best estimated that a region- wide maximum credible earthquake event could result in material damages of up to $485 million across the Wellington Region. Accordingly, the WCIG has purchased material damage and business interruption insurance cover with a combined Group Limit of $600 million. This includes a sum insured value of $247 million for Council’s above ground assets. Council reviews the sums insured for individual assets on an annual basis.

19. Losses suffered to above ground assets that are not caused by natural catastrophe trigger a deductible of $50,000 per claim per event. This means that losses below $50,000 will need to be fully funded by Council.

20. Losses suffered to above ground assets by natural catastrophe(s) trigger a deductible of 5% of the site sum insured, with a minimum Group deductible of $100,000 per claim per event and a maximum of $20 million. For example, the Council administration building in Laings Road has a sum insured value of $23 million. This means that in the event of a natural catastrophe loss to the building, Council would need to fund the first $1.15 million of the total insured loss before claiming from insurers.

21. In the unlikely event that losses arising from any one event exceed $600 million and losses are sustained by more than one Council, the amount paid to each Council who makes a claim in respect of that one event, will be in the same proportion as the Council’s actual loss bears to the combined total amount claimed.

Claims History and Kaikoura Earthquake

22. Council has not lodged an insurance claim for several years and as a result has a very good claims to premiums ratio.

23. The magnitude 7.8 Kaikoura earthquake that occurred on 14 November 2016 was significant with multiple aftershocks continuing across surrounding areas. Damage of significance to Council was fortunately limited to Petone Wharf and the pavilion at Naenae Park. Petone Wharf has only been insured for demolition costs for many years, and the cost to reinstate the Naenae Park pavilion to its pre-earthquake condition may result in a small claim being lodged by Council.

24. However significant damage was sustained in the Wellington CBD including damage to GWRC’s head office. Numerous claims have been lodged with insurers resulting in significant losses, particularly to domestic insurers, with a number of domestic insurers immediately placing embargos on writing new business or changing limits and/or deductibles for existing policy holders.

2017/18 Renewal Possible Impacts

Changes to Long Term Agreement (LTA) Rates

25. As previously noted, the OWSS/WCIG has executed a two year rate agreement for both infrastructure assets and above ground assets. The main advantage of this was to best protect or hedge the WCIG against the trend of rising insurance premiums.

26. However, the LTA includes a provision that allows insurers a right to review the terms and conditions, including premium rates and deductibles, if any of the following occurs:

a. There has been any material change in risk;

b. The incurred insured claims under the policy exceed 50 per cent of the net written premium received for the first period of insurance;

c. There is a reduction in insurers’ reinsurance facilities or substantial alterations to the terms and conditions of reinsurance previously offered to insurers.

27. Notwithstanding this, WCIG was advised that New Zealand insurers are adopting different positions regards LTA rates, with three main insurers signaling premiums in Wellington to now be based on more expensive technical rates (ie., insurer’s general rates derived from their own loss modelling). This could result in premium increases ranging from 25 per cent to 500 per cent (depending on engineering reports and/or compliance with National Building Standards and/or the previous year’s base rate). In addition, they are also looking to remove capped deductibles on losses to above ground assets caused from natural catastrophe.

28. Aon further advised that the London property insurance market has incurred large losses from New Zealand catastrophes over the last six years. Consequently, premium increases ranging from 10 per cent to 15 per cent are possible and preservation of LTA rates will be dependent on the loss ratio of incurred insured claims to net premiums not exceeding 50 per cent.

Insurance Renewal Costs

29. The Natural Catastrophe Damage policy (for infrastructure assets) contains a LTA. The placement is predominately placed with offshore insurers and with a clean claims experience, the renewal for this policy is likely to be charged at the same rate as the initial insurance renewal, ie., the London market is likely to honour the 2 year rate agreement. However there is a small amount placed with domestic insurers, which could result in an overall minor premium increase to Council.

30. The Material Damage and Business Interruption policy (for above ground assets) also contains a LTA, however the Kaikoura earthquake has resulted in a number of claims. The issue for WCIG is the on-going challenge in defining and quantifying the scope and cost of the damage reinstatement to the Shed 39 ground floor fitout (GWRC’s head office).

31. 60 per cent of our Material Damage and Business Interruption policy is underwritten by domestic insurers with Vero the lead underwriter. Vero New Zealand has incurred substantial losses in the Wellington market from the Kaikoura earthquake, and they will not be honouring the two year rate agreement.

32. AIG as co insurer could potentially pick up some of Vero’s share. To further reduce expected premium increase, a greater percentage of the Material Damage and Business Interruption policy could also be placed in the London market, subject to availability of capacity.

33. Aon will be in London during September ahead of the renewal date to obtain the best renewal options and terms for the WCIG. A representative of the WCIG will accompany Aon in London.

Further Potential Financial Risks

Central Government Review of 60/40 Funding Split for Natural Catastrophe to Infrastructure Assets

34. In 2016, central government initiated a review of their 60/40 funding split which is being led by Treasury. There has been very limited input from or direct involvement with the local government sector. Promised public consultation in 2016 was postponed several times.

35. Potentially, central government could withdraw completely from the current 60/40 funding split for natural catastrophe damage to infrastructure assets. More information is required from Central Government to fully understand their intentions and the consequential impacts thereof.

Multiple Deductibles and Capped Claim Settlements

36. Council has a $3 million deductible per event for losses to infrastructure assets caused by natural catastrophe. An event is deemed to be a single loss or series of losses incurred during a continuous 72 hour period. Multiple natural catastrophe events to infrastructure assets will give rise to millions of dollars of deductibles that will need to be fully funded by Council.

37. Losses to above ground assets caused by natural catastrophe trigger a deductible (subject to minimum and maximum limits) based on 5 per cent of the site sum insured value for each above ground asset per event. A natural catastrophe event could result in losses to multiple above ground assets which will give rise to millions of dollars of deductibles that will need to be fully funded by Council.

38. As was shown with the Christchurch earthquakes, there is a possibility of multiple events within an insurance year. If this occurs, it creates multiple instances of claims and associated deductibles.

Legal Considerations

39. The detailed terms and conditions of our Natural Catastrophe Damage (Infrastructure) and Material Damage and Business Interruption (above ground asset) policies, are independently reviewed to ensure they provided adequate cover. Other policies which are less complex are reviewed internally and by Aon.

Financial Considerations

40. Insurance budgets have been increased in 2017/18 to $1.968 million. At this stage it is too early to know if the $121,000 budget increase will be sufficient to cover expected (but unknown) increases in premiums when policies are renewed in September 2017.

41. In addition to expected premium increases, Council will be required to pay higher fire service levies at renewal due to the creation of Fire & Emergency NZ from 1 July 2017. Council’s fire service levies are expected to increase from $84,000 to $117,000. This increase will be offset by Council no longer providing direct funding for rural fire services. The previous budget for rural fire services was reallocated to the insurance budget in the 2017/18 Annual Plan.

Other Considerations

42. 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 elected members with the information needed to undertake their governance role.

Background

2. A comprehensive report on Council’s insurance arrangements was provided to the 2 August 2017 meeting of this Committee. This report is to inform the Committee on the outcomes and impact of the 1 October 2017 renewal of Council’s insurance policies.

3. Council together with Kapiti Coast District (KCDC), Porirua City (PCC) and Upper Hutt City Councils (UHCC), collectively known as the Outer Wellington Shared Services Insurance Group or OWSS, has been purchasing insurance for their respective assets on a combined basis since 2009.

4. Greater Wellington Regional Council (GWRC) joined the OWSS in 2016 to insure their above ground assets only through the collective. For insurance purposes, the OWSS Councils and GWRC are collectively known as the Wellington Councils Insurance Group (WCIG).

5. Aon is the insurance advisor and broker for both OWSS and WCIG. Aon were in London during September ahead of the 1 October 2017 renewal date to obtain the best renewal options and terms for the WCIG. A representative of the WCIG accompanied Aon in London.

6. As advised in the 2August 2017 report, insurers had suffered significant losses in the Wellington property market from the 14 November 2016 Kaikoura earthquake. With some insurers indicating they would not honour existing rate agreements, there was risk in securing replacement capacity particularly with domestic insurers, and material increases in premiums at renewal were expected.

Discussion

7. Council has a comprehensive range of insurance policies which are now renewed on 1 October each year;

Natural Catastrophe Damage to Infrastructure (NCDI)

(for underground assets)

Material Damage and Business Interruption (MDBI)

(for aboveground assets)

General Liability & Professional Indemnity

Statutory and Employers Liability

Residential Property

Crime

Hall Hirers’ Liability

Motor Vehicle

Overseas Travel

Fine Arts

Marine Hull

Cyber Risks

8. The NCDI policy (for infrastructure (underground) assets) and the MDBI policy (for aboveground assets), are Council’s largest insurance policies together accounting for 90% of policy premiums. These two policies were discussed in detail in the 2 August 2017 report.

9. Following several years of reducing insurance premiums, the insurance market had shown signs of tightening. During the 2016 renewal process, Aon recommended WCIG execute a Long Term Agreement (LTA) for both infrastructure assets (below ground) and above ground assets that secured insurance rates for two years from 1 October 2016 to 1 October 2018.

10. The LTA’s include provisions that allow insurers a right to review the terms and conditions, including premium rates and deductibles, if any of the following occur:

a. There had been a material change in risk;

b. Insured claims incurred under the policy exceeded 50 per cent of the net written premium received from the first period of insurance;

c. There was a reduction in insurers’ reinsurance facilities or substantial alterations to the terms and conditions of reinsurance previously offered to insurers.

11. The magnitude 7.8 Kaikoura earthquake that occurred on 14 November 2016 was significant. Numerous claims were lodged with insurers resulting in significant losses, particularly to domestic insurers, with a number of domestic insurers placing embargos on writing new business or changing limits and/or deductibles for existing policy holders.

12. In the 2 August 2017 report, Aon advised that New Zealand insurers were adopting different positions regarding LTA rates, with three main insurers signaling premiums in Wellington were being based on more expensive technical rates (ie., insurer’s general rates derived from their own loss modeling), resulting in premium increases ranging from 25 per cent to 500 per cent (depending on engineering reports and/or compliance with National Building Standards and/or the previous year’s base rate). In addition, New Zealand insurers were also looking to remove capped deductibles on losses to above ground assets caused from natural catastrophe.

13. Aon further advised the London property insurance market had incurred large losses from New Zealand catastrophes over the previous six years. Consequently, premium increases ranging from 10 per cent to 15 per cent were possible and preservation of LTA rates would be dependent on the loss ratio of incurred insured claims to net premiums not exceeding 50 per cent.

2017/18 Renewal

Natural Catastrophe Damage (Infrastructure) Policy (below ground assets)

14. Councils NCDI policy contains a LTA and the placement is predominately with offshore insurers. With a clean claims experience, the London market honoured the 2 year rate agreement however the small amount placed with domestic insurers resulted in an overall 6.2 per cent premium increase.

Material Damage and Business Interruption Policy (above ground assets)

15. The MDBI policy also contains a LTA. 50 per cent of Councils previous MDBI policy was underwritten by domestic insurers with Vero New Zealand (Vero) the lead underwriter and having 30 per cent of the total policy placement.

16. Vero incurred substantial losses in the Wellington market from the Kaikoura earthquake, and did not honour their two year rate agreement. Vero were prepared to continue their existing 30 per cent participation but at a significant (more than double) increase in premium. Aon found it difficult to get alternative capacity from the New Zealand market to replace or reduce Vero’s participation domestically due to a lack of available Wellington earthquake capacity.

17. Vero also write a substantial share (50 per cent) of the OWSS Residential Property programme as well as front for three reinsurers on the NCDI placement. Vero’s continued participation on the Residential and NCDI placements was subject to them being retained on the main MDBI policy, for which they stipulated a minimum level of placement.

18. Chubb NZ chose not to renew their placement.

19. Due to the difficulty in finding alternative capacity in the New Zealand market to replace Chubb NZ and Vero’s placements, and given Vero’s importance in the Residential programme and fronting for other insurers in the NCDI programme, and the need to maintain a breadth of ongoing relationships with domestic insurers to reduce future renewal risk, the WCIG accepted the need to maintain a placement with Vero at their increased price, but for a smaller (15 percent) placement.

20. AIG honoured their 2 year rate agreement for their previous 15 per cent placement and agreed to take up 10 per cent of Vero’s previous placement, at an increased price but not as significant as Vero’s. AIG also agreed to take over from Vero as the New Zealand lead underwriter for both the MDBI and Residential programmes.

21. Berkshire Hathaway NZ was one insurer who was prepared to write new business in the Wellington market and they have taken 10 per cent of the placement.

22. All existing London insurers confirmed their expiring participation at the expiring slip rates, ie, honouring the 2 year rate agreement. The London market agreed to increase their participation in the MDBI programme from 40 per cent to 50 percent, however the extra 10 per cent was at increased rates but significantly less than the rates offered by Vero NZ.

23. Previous and current placements are summarised in the following table;

Insurer	2016/17	2017/18
Aon Group (London)	40%	50%
Berkshire Hathaway NZ	-%	10%
Vero NZ	30%	15%
AIG NZ	15%	25%
Chubb NZ	15%	-%

Offshore (London)	40%	50%
Domestic	60%	50%

24. The impact from all the placement changes has resulted in a 31.4 per cent premium increase for Council’s MDBI policy.

Policy Premium Changes

25. Council’s other insurance policies have also incurred premium increases of varying degrees;

Policy	2016/17	2017/18	change
Natural Catastrophe Damage to Infrastructure (for underground assets)	$896,568	$952,267	6.2%
Material Damage and Business Interruption (for aboveground assets)	$770,833	$1,012,750	31.4%
General Liability & Professional Indemnity	$70,000	$73,782	5.4%
Statutory and Employers Liability	$7,655	$7,655
Residential Property	$15,806	$19,452	23.1%
Crime	$5,036	$6,286
Hall Hirers’ Liability	$525	$875
Motor Vehicle	$28,866	$44,526	54.3%
Overseas Travel	$407	$407
Fine Arts	$38,898	$44,293
Marine Hull	$1,440	$1,610
Cyber Risks	$10,933	$16,280	48.9%
	$1,846,967	$2,180,183	18.0%

26. The above are the gross premiums and include cover for Hutt Valley Water Service’s assets for which partial recovery is received from UHCC. UHCC also contribute to the premiums of the non HVWS water assets covered by Councils NCDI policy.

27. $45,000 of the MDBI increase is actually an increase in the Fire Service Levy (FSL), charged via insurance premiums on behalf of Fire & Emergency NZ (FENZ). From 1 July 2017, HCC ceased direct funding of rural fire services with this now being provided by FENZ resulting in the increased FSL.

28. The 23.1 per cent increase to the Residential Property policy premium is due to the 24 per cent average increase in Hutt Valley residential property valuations in October 2016.

29. The increase in Motor Vehicle premiums is due to an increase in claims over the last couple of years and to a lesser extent, an increase in fleet value. Aon also recommended changing to a flat premium, one without a ‘burning cost adjustment’ clause, to safe guard participating Councils against paying an additional premium in the event of another bad claims year.

Consultation

30. There is no need for consultation.

Legal Considerations

31. With the exception of the Motor Vehicle policy (refer above), there have not been any significant changes to policy terms and conditions. The detailed terms and conditions of our NCDI and MDBI policies, have previously been independently reviewed to ensure they provided adequate cover. Other policies which are less complex were reviewed internally and by Aon.

Financial Considerations

32. The insurance budget for 2017/18 was increased by $121,000 in the 2017 Annual Plan in anticipation of the expected (but unknown) premium increases following the Kaikoura earthquake.

33. Insurance costs for 2017/18 are forecast to be $2.060 million against a budget of $1.968 million resulting in an unfavourable forecast variance of $92,000. Costs for 2017/18 comprise 3/12’ths of the net premiums for the 1 October 2016 to 30 September 2017 insurance period and 9/12ths of the net premiums for the 1 October 2017 to 30 September 2018 insurance period.

34. Draft budgets for 2018/19 and future years will need to be increased to accommodate the 18.0 percent overall premium increase.

Other Considerations

35. 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 elected members with the information needed to undertake their governance role.

163 28 November 2018

Finance and Performance Committee

31 October 2018

File: (18/1734)

Report no: FPC2018/5/329

2019/20 Revenue Increase and Cost Reduction Target Update

Purpose of Report

1. To provide the Committee with a progress update on identifying $500,000 of additional revenue and $300,000 of cost reductions for 2019/20 and beyond.

Recommendations

That the Committee:

(i) notes the progress update on identifying $500,000 of additional revenue for the 2019/20 Annual Plan; and

(ii) notes the progress update on identifying $300,000 of cost reductions for the 2019/20 Annual Plan.

Background

2. On 6 June 2018, the Corporate Planning Committee approved the proposed budget changes for the 2018-2028 Long Term Plan (Report No. CPC2018/3/154).

3. To accommodate these proposed budget changes and to ensure that Council’s borrowing limits (as per its financial strategy) were not exceeded in the 2018-2028 Long Term Plan, the Committee approved increases to forecast revenue of $500,000 per annum and cost reductions of $300,000 per annum, from 2019/20 onwards.

4. Additional revenue of $500,000 per annum was anticipated mainly from a review of Council’s development and reserve contributions, consent fees, and user charges. Cost reductions of $300,000 per annum were mainly anticipated primarily in the areas of fleet management (ownership vs. lease), Council-wide procurement activities, and ICT improvements.

5. Whilst Audit New Zealand accepted these budget changes, they noted that budget efficiency targets should not be unsupported. Given this was simply a temporary timing difference, Officers committed to specifically identify the sources for the revenue increases and the cost reductions during 2018/19 for inclusion in the 2019/20 Annual Plan.

Revenue Increase ($500,000 per annum)

6. Due to priorities, work to specifically identify $500,000 of additional revenue was postponed until after the audit and adoption of the 2017/18 Annual Report on 17 October 2018, finalisation of the 2017/18 Annual Report Summary, and the Debenture Trust Deed audit.

7. At the time of writing this report, progress to date has been limited to determining the scope and timing of the revenue review. As noted above, the scope of the review is targeted primarily at development and reserve contributions, consenting fees, and user charges.

Development Contributions

8. Development contributions are underpinned by a policy and a development contributions financial model. The financial model determines the development contributions payable per Equivalent Household Unit (EHU) per catchment area (Lower Hutt has five catchment areas in accordance with the policy).

9. The development contributions model is based on a number of assumptions, namely:

· population growth per catchment area, converted into EHU per catchment;

· the planned and historic three waters and roading and transport infrastructure project costs with growth components;

· has the capability to be adjusted for inflationary increases using the construction cost index;

· time value of money discounting;

· allocation of infrastructure project costs between the beneficiaries and causer so that “growth funds growth”.

10. Finance will review all of the infrastructure project costs and the underlying assumptions within the development contributions model. Finance will also benchmark Council’s development contributions per EHU/catchment area against the other Councils in the Wellington region.

11. It is important to note that Council adopted its new development contributions policy and financial model as part of the 2018-2028 Long Term Plan. Should Finance determine that material changes to the development contributions are warranted, Council will be required to undertake a special consultative procedure, that can be separate to the 2019/20 Annual Plan engagement/consultation process. This will result in a reviewed development contributions policy with a new schedule of charges.

12. An external consultant will be engaged to assist Finance with this review, funded within the 2018/19 budget. This review is planned to be completed before the Christmas break.

Fees and User charges

13. Typically, Council has not increased fees and user charges by inflation each year. Instead, many fees and user charges have been held relatively static for several years, with a material increase every three years or so.

14. Council is sticking to Year 2 (2019/20) of its 2018-2028 Long Term Plan budgets. This includes an annual inflationary increase of 2%to all fees and user charges.

15. Finance will work with Divisional and Budget Managers that are directly responsible for setting fees and user charges for Council activities, to review the appropriateness of the budgeted fee/charge and whether further changes should be made within the permitted framework of Council’s Revenue and Finance Policy.

16. The review will also look at the level of chargeable activity in the relevant divisions, relative to the resource available, as revenues are a combination of activity outputs (resource driven), and fees/charges. For example, building consent application levels are increasing as is the planned resource required to process the applications. Forward revenue projections will be reviewed to ensure they reflect the current and expected levels of consent activity, noting consents revenue for the three months ended 30 September is 16% ahead of budget and 15% up on last year.

17. This review is planned to be completed by the end of February 2019.

Cost Savings ($300,000 per annum)

18. As a measure to support Council’s financial strategies, officers are targeting a long term reduction of annual operating expenditure by $300,000. This only includes non-labour related costs.

19. Officers believe this reduction is achievable without compromising good customer service by reducing services, or by creating a future expense by deferral of a necessary cost. As such, Officers will carefully analyse our spending to identify opportunities, issues and trends to target appropriate areas.

20. To date, we have identified two major areas to focus on immediately, as well as several less significant areas of less significant value. Other areas will be added as we complete more analysis.

21. The two major areas chosen at this time are the vehicle fleet and energy use:

· The vehicle fleet review will focus on the ownership model (to own or lease), the types of vehicles, the size of the fleet, vehicle replacement tenure, the management of the vehicle pool, and the merits of electrifying the fleet. It is Officers’ view, that due to Council’s low cost of borrowing and access to all of Government procurement prices, ownership will be financially advantageous over the current lease arrangements. Further, Council’s low average kilometres travelled per annum means retaining vehicles for longer, without compromising resale value, should return more value to Council under an ownership model. Increasing vehicle utilisation through moving team dedicated vehicles to a vehicle pool should allow a reduction in the overall size of the vehicle fleet. A fleet consultant has been engaged to assist with this review, funded within the 2018/19 budget. This review is planned to be completed by February 2019.

· With the increase in the number of Council facilities, the increase of people using them and inflation, energy costs have been increasing steadily. It is very timely to look at optimising our energy use to get some short term cost savings, as well as reviewing our entire energy use to establish if we are managing energy use as efficiently as we could be to get more significant savings in the future. This also related to the work we are doing on reducing our carbon footprint.

22. In the areas of less significant values we will also target some changes in consumption behaviour in as many areas as possible to achieve some quick wins. Areas such as printing and photocopying, office stationery, catering, use of mobile phones vs landlines, are examples of this.

23. Officers will have identified quantifiable objectives by the end of February 2019.

Consultation

24. There is no need for consultation. A further update report will be provided to this Committee in cycle 1 of 2019.

Legal Considerations

25. There are no legal requirements in addition to those already noted in this report.

Financial Considerations

26. There are no financial requirements in addition to those already noted in this report.

Other Considerations

Appendices

There are no appendices for this report.

Author: Mark de Haast

Chief Financial Officer

Author: Allen Yip

Strategic Projects Manager

Approved By: Brent Kibblewhite

General Manager Corporate Services

179 28 November 2018

Finance and Performance Committee

01 November 2018

File: (18/1729)

Report no: FPC2018/5/331

Activity Reviews for City Leadership, City Governance and Corporate Services Group Update

Purpose of Report

1. The purpose of this report is to provide an overview of the Corporate Services Group functions within the City Leadership and City Governance activities.

Recommendations

That the Committee:

(i) notes the information contained in the report;

(ii) notes that the activity reviews for City Leadership and City Governance are restricted to the functions within the Corporate Services Group;

(iii) notes the remaining functions of the City Leadership and City Governance activities not delivered by the Corporate Services Group are reported separately to the appropriate standing committee;

(iv) notes that these reviews meet the intent of section 17A of the Local Government Act 2002; and

(v) agrees that full section 17A reviews should not be undertaken at present for the reasons outlined in the report.

Background

2. Activity Reports provide regular information about Council activities, so that activities can be analysed and their future direction considered. They also address the requirements of section 17A of the Local Government Act 2002 (LGA), that regular reviews be undertaken of the cost-effectiveness of current arrangements for meeting the needs of communities for good-quality local infrastructure, local public services and performance of regulatory functions.

3. During the 2018-2028 Long Term Plan (LTP), Council reviewed and reduced the number of activities from eighteen (18) activities to fourteen (14), to improve alignment with Council’s new structure and strategies.

4. Previously the Organisation Group comprised three activities - Elected Members, Advice and Support and Support Services. The Elected Members and Advice and Support activities were combined into one activity, “City Governance” and the Support Services activity was renamed “City Leadership. Appendix 1 to this report contains a diagram showing the former and current activity structure.

5. The activity reviews for City Leadership and City Governance are required because three years have passed since the former Organisation Group was last reviewed (November 2015).

6. The activity reviews have been limited to the functions within the Corporate Services Group as the other functions are reported separately to the appropriate standing committee.

City Leadership Activity Review

7. The following Council functions are included in the City Leadership activity:

· Chief Executive’s Office

· Chief Information Officer

· General Manager City and Community Services

· General Manager City Transformation, including:

ü City Growth

ü Strategy & Planning

· General Manager Corporate Services, including:

ü GM, Legal, Risk and Assurance, Commercial

ü Finance

ü Human Resources, including Health and Safety

ü Communications and Marketing

ü Democratic Services

ü Customer Services

Corporate Services Group Strategy

8. The Corporate Services Group (CSG) was established in October 2017 bringing multiple divisions together into one group. The CSG supports all of Councils organisational wide strategies and is jointly responsible for delivering the Strategic Leadership Team’s (SLT) “Best Local Government Services” strategic priority.

9. Since inception, the CSG has established a ‘unifying direction’. It is important for the CSG leadership team to have a clear direction so that it can work as a cohesive unit toward a common vision and deliver greater value to the SLT and Council overall. The unifying direction provides a clear direction and a consistent focus for the CSG leadership team.

10. Corporate Services functions are seeing a shift away from transaction processing and control, towards decision support and greater involvement in developing strategy.

11. The CSG is considering how it transitions to the new way or working through the lens of “shaping”, “safeguarding” and “servicing”. The thrust of the CSG strategy is to:

1. right-size the safeguarding; and

2. improve the efficiency of servicing; so that it

3. has capacity to add greater value through more shaping.

The vision of the CSG is “One team partnering with the organisation to realise the dreams for Hutt City”. The CSG will do this by “bringing together its diverse expertise to help the organisation do better for Hutt City”. The CSG will align with the organisation to “provide foresight and inspiration, balanced with sensible disciplines and controls”.

12. A strategy canvas has been developed for the CSG which maps current service offerings for 10 customer success factors and the desired future state for these. To deliver to the desired future state, the following nine work streams have been identified:

1. Develop an approach to translate SLT strategic priorities into clear requirements for CSG.

2. Develop a process to define and proactively offer up the latest thinking to help GM’s understand challenges & risks in their business.

3. Design the shaping, safeguarding and servicing roles for each CSG team.

4. Develop a programme to review and update Councils Frameworks, Policies and Strategies (FPSs) based on risk.

5. Develop a programme to regularly promote, educate and provide guidance on FPS’s to HCC staff based on individual need.

6. Implement a “light touch” assurance framework that provides confidence FPSs are consistently applied for major risk areas across Council.

7. For all CSG systems, determine the required improvements and translate into requirements for IT.

8. Upgrade and streamline processes to make them more efficient.

9. Determine and implement the most appropriate account management/servicing model.

The CSG strategy is a multi-year programme. The CSG leadership team over the next 12 months will be focusing on work streams 3, 4, 5 and 9.

GM Corporate Services

13. The General Manager function also includes legal, risk and assurance, and commercial (project and procurement support/governance; financial analysis, support and reviews).

14. Budget and actual expenditure for the past three financial years is included in the table below:

Legal

15. The General Counsel provides legal support to all of the divisions of Council to allow them to carry out their functions and activities legally, efficiently and effectively. It also provides support to Council Controlled Organisations (CCOs), Council, Committees (including specialist committees) and assists with dispute resolution. It comprises one fulltime staff member, with administrative support from the Corporate Services Executive Assistant. Legal matters are outsourced where the General Counsel does not have the resources, capacity or particular expertise to deal with them in-house.

16. Key activities carried out by the General Counsel include:

· Procurement and contractual advice

· Bylaw and policy review and advice

· Enforcement advice

· Disputes resolution and advice

· Delegations Register oversight

· Management of Councils legal compliance system

· Management of LGOIMA and Privacy requests

· Land leases, licences, access agreements, covenants, easements, transfers of ownership, etc,

· Trespass orders

· Governance and other advice, eg, Standing Orders, conflicts of interest, Code of Conduct

· Hearing and decision-making advice

· Intellectual property

· CCO legal compliance including assisting with appointment of directors, reviewing Statements of Intent, Company Office filing requirements.

Current Issues

17. Council has been engaged in a period where significant major construction projects have and are being undertaken. These projects necessitate an increase in specialist advice sought to facilitate them and deal with the additional risks inherent in these projects, including procurement, construction and contractual risks.

Risk and Assurance

18. Risk and Assurance aims to enhance and protect organisational value by providing risk-based and objective assurance, advice and insight of risk management, control and governance processes. Activities include: internal auditing, risk management, business continuity framework, oversight of policy and associated registers for staff conflict of interest, receiving of gifts and fraud policy.

19. The internal audit function is an independent, objective assurance and consulting activity designed to add value and improve Council's operations. It helps Council accomplish its strategic priorities and objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

20. Risk Management - advocate best practice, consult and proactively assist managers to effectively manage risk, through education and awareness. This is done in conjunction with Council’s Risk Management Working Group; regular reporting and monitoring significant risks and treatment plans; maintain oversight and continuous improvement.

Current Issues

21. The timing of the Sensitive Expenditure Internal Audit may need to be delayed. The timing of the audit would ideally be after an updated sensitive expenditure policy was launched, with staff education and awareness promotions.

Current Highlights

22. The establishment of Internal Audit Charter, to align with best practice - approved by Finance and Performance Committee meeting in July 2018.

23. Fraud data analytics, by PwC. This is the first of its kind of analysis to be run over Council expenses through accounts payable.

24. Business continuity planning framework is being updated to ensure greater robustness of arrangements in place.

Finance

25. The key objectives of the Finance Team are to:

· Ensure Councillors, the SLT, Divisional and Budget Managers have accurate, complete, timely and relevant financial information and analysis for effective decision making.

· Develop financial policies, plans and budgets for Council’s Annual and Long Term Plans.

· Fulfil Council’s statutory external reporting requirements such as the Annual Report.

· Develop, monitor and enhance internal financial controls to minimise risk of misappropriation of Council assets.

· Ensure efficient and timely administration of Council’s finances.

· Set, assess, invoice and collect rates and provide a Council-wide credit control function, including collection of Greater Wellington Regional Council rates.

· Provide a Council-wide accounts payable function.

· Treasury risk management, including relationships with external treasury advisors, bankers, LGFA and other funding providers, and external credit rating agency, Standard & Poor’s.

· Manage Council’s insurance requirements.

· Efficiently and effectively discharge Council’s and Group tax obligations.

· Provide financial services and advice to our Council Controlled Organisations (CCOs).

Budget

26. Budget and actual expenditure for the past three financial years is included in the table below:

Current Issues

27. Finance needs to have the ability to provide good quality financial advice and support to Council, SLT and budget managers and carry out other key objectives.

28. The key strategies and plans that Finance is involved in include our Financial Strategy, Infrastructural Strategy, Treasury Risk Management Policy, Annual Plan/Long Term Plans and Revenue and Financing Policy.

29. Finance needs to be able to respond to requirements of the audit process that is now part of the preparation of the Annual/Long Term Plans and Annual Reports.

30. Finance are constantly looking to improve the level of support given to budget managers especially in the area of financial management and also in preparing and reviewing business cases and undertaking options analysis.

31. The current level of staffing has been strengthened over the past year and is sufficient to undertake the core finance activities to an acceptable level but is often stretched at times when resources are committed to significant tasks such as the preparation of Annual/Long Term Plans and Annual Reports.

32. Increased complexity in the Urban Plus Group

Current Highlights

33. Every year Finance is involved in a number of key tasks. For the past year these have included:

· Financial input into the 2018-2028 Long Term Plan.

· Financial input into the 2017/18 Annual Report.

· Review and retention of Council’s credit rating.

· Three yearly revaluations of Council’s assets.

· Set and assessed rates for 2018/19.

· Development and adoption of a Rates Postponement Policy for Residential Ratepayers Aged 65 years and Over.

· Expansion of the Rates Remission Policy for Community, Sporting and Other Organisations.

34. Over the past three years Finance has successfully carried out a number of significant tasks and implemented a number of significant system changes and improvements. These include:

· Three yearly update of property values for rating purposes (2016).

· Review and update of Council’s Financial Strategy as part of the 2017/18 Annual Plan.

· Provided support and input into the Infrastructure Strategy as part of the 2018-2028 Long Term Plan.

· Implementation of Enterprise Budgeting/Forecasting to provide a more efficient method for budget input, analysis, and approvals linked directly to Council’s financial system. This includes monthly forecasting and variance reporting against budgets.

· Implemented IBIS, a rates modelling tool that quickly and reliably provides detail information across all properties on various rating scenarios. This system replaced Council’s legacy rates modelling spreadsheets.

Human Resources (including Health & Safety)

35. The role of the Human Resources (HR) Division is to support Council to achieve its vision through the provision of expert advice and support on strategic and operational people matters. HR delivers the following services to Council:

· Relationship management – coaching, advice and support

· Recruitment and induction

· Organisational development

· Change management

· Remuneration and reward

· Learning and development

· Talent and succession management

· Employment and industrial relations

· Performance management

· Health, safety and wellbeing

· Workplace culture

· Policy development.

Budget

36. Budget and actual expenditure for the past three financial years is included in the table below:

Current Issues

37. HR’s ability to meet the demands of the organisation continues to be a challenge for the HR team. Growth and change in many parts of the organisation has meant that there has been higher demand for support on people related matters. To ensure we have the capacity to proactively support all groups across Council, so they are best placed to achieve Council’s priorities, the current capacity within the HR team should be assessed.

38. Continuing to develop our leadership capability so managers are equipped to deal with the various people related requirements and challenges in the modern workplace.

39. Employment relations matters that require a significant amount of time.

40. There are a number of upcoming employment law changes which will have a significant effect on New Zealand’s employment law landscape. These changes will require us to review a number of our existing processes.

41. Attraction and retention of the right people has proved challenging in some areas of the organisation including Environmental Health Officers, Planners,

Building Officers and Communications Advisors.

42. Some of our current HR technology is now outdated. We have a number of systems - CHRIS21 for payroll, Assura for Health and Safety, Performance Ally for performance management, TMS for time management and Remuneration Ally for the remuneration review process. There is currently poor integration between the systems and there are a number of manual work arounds in place. All staff have regular interactions with HR processes, tools and systems and we need to make things easier and less cumbersome for them.

43. There is an increasing need for flexibility at work and it is important we have the right policies, processes and systems in place to support new ways of working.

Current Highlights

44. Support provided through change management processes which have enabled the organisation to ensure it has the right resource, capability and structures to deliver successful outcomes.

45. Council’s talent and succession programme has been launched to ensure that talented people are attracted to work here, then thrive and want to stay with the organisation.

46. The “proud I’m part of it” employment branding continues to have strong appeal and in most cases, we are receiving a good level of interest and high calibre candidates are applying to work at Council.

47. Our performance partnership approach continues to support a culture of regular performance discussions and clarity around expected outcomes. A new version of the Performance Ally tool has provided further enhancements that support this approach to managing performance outcomes.

48. Some further changes to our remuneration framework have been effective in terms of simplifying our approach and avoiding unnecessary complexity.

49. Through our Wellbeing Programme, we have continued to offer staff opportunities to enhance their wellbeing and this is something that staff often talk about as something they value about working at Council. Recently we ran another Wellness Expo which encouraged staff to take some time out to enhance their health and wellbeing. Several local businesses contributed and it was an extremely successful day.

Communications and Marketing

50. The purpose of the Communications and Marketing team is to drive Council’s strategies by informing, connecting, influencing and promoting. We provide a wide range of expertise, advice and services to the business including internal and external communications, marketing, media, web, digital and mayoral communications.

Budget

51. Budget and actual expenditure for the past three financial years is included in the table below:

Current Issues

52. Over the last eight months the team has been focused on developing and implementing a new approach to communications and marketing which delivers the outcomes sought by last year’s restructure - more strategic and proactive communications and the generation of more of our own content around Council’s strategic priorities.

53. This has included a review of the external channels we use to communicate to the community which resulted in the following shifts:

· less traditional and print, and more digital;

· less mass market and more targeted; and

· less other people’s channels and more of our own channels.

54. The new approach also includes an internal Toolkit which enables the organisation to access many communications and marketing tools and resources which they previously had to go through the team to get – the aim being to reduce the amount of time the team spends providing basic levels of service to the business.

55. The new approach requires both the team and the business to work differently (and in many ways more efficiently) and has required a significant effort to communicate and implement this change. We have spent three months rolling the new approach out, working with teams right across Council (and its subsidiary organisations), to provide training in various aspects of using the toolkit and helping to resolve any issues that have arisen. There is ongoing work required to build capability in some areas and to improve the overall digital literacy of the organisation.

56. While the team has been able to bring to life many aspects of the new approach through existing budget, increasingly there will be a need for investment in the technology that will support new and more efficient ways of working.

Current Highlights

57. The team has had a successful launch for two of our new channels – the new Hutt at Heart newscentre on the Council website went live in early October (bringing together stories on all of the great work going across Council http://heart.huttcity.govt.nz/), and a new monthly Hutt at Heart e-mail newsletter went out for the first time on 26 October (covering all Council activity https://mailchi.mp/0f427c56f004/what-is-happening-in-your-street?e=2e77d4d344).

58. The first edition of a new quarterly magazine will distributed to all Lower Hutt households in the first week of December. This will include stories on our strategic priorities, events, news and information on core services.

59. The team’s internal Toolkit has been up and running since the start of November and has been well received. Training in this is continuing.

60. The team is now also working closely with the owners of Councils strategic priority projects and seeing some good results, eg,:

· A recent Empowering Tamariki ‘strategic focus’ two page article in the Hutt News, featuring the Children’s Commissioner and data from our recent research, resulted in an approach from the Director of the Government’s Child Wellbeing Strategy and a follow-up visit to understand more about our work.

· The team is undertaking a series of workshops with the Active Leisure and Swim City teams to develop a marketing plan that will both increase participation and optimise the financial performance of our facilities.

Summary of key work carried out by Communications and Marketing

61. Communications and Marketing is working with the Digital Transformation team to develop a business case for a shared digital marketing platform which could be used across the business and provide a more efficient and effective solution than the current ad hoc, multi-platform approach being taken by different business groups.

Democratic Services

62. The Democratic Services team is a high performing team which uses a combination of governance expertise and technical knowledge to deliver high quality and timely advice and services to both our internal and external customers.

63. There are two key focuses of the Democratic Services Team. The first key focus is to deliver Council and Committee support. The second key focus is to support the Mayor and Deputy Mayor through co-ordination, administrative support and the delivery of civic responsibilities.

Budget

64. Budget and actual expenditure for the past three financial years is included in the table below:

How we measure the success of our services

65. Every year elected members are surveyed so that we can get an understanding of the level of satisfaction with officer’s performance in meeting their expectations and views on areas of performance where improvements could be made. See results below:-

Aspects of Service Delivery

Rating 2018

2017 results

Support and advice received from committee advisors

Council - 100% very or quite satisfied

Community Boards – 86% very or quite satisfied

Council - 100% very or quite satisfied

Community Boards – 100% very or quite satisfied

66. Several of the elected members described the Committee Advisors as helpful/very good and helpful, supportive and responsive to requests. Some elected members expanded on their initial comments by stating:

· The Committee Advisors and administration staff go the extra mile/beyond their regular duty to help us (outside hours/all the time).

· They give good, frank, honest advice/answer our questions well.

· They provide excellent minutes/secretarial services.

Current Issues

(Technology in the Council Chambers and Livestream Support)

67. We acknowledge there has been an ongoing challenge with the audio visual equipment in the Council Chambers. The IT team has a new member with audio visual experience who will review the whole system and the associated support requirements and processes. Officers acknowledge Councillors frustration with the performance of the technology to date and thank them for their patience while IT moves quickly to improve the systems performance.

Current Highlights

68. With the increased number of committees and other decision-making bodies set up at the beginning of the triennium, the Democratic Services team has successfully supported 92 meetings and 31 workshops in 2018 compared to 71 meetings and 12 workshops in 2017. The extra workload has been undertaken without increasing staff levels. The team enjoy leading on delivering work for the Mayor, elected members and the organisation across the full range of governance functions.

Future Project Significant to Council

69. Democratic Services is commencing planning for the new triennium with a programme of training and events being finalised in mid-2019.

Customer Services

70. Customer Services comprises Councils Contact (call) Centre and front counter services in the Laings Road administration building.

71. Customer Services purpose is to support, promote and lead great customer experiences for all customers. Our vision is to provide the best first point of contact service in any Council in New Zealand. We strive to go “from great to legendary”.

Budget

72. Budget and actual expenditure for the past three financial years is included in the table below.

Customer Services earns revenue from answering Wellington Water Ltd calls for Upper Hutt City Council.

Current Issues

73. Customer Services is constantly keeping relevant with system and process improvements to keep up with customer expectations. They work and rely on Council’s IT division to help supply and support our systems. They look to anticipate customer needs and deal with customers with insight and empathy.

74. As Council continues to improve and increase the number of online services and provide more information online, the frequency of both front counter customer interactions and customer calls to the contact centre, have started to decline. Customer interactions via social media however, are increasing.

Current Highlights

75. Mystery shoppers were used at the Customer Services front counter over a three month period. The results are used to highlight individual areas for development, but overall the results were very positive and surpassed the normal range of customer satisfaction in most other organisations.

76. Staff turnover is very low with no new staff in five years until this year due to a staff member moving out of the region. Another staff member will be retiring in the first quarter of 2019.

Future Projects Significant to Council

77. The Complaints Improvement Programme has been piloted and is now ready to roll out across all Council areas. The main purpose being a cultural mind set whereby staff see complaints as a positive thing and an opportunity to learn and improve processes and systems.

City Governance Activity Review

78. The following Council functions are included in the City Governance activity:

· Council

· Community Boards and Panels

· Civic Activities

· Elections

· Advice and Support (allocated costs from City Leadership, primarily Strategy and Planning).

Elected Members and Civic Activities

79. Elected members have an important role in the community. They:

• provide a governance role for the city;

• set Council’s strategic direction, including determining the activities Council undertakes (within legal parameters); and

• monitor Council’s performance on behalf of the city’s residents and ratepayers.

80. The governance structure includes community boards and community panels which provide local input into Council’s decision-making.

81. Under the Local Government Act 2002, Council has two purposes:

• to enable democratic local decision-making and action by, and on behalf of, communities; and

• to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses.

82. The elected members, processes and professional advice support the Council to fulfil its first obligation to sound governance and robust decision-making for the city.

Budget

83. Democratic Services manages the Council, Mayoral, Civic and Community Board budgets within the agreed parameters.

84. Budget and actual expenditure for the past three financial years is included in the tables below:

Council and Community Board budgets are made up mostly of elected members’ salaries (which are set by the Remuneration Authority).

Future changes to the Remuneration of Elected Members

85. The Remuneration Authority (the Authority) has outlined a new approach to sizing Councils and to the construction of a local government pay scale. Later this year or early next year the Authority will be contacting Council to inform us of the proposed governance pool (ie, the pool for the payment of Councillors) that will be allocated to each Council. The Authority will provide details of the steps they would like Council to undertake.

86. Over the next several months the Authority will be also looking at Community Boards although the Authority does not have an exact timetable for that yet.

87. The Authority also has underway a piece of work around the possibility of all Councils paying allowances for carers. They will consult with all Councils and elected members in regard to this prior to making a decision.

Elections

88. The Elections activity covers the cost of running the triennial local elections, and any by-elections that may arise, for Council (Mayor and Councillors) and Community Boards.

89. Elections for the Greater Wellington Regional Council, the Hutt Valley District Health Board and the Hutt Mana Charitable Trust are carried out in conjunction with the Council elections with costs shared amongst the four organisations.

90. The Local Electoral Act 2001 and the Local Electoral Regulations 2001, establish the principles and framework for the running of elections, which are overseen by the Electoral Officer appointed by Council.

91. Elections for Hutt City Council and its Community Boards are held under the First Past the Post electoral system with the voting method being postal voting.

92. Council engages an electoral provider, Electionz.com, to carry out the processing of voting papers.

Budget

Reasonably practical options for the governance, funding and delivery of this activity

93. Officers consider that it is impractical and not cost effective to undertake a full section 17A analysis of options for the governance, funding and delivery of the City Leadership and City Governance Activities. These activities are the organisational support and governance activities and by their nature they have quite different service delivery requirements than the other 12 Council activities. Further, Finance is currently undertaking a cost reduction review to realise $300,000 of savings in recurring expenditure.

Appendices

No.	Title	Page
1 ⇩	Review of activities	180

Author: Kathryn Stannard

Divisional Manager, Democratic Services

Author: Bradley Cato

General Counsel

Author: Enid Davids

Risk and Assurance Manager

Author: Mark de Haast

Chief Financial Officer

Author: Kelly Alkema

Acting Divisional Manager Human Resources

Author: Kaye Maryan

Divisional Manager Customer Services

Author: Andrea Blackshall

Divisional Manager Communications and Marketing

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Tony Stallinger

Chief Executive

184 28 November 2018

Finance and Performance Committee

20 November 2018

File: (18/1842)

Report no: FPC2018/5/339

Progress Update on the Re-design of Council's Combined Rates Invoice, Rates Postponement for Over 65s and Rates Remission Policies

Purpose of Report

1. This report provides the Committee with a progress update on the following three matters:

a. the re-design of Council’s combined rates invoice;

b. the Rates Postponement Policy for Residential Ratepayers Aged 65 and Over; and

c. Rates Remissions for Community, Sporting and Other Organisations.

Recommendations

That the Committee :

(i) receives this report and notes the progress made on the re-design of Council’s combined rates invoice and the rates postponement and remission policies as outlined in this report; and

(ii) delegates authority to a working party, including at least two (2) Committee members, to work with Council Officers to finalise a combined rates invoice for Committee consideration and recommendation to Council for final approval, in March 2019.

Background

1. In mid-2018, the Council requested the Chief Financial Officer to explore design options for Council’s combined rates invoice that made a very clear and definite distinction between Council and Greater Wellington Regional Council (GWRC), respective rates charges. The expectation from Council was that work progressed during the year with a new invoice design “go live” date of 1 July 2019 (or earlier).

2. Due to other priorities, work to specifically redesign Council’s combined rates invoice was postponed until after the audit and adoption of the 2017/18 Annual Report on 17 October 2018, finalisation of the 2017/18 Annual Report Summary, and the Debenture Trust Deed audit.

3. At the time of writing this report, progress to date has been limited to obtaining a sample of invoices from other Councils’(attached as Appendix 1 to this report), and determining the scope and timing for the re-design of the combined rates invoice. Officers are aware that Upper Hutt City Council recently changed the layout of their combined rates invoice, using in-house resources and expertise, and Officers understand that this was a relatively simple and quick process.

Discussion

4. Officers recommend that the Committee delegate authority to a working party, including two (2) Committee members, to work with Council Officers to finalise a combined rates invoice for Committee consideration and recommendation to Council for final approval, in March 2019.

5. The following table sets out the proposed project scope and timing to ensure that Council issues a new combined rates invoice from 1 July 2019, that clearly separates Council rates from those of GWRC:

Project Scope	Timing	Responsibility
Review sample invoices and design brief for Council’s design team, including a request for indicative costings for up to three different design-options.	Complete by 30 November 2018	Finance
Request indicative costings for print re-sets from Council’s external print supplier.	Complete by 30 November 2018	Finance
Provide design options and costings to working party (and GWRC) for initial selection and approval.	Late January 2019	Finance
Provide recommendation to F&P Committee for Council approval.	6 March 2019	Finance
Seek Council approval for final design option with final costings.	26 March 2019	Finance
Initiate Council approved combined rates invoice, system changes/testing and print re-set testing.	Complete by 30 June 2019	Finance
Assess and issue new combined rates invoice.	1 July 2019	Finance

Other Progress Updates

Rates Postponement Policy for Residential Ratepayers Aged 65 years and Over

6. Together with the Working Party consisting of Councillors Lewis and Cousins, Officers have now finalised the policy, the application form and a promotional brochure that is aimed at educating our ratepayers and better advertising the central government rebates scheme and Council’s new rates postponement policy.

7. In doing this, Officers and the Working Party agreed some small changes to the policy conditions and criteria, which include the following:

i. The statutory land charge of $500 plus GST was reduced to $250 plus GST given that the cost to remove the charge would be a cost directly incurred between the vendor and purchaser on settlement of the property. The reduced fee now only reflects the initial cost of registering the charge.

ii. The combined rates invoice includes a Statement of Account. This will reflect the postponed rates and as such, six monthly account statements are not required.

8. A statutory land charge is actually not required to protect that administration and finance charges. These are deemed to be part of the postponed rates and accordingly, are fully recoverable under the powers of the Local Government (Rating) Act 2002. Instead, the statutory land charge will still be applied to further protect Council in that it ensures that a property cannot be settled without the postponed rates being fully repaid. Officers note this does actually happen from time to time, albeit extremely rare.

9. The revised policy and the application form are now publicly available. Copies of these are included in the appendices to this report.

Rates Remission for Community, Sporting and Other Organisations

10. Officers processed the Council’s change request to the policy as part of the 2018-28 Long Term Plan determination, and the new policy is now publicly available.

11. Officers issued letters to all known CF1 and CF2 property category ratepayers, informing them of the new policy and the conditions and criteria. Council has subsequently received 25 applications for this rates remission. These are being systematically processed by Finance.

Consultation

12. There are no consultation considerations arising from this report

Legal Considerations

13. Officers renewed Councils “Rates Collection Agreement” with GWRC earlier this year. A clause in the agreement, requires Council to seek GWRC approval of any layout changes to the combined rates invoice.

14. Officers have already advised GWRC of Councils request to make layout changes to the combined rates invoice. GWRC has indicated that they would not unreasonably oppose any layout changes to achieve the objective of clearer distinction between Council and GWRC rates charges.

Financial Considerations

15. Changing the layout of Council’s combined rates invoice will incur outsourced design costs, costs for system changes (including testing) to Council’s property and rating system, and print re-set (and testing) costs for printed and emailed rates invoices.

16. Officers expect to fund these additional costs from existing budgets.

Other Considerations

17. In making this recommendation, Officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that it provides Councillors with the necessary information to effectively undertake their governance role.

Appendices

No.	Title	Page
1 ⇩	Final Rates Postponement Policy for Residential Ratepayers Aged 65 Years and Over	185
2 ⇩	Final Application Form for Rates Postponement For Residential Ratepayers Aged 65 Years and Over	189

Author: Mark de Haast

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

Attachment 2

Final Application Form for Rates Postponement For Residential Ratepayers Aged 65 Years and Over

rates postponement policy for residential ratepayers aged 65 years and over

Division	Corporate Services – Finance
Date created	2 March 2018
Publication date	22 November 2018
Review period	Every five years (or earlier if considered necessary)
Owner	Chief Financial Officer
Approved by	General Manager, Corporate Services

Version	Author	Date	Description
V 1.0	Mark de Haast	28/03/2018	Approved by Council for public consultation
V 2.0	Mark de Haast	06/06/2018	Approved by Council subject to minor changes required by a Council nominated Working Party
V 3.0	Mark de Haast	22/11/2018	Approved by Council nominated working party

Contents

1. Policy Objective. 3

2. Policy Conditions and Criteria. 3

2.1 General Approach. 3

2.2 Eligibility. 3

2.3 Insurance. 3

2.4 Rates Able To Be Postponed. 4

2.5 Conditions. 4

2.6 Review Or Suspension Of Policy. 5

2.7 Procedures. 5

1. Policy objective

The objective of this policy is to give ratepayers a choice between paying rates now or later subject to the full cost of rates postponement being met by the ratepayer and Council being satisfied that the risk of loss in any case is minimal.

2. policy conditions and criteria

2.1 general approach

Only rating units defined as residential and used for personal residential purposes by the applicant ratepayer(s) as their sole or principal residence will be eligible for consideration of rates postponement under the criteria and conditions of this policy.

Current and all future rates may be postponed if at least one ratepayer (or, if the ratepayer is a family trust, at least one named occupier) is 65 years of age or older.

If the ratepayer is eligible for the government rate rebate, an application for this rebate should be completed before any rates are postponed for that year.

Council will add all administrative and financial costs to the postponed rates. This will ensure neutrality between ratepayers who use the postponement option and those who pay as rates are levied.

2.2 eligibility

Any ratepayer aged 65 years or over is eligible for postponement provided that the rating unit is used by the ratepayer as their sole or principal residence. This includes in the case of a family Trust owned property, use by a named individual or couple.

If the property in respect of which postponement is sought is subject to a mortgage, then the applicant ratepayer(s) will be required to obtain the mortgagee’s consent before Council will agree to postpone rates.

When a property is owned by a family Trust, Council must be satisfied that all trustees have agreed to be part of the postponement scheme. Council will require a consent form from the trustees confirming that the family Trust has agreed to apply for postponement of rates.

Council must be satisfied, based on reasonable assumptions, that the risk of any shortfall when postponed rates, (including accumulated administration and finance costs), are ultimately paid is negligible. To best safeguard Council, the total amount of rates postponed (including accumulated administration and finance costs), when added to other amounts secured by a mortgage, may not exceed 60% of the applicant ratepayer(s) equity in the property. Equity in the property is calculated as the difference between Council’s rateable value of the property (the capital value at the most recent Triennial valuation) and all other amounts secured by a property mortgage.

For prudential reasons, Council will need to register a statutory land charge against the property to protect its right to recover postponed rates.

At present, the law does not allow Councils to register such a statutory land charge against Māori freehold land. Accordingly, Māori freehold land is not eligible for rates postponement (unless and until the law is changed so that the Council can register a statutory land charge).

2.3 insurance

The property must be insured for its full replacement value and evidence of this must be provided to Council annually.

If insurance cannot be arranged because the property is uninsurable, only the land value can be used when calculating maximum postponement allowable under this policy.

2.4 RATES ABLE TO BE POSTPONED

Hutt City Council rates are eligible for postponement except for:

§ Lump sum options which are rates paid in advance.

§ Central government rates rebates received by the applicant ratepayer(s).

2.5 CONDITIONS

Any postponed rates (under this policy) will be postponed until:

a) The death of the ratepayer(s) or the survivor of them, or nominated individual or couple where a family Trust is the owner. In this case, Council will allow up to 18 months for payment so that there is sufficient time available to settle the estate or, in the case of a family Trust owned property, make arrangements for repayment; or

b) The rating unit is sold or transferred (other than just a change of trustees).

c) Until the ratepayer(s) or nominated individual or couple cease to be the occupier(s) of the rating unit; or

d) If the ratepayer(s) or nominated individual or couple continue to own the rating unit, but are placed in long term residential care, Council will consider them to still be occupying the residence for a limited period of time for the purpose of determining when postponement ceases and rates are to be paid in full. In this case, Council will allow up to 18 months for payment so that there is ample time for the property to be sold; and

e) Until a date specified by Council, as agreed in writing and in advance between Council and either the applicant ratepayer(s) or the named individual or couple in the case of a family Trust.

The administration cost will include a once-off establishment fee of $250 plus GST on postponed rates and Council will charge an annual management fee of $100 plus GST on postponed rates for the period between the rates payment due date and the date they are paid. These fees are designed to cover Council’s administrative costs to establish the rates postponement account, register the statutory land charge (one-off) and confirm adequate annual insurance cover is in place and provide rates postponement account statements to eligible ratepayer(s) every two (2) months.

The financial cost will be the interest that Council will incur (being Council’s average cost of borrowings as at 30 June of the preceding financial year, calculated daily, for funding rates postponed, plus a margin of 1% to cover staff costs related to calculating and applying such interest charges to respective postponed rates accounts.

Interest will be applied to rates postponement accounts every six (6) months and will be included in the total rates postponement balance, as shown on ratepayers’ statement of account every instalment one (1) and four (4) respectively.

Whilst is not a condition, Council strongly recommends that applicant ratepayer(s) should first obtain independent legal and/or financial advice from a suitably qualified person(s), prior to applying for a rates postponement. At the request of the applicant ratepayer(s), all costs associated with this independent advice can be paid directly by Council and the total costs will be added to the applicant ratepayer(s) postponed rates account.

The postponed rates, (including accumulated administration and finance costs), or any part thereof, may be paid to Council at any time. The applicant ratepayer(s) may elect to postpone the payment of a lesser sum than that which they would be entitled to postpone pursuant to this policy.

Properties that are granted a rates postponement will be subject to a statutory land charge being registered on the rating unit title. This serves to ensure that property settlements do not occur without all postponed rates and charges being fully paid.

2.6 REVIEW OR SUSPENSION OF POLICY

The policy is in place indefinitely and can be reviewed subject to the requirements of the Local Government Act 2002 at any time. Any resulting modifications will not change the entitlement of people already in the postponement scheme, to continued postponement of all future rates.

Council reserves the right not to postpone any further rates once the postponed rates (including accumulated administration and finance costs), combined with secured borrowings against the residential property, exceed 60% of Council’s rateable value of the property as recorded in Council’s rating information database. This will require the ratepayer(s) for that property to pay all future rates. All postponed rates before such time will only fall due for payment when any condition(s), as outlined in clause 2.5 (a) to (e) are satisfied.

The policy consciously acknowledges that future changes in policy could include withdrawal of this rates postponement scheme.

2.7 PROCEDURES

Applications must be on the required application form which will be available from the Council’s main office or online at www.huttcity.org.nz.

The policy will apply from the beginning of the rating year in which the application is made although Council may consider backdating the rates postponement to apply to the past rating year in which the application is made, depending on the individual circumstances.

The policy shall apply to ratepayers who meet the relevant criteria as approved by the General Manager, Corporate Services.

The administration of this policy may be sub-delegated to a Council Officer(s) as appropriate.

Rates & Receivables Manager
Private Bag 31912
Lower Hutt 5040

Phone 04 570 6666
Email over65s@huttcity.govt.nz
www.huttcity.govt.nz Application for Rates Postponement for Residential Ratepayers aged 65 Years and Over

Rating Year you are applying for _________________

Hutt City Council’s (Council) policy for the postponement of rate payments for the over 65’s, is designed to assist residential ratepayers who want to defer the payment of rates by using the equity in their property.

The ratepayer(s) must meet the following criteria in order to be considered for rates postponement:

• Any ratepayer aged 65 years or over is eligible for postponement provided that the rating unit is used by the ratepayer as their sole or principal residence. This includes in the case of a family Trust owned property, used by a named individual or couple.

• If the property is subject to a mortgage, then the applicant ratepayer(s) must obtain the mortgagee’s consent before Council will agree to postpone rates.

• When a property is owned by a family Trust, Council requires each trustee to confirm that the family Trust has agreed to apply for postponement of rates. Each trustee must complete the trustee’s consent at the end of this application.

• The total postponed rates, when added to all other amounts secured by a mortgage, cannot exceed 60 percent of the applicant ratepayer(s) equity in the property. Equity in the property is calculated as the difference between the Council’s rateable value of the property (the capital value at the most recent Triennial valuation) and all other amounts secured by a mortgage. The property must be insured for its full replacement value until the postponed rates are fully repaid.

•

Please include the following documents in your application:

House Insurance Certificate.

Separate confirmation of all loans secured by the property.

Letter of Consent from the Mortgagee (where applicable).

Should you wish to obtain independent financial advice on postponing rates, the following organisations may provide further assistance:

Citizens Advice Bureau
Lower Hutt (04)566 6039
Petone (04)568 8877

Hutt City Budget Service
Lower Hutt (04)566 6357

The Salvation Army (04)570 0273 Please note charges may apply.

All applicant ratepayer(s) / trustees to sign

Name:____________________________ Signature_______________________ Date _________________

(Please include an additional page if additional applicant ratepayer(s) / trustees are required)

Trustees’ consent (only required when the residential property is owned by a family Trust)

Name of Family Trust ___________________________________________________________________

Created by deed dated ________________________________

We, being all the trustees of the above Trust, confirm to Hutt City Council that the trustees have passed a resolution agreeing to apply for rates postponement in respect of the Trust’s property. In doing so, the trustees confirm that we have considered the interests of the beneficiaries of the Trust, including that the equity in the Trust’s property will be reduced by virtue of the postponed rates being a charge on the property.

Name:____________________________ Signature_______________________ Date _________________

Name: ____________________________ Signature_______________________ Date _________________

Name:____________________________ Signature_______________________ Date _________________

((Please include an additional page if additional trustees are required)

For Office Use Only:

Total liabilities $ ___________________

Capital value $ ___________________

Available equity $ ___________________

60% of available equity $ ___________________

Approved Signature ___________________________ Name _____________________________

Date ___________________________ Position ___________________________

201 28 November 2018

Finance and Performance Committee

13 November 2018

File: (18/1798)

Report no: FPC2018/5/148

Health & Safety Officer Due Diligence Report July 2018 to October 2018

Purpose

1. To provide the Committee with health and safety information to assist them in fulfilling their due diligence duties as described under the Health and Safety at Work Act 2015 (HSaW Act).

“thinksafe-worksafe-homesafe”

Recommendation

That the report be noted and received.

Elected Members Due Diligence Duties

2. Council is described as a Person Conducting a Business or Undertaking (PCBU) under the HSaW Act 2015. The duty of a PCBU under the Act is to ensure so far as reasonably practicable the safety of its workers and ‘others’ whilst work is being carried out. The Mayor and Councillors are referred to as Officers under HSaW Act and are required to help the PCBU comply with this duty and they do this by performing due diligence. Due diligence includes taking reasonable steps:

a) to ensure that Council has and implements, processes for complying with any duty under the HSaW Act 2015;

b) to gain an understanding of the nature of the Council’s operations and generally of the hazards and risks associated with our operations;

c) to ensure the business has appropriate resources and processes to eliminate or minimise risk to health and safety;

d) to ensure the business has processes for receiving, considering and responding in a timely way information about incidents, hazards, and risk;

e) to acquire, and keep up-to-date knowledge of workplace health and safety matters; and

f) to verify the provision and use of any resources and processes.

Health & Safety Statistics - 1 October 2017 to 30 September 2018

	Oct-Dec’17	Jan- Mar’18	Apr-Jun’18	Jul-Oct’18	Last 12 months
Total Accidents	33	29	20	25	107
LTI (Medical)	2	0	0	1	3
Non LTI (Medical)	2	4	3	4	13
Non LTI (First Aid)	21	20	10	11	62
Non LTI (Non-Medical)	8	5	7	9	29
Near Miss	27	34	8	19	88
Staff Pain & Discomfort	4	4	2	2	12
Notifiable Injuries / Incidents	0	0	0	0	0

Additional Comments on Statistics

3. Accidents – No notifiable events have occurred, however we have had two significant injuries this reporting period involving a staff member and a customer including:

(a) Staff injury: A staff member broke a small bone in their foot at the Walter Nash Centre when a carpet laden trolley weighing in excess of 250 kg ran over their foot (five days LTI).

(b) Customer injury: A customer broke their humerus bone whilst taking a short cut over the top of stadium seating at Huia Pool (Worksafe were contacted but were not interested).

(c) Near Misses - There were 27 near miss incidents this reporting period, 11 were directly related to public aggression. The remaining near misses were a combination of varied low level incidents from trips and slips to discovering drug paraphernalia in a Hub public toilet.

(d) Staff Pain and Discomfort - Only two incidents of low level discomfort reported this period.

Graph 1: Quarterly Health & Safety Incidents Q1-2 & 3 2018

4. We can see the usual seasonal increase of first aid incidents and near misses during Q1 (summer period) attributed to an increase of public use of our facilities during the summer months.

Lost Time Injuries (LTI)

5. The definition of a LTI is a staff member that has been signed off sick by a medical professional due to receiving a workplace injury. To date in 2018 we have had one LTI with a loss of five working days as noted in the accident comments at paragraph 3 of this report.

Health & Safety Compliance

External Compliance

6. Urban Plus Limited is currently managing a project to ensure all Council owned buildings are assessed for asbestos contamination. Detailed maps of any asbestos located in Council’s building are currently being formed and placed into an accessible database. Of the 98 buildings assessed, no high risk properties were identified.

Internal Compliance

7. Internal compliance includes review of policies, procedures and completion of audits such as reviews of reported incidents and hazards and the effectiveness of controls. The Health and Safety team have completed three external and five internal audits on our worksites. All health and safety processes, policies, guidelines and forms have been reviewed within the past 12 months.

Hazard Management

8. The reduction of risk and safety of our staff from public aggression or violence remains our top priority going forward into 2019. A short video will be produced showing managers and staff what key points of their situational awareness/de-escalation training should be reviewed and practiced in a team environment.

9. All hazard registers across Council facilities are regularly reviewed and updated in consultation with staff and managers from each site.

Employee Participation

Health and Safety Representatives and Employee Participation

10. An election process has been held and we now have eight new Health and Safety Representatives (HSRs). The new HSRs are currently being trained and qualified and will meet together in early December. The General Manager, Corporate Services has been designated the Strategic Leadership Team representative for these meetings.

Health and Safety Training and Wellness Initiatives

11. Listed below are the wellness initiatives and health and safety training programmes engaged by staff this period.

Wellness Initiatives

Wellness Expo (Dowse)

Mental Health Awareness Week

Stretch Class

Weekly Meditation & Pilates Classes

Massages (staff pay $5 for 10 Minutes)

H&S Training Completed this Reporting Period	Attendees
Aggression and Violence De-escalation Training	36
St John First Aid	15
Workplace Induction / Safety Passport (Online)	45
H&S Essentials Training	28
Workstation Ergonomics (Online)	15
Manual Handling (Online)	15
Dog Awareness Training	14
Health & Safety Representative Training	1
Office Health Essentials (hygiene)	16
Site Safe Construction Foundation Course	11

Contractor Management Incidents

12. Notable incidents this period include:

· a truck backing into a Pointsman causing a minor arm injury;

· other minor truck collisions; and

· cars being seen travelling the wrong way up a poorly designed traffic management set up.

Event Management

13. One customer ankle injury reported for the entire Highlights Festival programme of events. No other event injuries reported this period.

Appendices

There are no appendices for this report.

Author: Dave Tyson

Health & Safety Manager

Approved By: Brent Kibblewhite

General Manager Corporate Services

207 28 November 2018

Finance and Performance Committee

09 November 2018

File: (18/1782)

Report no: FPC2018/5/149

Update on Asset Management Plans

Purpose of Report

1. To update the Committee on the status of Council’s Asset Management Plans.

Recommendations

That the report be noted and received.

Background

2. At the previous Finance and Performance Committee meeting there was a discussion about reviewing asset management plans under the LTP audit report item. The Chief Executive advised that an in-house team had been set up to review all the asset management plans. The purpose of this report is to provide the Committee with a general update on the status of current plans.

3. Asset management planning is a requirement of the Local Government Act with the desired purpose to meet a required level of service in the most cost-effective way through the creation, acquisition, maintenance, operation, rehabilitation and disposal of assets to provide for present and future customers.

4. The basic elements of asset management are:

· Asset knowledge – an accurate and detailed description of the assets owned, their condition, performance, value and estimated life.

· Levels of service – a clear description of the levels of service that are to be delivered to the customer and the methods for monitoring how well those levels of service are being achieved.

· Operations and maintenance - a description of how the assets are maintained and the services delivered.

· Asset renewal –detailed long term planning and funding for the renewal of assets as they reach the end of their life.

· Asset development – long term planning for the development of new assets in response to population growth, changing needs or a desire for improved levels of service.

Discussion

5. Overall, officers are satisfied with the current status of Asset Management Plans across all key areas, although recognise that improvements are necessary in relation to Community Facilities. For significant water and transport assets, Asset Management Plans are generally in good shape.

6. The following is a high level commentary only for each major asset category.

Aquatics and Parks

7. In relation to swimming pools, independent asset condition assessments are carried out on a three yearly basis with this information used to review and update the Swimming Pools Assessment Management Plan (AMP). The last review of this was undertaken in 2015 and as such a current condition assessment is being undertaken by AHDT. When this is completed the AMP will be updated with the new information.

8. Most items currently identified in the 2015 report are budgeted for in the Long Term Plan (LTP) with the most significant items being:

· 2020/21 Naenae Pool Major Refurbishment $9M

· 2029-31 Wainuiomata Pool Complex Replacement $8.5M

9. Parks asset audits are carried out annually in conjunction with our maintenance contractors. This information, along with reserve management plans and policies, is used to inform and update the overarching Parks Asset Management Plan every three years. The last update was undertaken in 2016. The base Asset Management Plan was adopted in 2008 and as such a more formal review of all aspects is required to ensure ongoing relevance. Consultants Xyst have been commissioned to undertake this work.

10. There is some concern that future years maintenance budgets for Parks assets may not be sufficient to cater for maintaining new developments (Avalon, Riddiford and Fraser Parks) while maintaining current service levels at our other parks. As indicated during the last LTP, officers will undertake a more detailed assessment of this.

Transport:

11. The Transport Asset Management Plan was rewritten last year, as an Activity Management Plan, to support our application for funds from NZTA for Maintenance, Operations and Renewal of our Transport network for 2018-21. The updated document follows the principles of the Business Case process in managing the various transport assets. In this context, the AMP sets out how Council delivers its asset-based services:

· to the standards expected by customers;

· in the most cost effective manner for its customers;

· through management of assets in a way that is sustainable;

· in the long term; and

· in compliance with legal requirements.

12. The AMP comprises four key elements:

· service standards which Council aims to achieve;

· asset system used to achieve the service standards;

· life cycle of asset management strategies which sets out how Council manages the assets; and

· quality assurance processes.

Water:

13. The three waters Regional Service Plan (Asset Management Plan) is updated every three years to inform the LTP. This suite of documents consists of three parts: parts 1 (Strategic Asset Management Plan) and 2 (Network plans for each water) being regional documents and the part 3 documents are Council specific.

14. Wellington Water links all the activities undertaken to the delivery of the Three Waters Strategy which is delivered through understanding the performance of the three waters services against 12 service goals. These goals align and support the strategic priority areas for Hutt City.

15. Wellington Water recommends key investment areas based on the goals that need the greatest lift in performance. These are discussed with councils to agree on priority areas for investment. For the 2018 LTP these are reducing flooding, improving receiving water quality, improving resilience and addressing growth.

16. In the first three years of the 2018 LTP the following key activities were identified to close these gaps in service performance:

· Growth linked projects: Hydraulic modelling to improve network understanding across the three waters (a three year project is underway)

· Resilience Projects: Community Infrastructure Resilience (CIR) project to bridge the shortfall in water supply storage, this project will be completed prior to calendar year end. Reservoir seismic works are underway as well as seismic improvements at the Seaview Wastewater Treatment Plant.

· Flooding: Stormwater network improvements to reduce the impact of flooding (investigation and design works are underway).

· Receiving environment: Wastewater renewals are being undertaken in Naenae and Wainuiomata (construction due to start later in 2018/19). Work with the Hutt Valley Whaitua is starting.

17. Discussions regarding the direction of the 2021 LTP will start soon to ensure alignment between Wellington Water and Hutt City Council.

Community Facilities:

18. Council owns and operates many community facilities – Halls, Admin Building, Libraries, Hubs, other. Work is currently underway to improve the Asset Management Planning for all of these facilities. Some of this work includes completing detailed building assessments.

19. Priority is being given according to size, complexity, people traffic, and location. For instance the War Memorial Library, Dowse, main Admin Building and Events Centre are of the highest priority.

20. Any Health and Safety issues identified are actioned regardless of location.

21. Of the existing portfolio of Community Facilities, the War Memorial Library and Dowse represent the key assets in this category that may present a significant budget challenge. Both buildings are currently having detailed assessments completed.

22. The Petone Library is in need of significant works which have been put on hold until a decision has been made by Council with regards to a new development.

Options

23. There are no options for this report.

Consultation

24. There are no consultation requirements for this report.

Legal Considerations

25. There are no legal considerations for this report.

Financial Considerations

26. There are no financial considerations for this report.

Other Considerations

27. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that Asset Management Planning is a requirement under the Act with the desired purpose to meet a required level of service in the most cost-effective way through the creation, acquisition, maintenance, operation, rehabilitation and disposal of assets to provide for present and future customers.

Appendices

There are no appendices for this report.

Author: Matt Reid

General Manager City and Community Services

Approved By: Tony Stallinger

Chief Executive

Attachment 1

Finance and Performance Work Programme 2018

Finance & Performance Committee Work Programme 2018

Cycle 4 26 September 2018	Officer	For Council
Standard and Poor’s Credit Rating Review	M de Haast
Draft 2017/18 Financial Performance and Position	P Benseman/D Newth
Effect of Living Wage on Pool and Fitness Financial Returns	M Sherwood
Technology One SaaS Update	L Allott
Sale & Supply of Alcohol (Fees) Regulations 2013 – Regulation 19 (1) – Reporting by Territorial Authorities	D Bentley
Final SOIs for CCOs – CFT, SML and UPL	B Kibblewhite	·
2018 - 2028 Long Term Plan Audit Report	J Askin
Finance & Performance Work Programme	Committee Advisor
17 October 2018	Officer	For Council
Hutt City Council’s Annual Report	J Askin/M de Haast	·
2018 LGFA AGM Shareholder Votes	M de Haast	·
Annual Reports for CCOs – CFT, SML, UPL	M de Haast
Annual Report for LGFA	M de Haast
Annual Report for Wellington Water Ltd	M de Haast

Cycle 5 28 November 2018	Officer	For Council
CFT Board Appointment of Director	M Reid	·
2019-20 Annual Plan	J Askin/P Benseman/M de Haast	·
Formation of Innovative Young Minds Charitable Trust	L Sessions	·
Audit NZ Final Management Report for the Year Ended 30 June 2018	D Newth
Risk and Assurance Update and Strategic Risk Register 2018	E Davids
Strategic Property Portfolio – Six Monthly Update	G Craig
Financial Report for the Period Ended 30 September 2018	P Benseman/D Newth
2018 Insurance Renewal Update	M de Haast
Progress Update on the Re-design of Council’s Combined Rates Invoice, Rates Postponement for Over 65s and Rates Remission Policies	M de Haast
2019/20 Revenue Increase and Cost Reduction Targets Update	M de Haast/A Yip
Update on Asset Management Plans	M Reid
Technology One SaaS Project Update	R Newton
Health & Safety Officer Due Diligence Report	D Tyson
Activity Reviews for City Leadership, City Governance and Corporate Services Group Update	B Kibblewhite
Finance & Performance Work Programme	Committee Advisor

Cycle 1 6 March 2019	Officer	For Council
Draft SOIs for CCOs – CFT, SML, UPL	B Cato/B Kibblewhite	·
Draft SOI for LGFA	M de Haast
Six Monthly Reports for CCOs	CCO GM/CE’s & B Kibblewhite
Six Monthly Reports for LGFA	M de Haast
Six Monthly Report – Huia Pool Development and Funding	M Sherwood
Health & Safety Officer Due Diligence Report	Health & Safety Manager
Technology One SaaS Project Update	R Newton
Financial Report for the Period Ended 31 December 2018	P Benseman/D Newth
Finance & Performance Work Programme	Committee Advisor

Cycle 3 29 May 2019	Officer	For Council
Tax Risk Management Update	D Newth
Six Monthly Strategic Property Update	G Craig
Redesign of GWRC Combined Rates Invoice	M de Haast/H Stringer
Technology One SaaS Project Update	R Newton

Deputy Mayor D Bassett	Cr G Barratt
Cr J Briggs	Cr MJ Cousins
Cr S Edwards	Cr M Lulich

Cr L Sutton	Mayor WR Wallace (ex-officio)

	Year to Date	Full Year Forecast
TOTAL BUDGET	$637,710	$1,500,000

Risk	High, Med, Low	Risk Mitigation
Application performance (screen response) is adversely impacted	Med	Performance/Load testing to be done during UAT. Implement performance improvements to bring application performance to acceptable levels.
Information used in the current TechOne to CM9 (Document Management System) integration may not be available through the Cloud Integration method requiring additonal development to make available.	Med	Accept risk. If realised, go live may need to be delayed until a suitable solution can be developed and implemented.
Business representatives required for User Acceptance Testing may not be available in the required timeframe delaying execution of tests and verification of system.	Low	GM and DM level Governance Group established to facilitate prioritisation, verify acceptable go live date based on business as usual activities and ensure availability of cross Council representation to meet dates.

Determine and monitor:

Consider and make recommendations to Council:

General: