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 4 September 2019 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 - 17 September 2019

i) Final 2019-2022 Statement of Intent for The Hutt City Community Facilities Trust (19/1104)

Report No. FPC2019/4/178 by the General Manager Corporate Services 8

Chair’s Recommendation:

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

ii) Financial Delegation Policy (19/1076)

Report No. FPC2019/4/179 by the Chief Financial Officer 27

Chair’s Recommendation:

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

iii) Budget Update 2019/20 (19/1005)

Report No. FPC2019/4/180 by the Budgeting and Reporting Manager 39

Chair’s Recommendation:

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

iv) Local Government Funding Agency – Annual General Meeting Related Nominations (19/1124)

Report No. FPC2019/4/188 by the Chief Financial Officer 53

Chair’s Recommendation:

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

v) Treasury Management - Approval to Issue Security Stock (19/1129)

Report No. FPC2019/4/189 by the Chief Financial Officer 58

Chair’s Recommendation:

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

5. Health & Safety Update Report - January 2019 to June 2019 (19/1061)

Report No. FPC2019/4/182 by the Health, Safety and Wellbeing Manager 62

Chair’s Recommendation:

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

6. 2019 Standard and Poor's Credit Rating (19/1004)

Report No. FPC2019/4/190 by the Chief Financial Officer 68

7. Financial Performance for the Year ended 30 June 2019 (19/947)

Report No. FPC2019/4/181 by the Budgeting and Reporting Manager 80

Chair’s Recommendation:

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

8. Audit New Zealand Interim Management Report for the Year ended 30 June 2019 (19/1057)

Report No. FPC2019/4/183 by the Chief Financial Officer 140

Chair’s Recommendation:

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

9. Information Item

Finance & Performance Committee Work Programme 2019 (19/1059)

Report No. FPC2019/4/82 by the Committee Advisor 161

Chair’s Recommendation:

“That the information be received.”

10. 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.

Donna Male

COMMITTEE ADVISOR

10 04 September 2019

Finance and Performance Committee

21 August 2019

File: (19/1104)

Report no: FPC2019/4/178

Final 2019-2022 Statement of Intent for The Hutt City Community Facilities Trust

Purpose of Report

1. The purpose of this report is to consider the final Statement of Intent (SOI) for the Hutt City Community Facilities Trust (CFT) for the three years commencing 1 July 2019.

Recommendations

That the Committee recommends that Council receives and agrees to the final Statement of Intent for the Hutt City Community Facilities Trust for the three years commencing 1 July 2019.

Background

2. The Local Government Act 2002 (LGA) requires the board of a Council Controlled Organisation (CCO) to deliver to its shareholders, a final SOI on or before 30 June each year.

3. The LGA also requires Council to agree to a SOI, or if it does not agree, take all reasonable steps to require a SOI to be modified, as soon as practicable after a SOI of a CCO is delivered to it.

4. This Committee received and considered the draft SOI for the three year period commencing 1 July 2019 for the Hutt City Community Facilities Trust (CFT), at its meeting held on 6 March 2019.

5. This Committee was further advised at its meeting held on 17 July 2019 that the final CFT SOI had not been completed as required. Changes to the CFT Prospective Financial Statements following the decision of the Community Plan Committee and then Council to defer funding of the Naenae Community Hub, had not been completed or approved by the CFT Trustees.

6. The CFT Trustees have now approved the final SOI for the CFT for the three year period commencing 1 July 2019.

Discussion

7. Officers previously advised the Committee that the draft CFT SOI did adequately address Councils expectations, with the exception that specific performance measures to recognise Councils carbon zero goal had not been included.

8. Officers recommend that Council agree to the final SOI for the CFT, attached as Appendix 1 to this report, noting:

a. Councils Sustainability and Resilience Manager has agreed to work with the CFT during 2019/20 to establish some specific carbon targets for inclusion in next year’s SOI.

b. The responsibility for day-to-day facilities management and asset planning for CFT facilities now resides with the HCC Facilities Management team. Further, the relationship management of and liaison with sponsors, both current and future, is now the responsibility of Council’s Promotions and Events team. Both of these changes align with the most recent letter of expectation provided by Council to the CFT Board.

c. The Prospective Financial Statements have now been updated following the June 2019 recommendations of the Community Plan Committee and subsequent Council approval to defer funding for the Naenae Community Hub to 2020/21.

d. The Naenae Community Hub is the only development project for the CFT during the three years covered by the SOI, and this project remains subject to Council approval of a solution for the Naenae Pool.

e. While provisions have been included in Councils Long Term Plan/Annual Plan for the Wainuiomata Sports Hub and the Gym Sports Building (at Fraser Park), until Council approval for these projects has been given, these projects will remain on the CFT’s possible future work plan but they have not been included in the Prospective Financial Statements.

f. Other changes to the draft SOI have been limited to grammatical corrections and amendments, and formatting (presentation) changes.

9. The 30 June final SOI delivery to shareholder requirement was not met as the CFT Trustees did not formally approve the final SOI until 21 August 2019. This compliance breach will be self-disclosed in the CFT’s 2019 Annual Report.

Options

10. If Council do not agree to the final SOI, it may by resolution, require the CFT Trust to modify the SOI. Before giving notice of the resolution to the Trust, Council must consult the Trustees as to the matters requiring modification.

Consultation

11. Consultation is not required. This Committee previously reviewed the draft SOI.

Legal Considerations

12. Council’s General Manager, Corporate Services has reviewed the final SOI for compliance with the requirements of the LGA and confirms the final SOI is fully compliant.

13. There is an obligation on the Board/Trustees of a CCO, for each SOI and each modification to a SOI that is adopted, “must be made available to the public within one month after the date on which it is delivered to the shareholders or adopted, as the case may be”. The final SOI will be made available to the public via the website of the respective CCO immediately after receiving notification of approval of the final SOI by Council.

Financial Considerations

14. The SOI contains the financial forecasts for the three year period commencing 1 July 2019.

15. The CFT’s planned activities for the period covered by the SOI, are funded via retained earnings, rentals from tenants, grants from Council and an approved loan agreement with Council. Council loans to the CFT are funded by Council through borrowings resulting in nil impact to Council net debt.

16. The Total Equity of the CFT is estimated to be $37.4 million at 30 June 2020.

Appendices

No.	Title	Page
1 ⇩	CFT FINAL SOI 2019-2022	11

Author: Brent Kibblewhite

General Manager Corporate Services

Reviewed By: Jenny Livschitz

Chief Financial Officer

Approved By: Jo Miller

Chief Executive

29 04 September 2019

Finance and Performance Committee

15 August 2019

File: (19/1076)

Report no: FPC2019/4/179

Financial Delegation Policy

Purpose of Report

1. To seek approval of a Financial Delegation Policy.

Recommendations

That the Committee recommends that Council approves the Financial Delegation Policy, attached as Appendix 1 to the report.

Background

2. The Audit New Zealand (Audit NZ) interim management report for 2018/19 is included in these agenda papers. Included in the report is a recommendation in relation to financial delegations. This matter was first raised in 2015/16 and it is recorded in the interim report as having had limited progress in resolving.

3. Extract from the Audit NZ management report:

“Financial delegations: The City Council should review the delegations listing, including the number of employees with delegations. The City Council should:

i. prepare and implement an overarching financial delegations policy; and

ii. perform a post input review to ensure that all changes to delegations are accurate and appropriate, and that edit access to the delegations listing is restricted to appropriate staff’.

4. As a first step in addressing this recommendation, an overarching Financial Delegation Policy (the policy) has been drafted as recommended by Audit NZ

5. This is a new policy for Hutt City Council. It has been developed in line with

policies that exist in other local authorities. Refer to Appendix 1 for the proposed policy.

Overview of proposed policy

6. This policy has been written as a high level overarching policy which provides principles and general rules around financial delegations. A further operational guide will be developed for internal use to support budget holders in the application of this policy.

7. The implementation of this policy is expected to enable better clarity of financial delegations and the related budget management responsibilities for Officers, whilst also enabling improved transparency and a “no surprises” approach for Council in relation to potential future budget overspend issues.

8. The policy includes the following key components:

(a) Council has delegated to the Chief Executive (CE) the authority to implement the Annual Plan/Long Term Plan.

(b) The CE in turn delegates with financial limits to specific officers. The general rule and expectation is that officers “live within the budget”.

(c) The CE has some flexibility to approve budget variances as long as the overall Annual Plan budget for the year (or approved revisions of this budget by Council) is not exceeded.

(d) Where there is a cost over-run anticipated in a particular area there is an attempt to find offsetting savings.

(e) The policy proposes the CE has authority to approve operational and capital variances in an activity area by an amount no greater than five per cent of budget as long as the overall Council approved budget for the year is not exceeded.

(f) Where no commensurate savings can be found, overspends are required to be presented to the Finance and Performance Committee for consideration and recommendation to Council.

9. The Finance and Performance Committee is requested to consider this policy for approval.

10. Quarterly financial performance monitoring and reporting will provide information to the Finance and Performance Committee about the year-end outlook. Where there are potential budget overspend issues identified, these will be reported to the Committee with proposed recommendations to resolve these.

Next Steps

11. Following approval of this policy, it is important that budget holders are provided practical operating guidance about the policy and that it is well understood.

12. To fully address the matters raised by Audit NZ in regards to financial delegations, there is further work required. This includes a review of the delegations currently in place to ensure they align with the new policy and are appropriate. An initial high level review has not indicated any immediate issues.

13. The policy includes a two yearly review which is approved by the Chief Executive. There are other related policy reviews planned over the next year (such as the Sensitive Expenditure Policy) which may impact the timing of the next review of this policy.

14. For the next triennium, Council may wish to consider whether the Finance and Performance Committee is given delegated authority to approve budget overspends to a certain level. For example overspends up to say $0.5M could be approved by the Committee whilst amounts larger than this would be required to be approved by Council. This would improve the efficiency of the governance processes, whilst not materially compromising the financial risk management processes.

Legal Considerations

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

Financial Considerations

16. The financial considerations are detailed in this report in the relevant areas.

Appendices

No.	Title	Page
1 ⇩	Financial Delegation Policy (for approval)	30

Author: Jenny Livschitz

Chief Financial Officer

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Jo Miller

Chief Executive

Attachment 1

Financial Delegation Policy (for approval)

FINANCIAL delegation Policy

Division	Finance
Date created	August 2019
Publication date	TBA
Review period	Two yearly
Owner	Chief Financial Officer
Approved by	Chief Executive

Document Identifier FIN-POL-TBA

Version	Author	Date	Description
V 1.0	Jenny Livschitz	8 August 2019

Contents

1. Introduction. 3

1.1 Purpose. 3

1.2 Scope. 3

2. Policy contents and guidelines. 3

2.1 Definitive Source. 3

3. Principles. 3

4. Financial delegations. 4

4.1 Guide to delegations. 4

4.2 General rules to financial delegations. 4

4.3 Overspending budgets. 5

5. Roles and responsibilities. 6

6. Exceptions. 6

7. References and associated documents. 7

1. Introduction

The authority to enter financial transactions and commitments is an important part in how Hutt City Council delivers its Financial Strategy and maintains prudent financial management practices.

1.1 Purpose

The elected Mayor and Councillors are the governing body of Hutt City Council. It delegates much of its responsibilities to the Chief Executive and Committees. In turn, the Chief Executive is authorised to, and does, delegate responsibilities to Officers.

This policy sets out these delegations in relation to financial matters and provides the basis for, and the limits on, the exercise of all Financial Delegated Authority (“FDA”).

There are other non-financial types of delegations which can be referenced in Council’s ‘Delegations Register’ (for example those statutory delegations required by the Resource Management or Buildings Acts that empower or authorise the Council to carry our certain activities under those Acts).

1.2 Scope

This policy applies to the Council Group (Group) being the Hutt City Council (the Council) together with its Council Controlled Organisations (CCOs). This includes all elected members, employees/officers (full-time, part-time, fixed term, casual and volunteers) of the Council Group.

For CCOs, all references in this policy to LTP/Annual Plan should be replaced with “Statement of Intent” and all references to the Council governing body should be replaced by “CCO Board”.

This policy should be read in conjunction with the Procurement Policy which has a primary purpose to ensure all procurement occurs within the parameters of public sector policy, rules and guidelines.

2. Policy contents and guidelines

2.1 Definitive Source

This policy is the definitive source of all approved Financial Delegated Authority. Where there is any conflict between this Policy and any other Group policy, procedure, guidelines or document, this Policy will take priority unless determined otherwise by the Chief Executive.

3. Principles

3.1 The financial delegations authorise an Officer to approve financial transactions for specified budgets up to a dollar amount. The financial delegations are based on the following principles:

a) Must comply with all legal requirements.

b) They should reflect the separate roles of governance and management. The role of the Council and Committees is to concentrate on setting the outcomes, approving the overall allocation of resources, and monitoring performance to ensure targets are met. Officers focus on the means to achieve the defined outcomes, implement the policy and carry out the day-to-day operations.

c) Should give effect to the Long Term Plan (LTP)/Annual Plan.

d) To promote efficiency and effectiveness.

e) Must provide for clear accountability and lines of responsibility.

f) Officers held accountable for the manner in which they discharge their responsibilities.

4. financial Delegations

4.1 Guide to delegations

Type of transaction	Delegation required
Delegations from the Council to the Chief Executive	The Council has delegated to the Chief Executive the authority to implement the Annual Plan/LTP.
Sale and purchase of land and buildings including that acquired by gift or vesting.	Explicit Council approval required. Council may choose to delegate approvals to a sub-committee of Council.
Operating and capital expenditure	Delegated to specific positions and cost centres with financial limits.
Overspending of budgets	Generally not permitted. The Chief Executive has authority to approve overruns as long as the overall Annual Plan numbers are not exceeded.
Significant transactions	Council has a significance policy which sets out the criteria for deciding if a transaction or event is significant. Decisions on significant transaction are required to comply with this policy.
Setting rates	Approved by the Council.
Rates postponement, remission and penalties	Delegated to the Chief Executive or other Officers as specified in the policies approved by Council
Treasury transactions	Covered by the Treasury Risk Management Policy.

4.2 General Rules to Financial delegations

a) All financial delegation limits are subject to a maximum of what is approved in the current LTP/Annual Plan or any approved revisions of the budgets in the LTP/Annual Plan which are approved by Council.

b) The financial delegation limits for expenditure relate to the total procurement or purchase price for goods and services. Officers are not permitted to deliberately split purchases in order to reduce the level of delegated authority necessary to approve the expenditure.

c) Where a decision may be politically sensitive, there may be personal benefit or a conflict of interest, the one-up rule applies (i.e. the decision must be transferred up to the reporting line manager).

d) Apart from the Chief Executive and Chief Financial Officer the financial delegations to Officers are specific to the cost centres relevant to their role.

e) The Chief Executive has the authority to sub-delegate within the limits of their own delegation. Similarly an officer may sub-delegate within the limits of their own delegation.

f) An Officer’s delegation lapses when that Officer leaves the organisation at which they obtained such delegated authority or changes position within that organisation. An Officer’s delegated authority may be revoked by written notice.

g) The authority is limited to commit expenditure within the budgeted amount. It does not permit expenditure if there is no budget available. If the budget is unlikely to be met or cannot be met then the cost centre overall must be managed to absorb the impact.

h) All expenditure must be approved by an Officer with financial delegated authority to incur the expenditure prior to the purchase being committed.

i) Delegations for revenue contracts must be applied at the same monetary level as for expenditure contracts.

j) Financial delegated authority amounts are GST exclusive.

k) General Manager and Divisional Managers are responsible for ensuring appropriate financial delegations are recorded at all times.

l) Any amendments to financial delegations must be promptly advised in writing to both the Officer and the Finance Division.

m) Records must be generated, filed and retained to maintain an appropriate audit trail. The Finance Division is responsible for retaining records provided.

n) Failure to carry out duties within financial delegation authority may be regarded as misconduct and/or delegations may be revoked.

Refer to Appendix 1 - Delegations schedule, which includes further detailed information on financial delegations including sub-delegations.

4.3 OVERSPENDING BUDGETS

4.3.1 LTP/ANNUAL PLAN

a) Council approval is required to exceed the total LTP / Annual Plan budget level. The Council must be informed as soon as it is known that this is likely to occur. The Council can approve revisions to the budgets in the LTP/Annual Plan.

b) Where overspending could have a significant effect on Council and/or services provided to the public, further public consultation may have to take place on the available options. Council has adopted a significance policy and if the criteria of this policy are triggered, then further public consultation must take place.

4.3.2 SEEKING APPROVAL FOR OVERSPEND

a) Authority is delegated to commit expenditure within the budgeted amount. It does not generally permit expenditure if no budget is available. The rule is ‘live within the budget’.

b) For a cost centre over-run, the manager must find savings within the cost centres they are responsible for. This applies to the total budget for a cost centre or the individual programme or project budgets. Operational expenditure (OPEX) cannot be transferred to capital expenditure (CAPEX), and vice versa. The manager must also identify any impact at a project level.

c) As soon as a manager becomes aware that a cost centre or project budget may be overspent (after assessing for offsetting savings) they must escalate to their General Manager for resolution.

d) The Chief Executive has the authority to approve OPEX and CAPEX variances in an activity area by an amount no greater than 5% as long as the overall Annual Plan budget for the year (or approved revisions of this budget by Council) is not exceeded. The Chief Executive may choose to delegate approval of budget overspend variances at an activity level to General Managers and/or the Finance and Treasury Committee (a committee of officers).

e) Overspends without offsetting savings which exceed the Annual Plan budget for the year (or approved revisions of this budget by Council) are required to be reported to the Finance and Performance Committee (a sub-committee of Council). This Committee will consider the options available to remedy the issue and make a recommendation to Council.

5. Roles and Responsibilities

5.1 DELEGATING MANAGERS

Delegating managers are responsible for implementing and operating this Policy within their team. They are accountable for;

a) Oversight of this Policy within their team;

b) Ensuring that any Financial Delegated Authorities within their team reflect the requirements of the roles and responsibilities within the team;

c) Ensuring that any sub-delegations are in writing; and

d) Ensuring that officers in their team (including acting roles) are aware of and provide written acknowledgement of their understanding and acceptance of the obligations.

5.2 FINANCIAL DELEGATED AUTHORITY HOLDERS

5.2.1 Financial Delegated Authority holders are accountable for ensuring that they:

a) Are aware of their current FDA;

b) Comply with this Policy in exercising FDA;

c) Do not misrepresent their authority to third parties;

d) Ensure that transactions are authorised accurately and appropriately and that sufficient details and supporting information is available if required for compliance monitoring purposes; and

e) Apply the one-up rule for a decision which may be politically sensitive, there may be personal benefit or a conflict of interest.

5.2.2 Delegated Authority holders who act outside their authority may be subject to disciplinary action.

5.3 CHIEF FINANCIAL OFFICER (CFO)

The CFO is responsible for:

a) Maintaining and overseeing this Policy and the financial delegations process;

b) Ensuring that all original delegations are held in safe custody;

c) Managing the review process of this Policy; and

d) Ensuring that appropriate controls are in effect to monitor compliance and for reporting material breaches of this policy to the Chief Executive.

6. Exceptions

a) In exceptional circumstances (such as a major incident or civil emergency) the Chief Executive (or other most senior managers available if the Chief Executive is not available) may suspend normal lines of authority and make executive decisions as the situation requires, until such time as Council resolves otherwise. Where practicable, the exercise of any power under this clause which is ordinarily reserved for the Council should be made in consultation with the Mayor (or other most senior member of Council available if the Mayor is not available).

b) The Chief Executive will have authority to approve unbudgeted expenditure where the incurring of the expenditure relates to purchases required for health and safety or other essential legislative compliance reasons.

7. References and associated documents

· Code of Conduct

· Conflict of Interest policy

· Sensitive Expenditure Policy

· Procurement Policy

· Procurement Guide

· Treasury Risk Management Policy

· Delegations Register (Non-financial delegations, e.g. statutory delegations required by the Resource Management and Building Acts)

· Financial Delegations Register

· Policy Guide to Managing Misconduct.

Appendix 1 – Delegatons schedule

The delegations schedule provides further information about the financial delegations and in particular the sub-delegation by Officers. Levels of delegations are provided for as a broad framework for the implementation of the policy.

LEVEL	POSITION WITHIN THE COUNCIL
8	Chief Executive¹
7	Strategic Leadership Team members responsible for Infrastructure activities Chief Financial Officer
6	Other Strategic Leadership Team members Divisional Managers responsible for Infrastructure activities
5 or less	Other Divisional Managers Business unit managers, managers or team leaders, other Council officers

All figures noted in this delegation schedule are per transaction/commitment or if there is a contract, the total contract costs. All figures are GST exclusive.

		Level 8	Level 7	Level 6	Level 5	Level 4	Level 3	Level 2	Level 1
OPERATING EXPENDITURE (OPEX) AND REVENUE
Non-restricted OPEX		Unlimited¹	$2 Million²	$500k²	$250k	$150k	$50k	$10k	$1k
Revenue, excluding rates		Unlimited¹	$2 Million²	$500k²	$250k	$150k	$50k	$10k	$1k
Restricted items:
Rates payments for Wellington Regional Council		Unlimited	$10 Million³	-	-	-	-	-	-
GST/IRD payroll related payments		Unlimited	$10 Million³	-	-	-	-	-	-
Legal advice per legal issue		Unlimited	$250k	$150k	-	-	-	-	-
CAPITAL (CAPEX)
Non-restricted capex		Unlimited¹	$2 Million²	$500k²	$250k	$150k	$50k	$10k	$1k
Restricted items:
Sale or purchase of land and buildings including gifts and vesting with no Council approval		Full Council approval required
Sale or purchase of land and buildings including gifts and vesting with explicit Council approval		Unlimited	$2 Million	-	-	-	-	-	-
Sale of surplus assets		Unlimited	$500k	$250k	-	-	-	-	-
NOTES FOR DELEGATIONS SCHEDULE
1.	The Chief Executive’s authority is limited by the budgets approved in the Long Term Plan (LTP) / Annual Plan, or any revisions of the budgets in the LTP/Annual Plan which are approved by Council.
2.	Excluding treasury transactions which are covered in the Council’s Treasury Risk Management Policy.
3.	Chief Financial Officer only.

45 04 September 2019

Finance and Performance Committee

01 August 2019

File: (19/1005)

Report no: FPC2019/4/180

Budget Update 2019/20

Purpose of Report

1. To seek approval of budget changes for 2019/20.

Recommendation

That the Committee recommends that Council:

(i) notes the year-end carry overs of projects due to timing changes;

(ii) agrees to amend the operating and capital budgets as detailed in this paper due to changes in timing of expenditure;

(iii) agrees to amend the budgets as detailed in this paper in relation to the re-classification of budgets between operational and capital expenditure; and

(iv) agrees to budget changes related to Wainuiomata Shared path/Cycleways project being a net cost of $0.37M (Capital $0.75M less New Zealand Transport Agency subsidy of $0.38M).

Background

2. The 2019/20 Annual Plan (AP) was approved on 27 June 2019. The budgets included in the plan were based on latest financial information and estimates available at the time of the preparation of the plan.

3. Through the review of the year-end financial results for 2018/19 there have been a few budget issues identified which have flow on impacts for 2019/20. For example the estimated timing of project expenditure assumed in the AP has changed for a range of reasons and the value of expenditure actually incurred in 2018/19 is different to that forecasted previously. From a project/budget manager perspective the budget in 2019/20 is requested to be updated to reflect the timing difference so that there is clarity of the correct budget for the project/budget manager.

4. This paper seeks Council approval of a ‘Revised Budget’ for 2019/20 to reflect the budget issues and updates required to improve the accuracy of budgets and the associated reporting of variances.

Performance reporting

5. Council is legislatively required to prepare an Annual Report and for this report to include financial results which compare to the Annual Plan budgets. There is no change proposed in relation to this process.

6. From a financial performance monitoring perspective, the quarterly reporting to the Finance and Performance Committee will include both information on Annual Plan budgets and the ‘Revised Budget’ which has been approved by Council. The focus of performance monitoring will be on financial results compared to the ‘Revised Budget’ as this would be the most meaningful and useful from a performance perspective.

7. Monthly internal performance monitoring processes for Council will focus on delivery of the work programme against the ‘Revised Budget’ and accountabilities around this.

8. There could be a few further changes to the ‘Revised Budget’ during the year. For example, Council may make a decision during the year to progress a new priority initiative and reprioritise funding. This would be included as a ‘Revised Budget’ change which would provide officers with the authority to progress the initiative.

9. Included in future quarterly financial performance reporting to the Finance and Performance Committee will be a summary of the budget changes approved post the Annual Plan and the financial implications of these.

Summary of Revised Budget changes for 2019/20

10. There are three categories of budget changes for which approval is sought:

a) year-end carry overs/deferrals of projects due to timing changes;

b) re-classification of expenditure being operational and capital expenditure; and

c) Wainuiomata Cycleways/Shared Paths budget amendments.

This paper provides details of these categories and then summarises the financial impact of the changes.

Year-end carry overs/deferrals

11. Council delivered $44M of capital expenditure in 2018/19, which was 61% of the $73M budget approved in the Long Term Plan (LTP).

12. As part of the Annual Plan 2019/20 process, detailed carry over information was presented to Council for approval. The total value of the carryovers transferred from 2018/19 to 2019/20 was $16M capital expenditure and $4M net operating budgets. These were prepared based on best information available at the time.

13. As part of the year-end process, staff have reviewed the 2018/19 results against the budget and re-assessed the need for carrying forward unspent budgets into the subsequent financial years. The assessment is based on specific criteria:

a) Deferrals are for discrete projects that are in execution phase but have experienced unexpected timing change.

b) Deferrals relate to specific circumstances, for example grants committed to third parties etc.

c) Ongoing development and renewal programme budgets cannot be carried forward unless it meets the requirements a) above.

d) Savings and unused contingencies of completed projects cannot be carried forward and cannot be used to offset other projects.

e) The whole of life project cost cannot be changed unless there is an approved variation. The budget changes represent a timing change only.

Alongside these criteria is the need to assess overall financial performance and check whether there are any other reasons not to progress the carry forward of budget.

14. Appendix 1 provides a detailed project listing of the proposed year-end carry overs for which approval is sought. Included in this are some projects which are proposed to be deferred out to 2020/21. The changes are summarised in the table that follows which shows the net change in budgets in relation to the review work undertaken:

Table 1 : Summary of changes to carry overs

$Million	2019/20		2020/21
Activity	Opex	Capex	Opex & Capex	Commentary
Integrated Community Services		(8.0)	8.0	Naenae Pool defer $8M (of $9M budget) to 2020/21, being more likely timing due to engagement/consultation process.
Parks and Reserves		(0.49)	0.57	Deferral of Manor Park Cycle Trail and Te Whiti Building Extension.
Community Facilities development	(4.45)		4.45	CFT Wainuiomata artificial playing turf $2.55M to 2020/21 and Gymsports $1.9M.
City Environment	0.05	5.68		$5.68M - Strategic property purchase delays.
City Development	(0.29)			Mainly reduced Development Stimulus Package carryover $0.31M.
Roads and Accessways	(0.21)	0.41		$0.21M is NZTA subsidy, $0.41M relates largely to Cycleway/shared path capex timing changes.
Three Waters		(0.53)		Work was accelerated in 2018/19 and deferral is reduced.
Solid Waste		(0.14)		Work completed in 2018/19 and the carryover no longer required.
City Leadership		0.37		Underspend in 2018/19.
Total	(4.9)	(2.70)	13.02

15. Council approval is sought to revise the 2019/20 and 2020/21 budgets so as to enable improved performance monitoring of project budgets in 2019/20. The financial impact of these changes is minor as it is timing of expenditure.

Re-classification of expenditure being operational and capital expenditure

16. During the review of the 2018/19 financial results there were issues identified with expenditure that had been budgeted as capital expenditure however when the costs were analysed they had to be reclassified as operational expenditure. For example – RiverLink project, Development Stimulus Package, Information Management costs and parks maintenance expenditure.

17. Definitions:

Capital expenditure - Money planned to be spent to create or acquire physical assets that have a life of more than one year. To increase capacity of existing assets beyond their most recently assessed design capacity or service potential.

Examples of costs here include resource consents, site preparation and professional fees in relation to an asset being constructed.

Operational expenditure - Money spent on on-going activities such as salaries, training, rents, repairs and maintenance required to run an organisation.

Examples of costs included here as they do not form part of a physical asset include: feasibility studies; concept design prior to single option chosen; evaluating alternative proposals; investigative work and carrying out environmental assessments unless they are for resource consent.

18. Approval is sought to approve budget revisions in relation to Annual Plan 2019/20 budgets to correct the allocation of budgets between capital and operating expenditure. The table that follows provides a summary of these and further detailed information is attached as Appendix 2.

19. Table 2: Summary of budget transfers between capex and opex

$Million	2019/20
Activity	Opex	Capex	Commentary
Integrated Community Services	0.42	(0.42)	Maintenance for Hubs, Museums, halls, venues, libraries
Parks and Reserves	0.14	(0.14)	Maintenance
City Environment	(1.05)	1.05	Part of RiverLink next stage capex
City Leadership	1.00	(1.00)	Information management largely due to SaaS changes
Total	0.51	(0.51)

20. Overall the change is summarised as:

- $0.51M decrease in capital expenditure

- $0.51M increase in operational expenditure.

The financial impact of this is minor and approval is sought to amend the budget to address these classification issues between capital and operating expenditure.

Cycleway/Shared Path Wainuiomata Hill

21. This project was forecast to be overspent by $1.4M (gross) at its completion in 2018/19. However, the project was not completed and the 2018/19 overspend was $150k (gross). The project has been governed by a Project Control Group and risk based forecasts for the project have been reported to this group on a regular basis. The forecast overspend has now reduced as some risk items included in previous forecasts have not eventuated.

22. In 2019/20 it is now estimated that $0.75M is the cost to complete final works on this project. This work has been underway in August/September and includes drainage, berm reinstatements and other finishing work. This cost is partially offset by unbudgeted New Zealand Transport Agency (NZTA) subsidy of $0.38M, resulting in a net additional cost of $0.37M. Approval of this budget change for 2019/20 is requested.

23. The total cost of the Wainuiomata Hill Shared Path project including the $0.75M expected spend in 2019/20 is $12.3M. After adjusting for subsidies from NZTA and the Cycleway Fund, the net cost to Council for the project is $5.2M, which will be $0.3M more than budgeted.

24. This project has been managed in conjunction with the Beltway and Eastern Bays Shared Path which have a combined approved budget of $28.3M (gross). As the other two cycleway projects are forecast to exceed approved budgets, direction will be sought from Council in November/December on how the remaining Shared Paths programme budget is spent once options have been better defined and costed.

Other minor funding reprioritisations

25. There are a number of other relatively minor budget prioritisations that are being worked through internally and will result in minor changes to budgets in each activity. There is no net impact on the overall budgets for 2019/20.

26. The first stage of the Naenae project related to the engagement planned for the Naenae town centre is expected to cost $140,000 (‘Voice of Naenae Community project’). This will be funded from budget set aside in the Annual Plan together with funding from the Suburban Shopping Centres Improvement budget.

Summary financial impact for all proposed budget changes

27. The following table shows a summary of financial impact of changes proposed.

Table 4: Financial impact summary

$Million	Net deficit 2019/20	Capital investment 2019/20	Net debt projected at 30 June 2020	Commentary
Annual Plan 2019/20	13.3 Deficit	67.9	194.5
Carry forward changes	(4.9)	(2.70)	(7.6)	2018/19 results have required carryovers to be adjusted.
Transfer of budgets from capex to opex	0.51	(0.51)	0	Projects have been reviewed and re-classified
Wainuiomata Cycleway/Shared Path	(0.38)	0.75	0.37	Increase capex budget, offset partially by NZTA funding
Revised Budget 2019/20	8.53 Deficit	65.44	187.27

28. The impact of the carry-forwards is only on the timing of borrowings between years. There is an overall favourable impact on debt in 2019/20. In addition, there is $13M of deferrals to 2020/21 which will impact debt in this year.

Consultation

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

Legal Considerations

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

Financial Considerations

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

Appendices

No.	Title	Page
1 ⇩	Appendix 1 - Schedule Of Proposed Carryover - Budget Adjustments	46
2 ⇩	Appendix 2 - Schedule of Capital - Operating Budget Adjustments	52

Author: Philip Benseman

Budgeting and Reporting Manager

Author: Jenny Livschitz

Chief Financial Officer

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Jo Miller

Chief Executive

55 04 September 2019

Finance and Performance Committee

26 August 2019

File: (19/1124)

Report no: FPC2019/4/188

Local Government Funding Agency – Annual General Meeting related nominations

Purpose of Report

1. To confirm an agreed approach in regards to the Local Government Funding Agency (LGFA) Annual General Meeting (AGM) in regards to:

(a) the two vacant LGFA director positions; and

(b) the two vacant LGFA Shareholders’ Council positions.

Recommendations

That the Committee:

(i) notes the support of the Shareholders’ Council and Local Government Funding Agency (LGFA) Board that Ms Linda Robertson and Mr Mike Timmer continue as directors of LGFA; and

(ii) recommends that Council agrees not to make a nomination(s) for the two vacant LGFA director roles; and

(iii) recommends that Council agrees not to make a nomination(s) for the vacant LGFA Shareholders’ Council positions.

Background

2. Hutt City Council is a minor shareholder in LGFA with a 0.4% shareholding.

3. The 2019 AGM of LGFA is scheduled for Thursday 21 November 2019. Nominations of candidates for vacant director roles must be received by LGFA by 21 September 2019.

LGFA Director Positions

4. The LGFA Shareholders’ Agreement (the Agreement) requires the LGFA to be comprised of five independent directors and one non-independent director. The Agreement also requires one independent director and the non-independent director to retire by rotation each year.

5. Ms Linda Robertson retires by rotation this year and has offered herself for re-election as an independent director. Ms Robertson is a very experienced and respected professional director and chairperson, with extensive financial markets and treasury risk management experience.

6. Mr Mike Timmer also retires by rotation and offers himself for re-election as the non-independent director. Mr Timmer is the Treasurer for Greater Wellington Regional Council and is well known to officers.

7. Both Ms Robertson and Mr Timmer have the support of the Shareholders’ Council and LGFA Board to continue as directors of LGFA.

LGFA Shareholders’ Council Positions

8. The Shareholders’ Council comprises between five and 10 members with the current members being the Crown and nine Council members (Wellington City Council, Auckland Council, Bay of Plenty Regional Council, Christchurch City Council, Hamilton City Council, Tasman District Council, Tauranga City Council, Western Bay of Plenty District Council and Whangarei District Council).

9. The Shareholders’ Agreement requires the two Nominating Local Authority members (NLA) who have been in office the longest since election to retire by rotation. Western Bay of Plenty District Council and Auckland Council will retire at the AGM and are seeking re-election.

Decision

10. Nominations of any candidates for vacant positions are required to be received by 21 September 2019.

11. The Committee is requested to consider whether any further nominations should be made. Given the successful performance of the LGFA together with the NLA representation for our region (Wellington City Council), officers are of the view that no further nominations should be made.

Options

12. The Committee can recommend the nomination of other candidate(s) for the vacant positions should it not agree with the recommendations of officers.

Legal Considerations

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

Financial Considerations

14. The financial considerations are detailed in this report in the relevant areas.

Appendices

No.	Title	Page
1 ⇩	Nominations letter from LGFA	56

Author: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

61 04 September 2019

Finance and Performance Committee

28 August 2019

File: (19/1129)

Report no: FPC2019/4/189

Treasury Management - Approval to Issue Security Stock

Purpose of Report

1. In line with the Treasury Risk Management Policy, Council approval is sought to issue additional security stock to Council bankers in relation to the Council’s interest rate swap portfolio.

Recommendations

That the Committee:

(i) notes the existing security stock in place; and

(ii) recommends that Council agrees to approve additional security stock issuance of $22M as set out in table below

	Type of stock	Value $M	Commentary
1.	Current existing Security stock	48	Covers bank facilities and interest rate swaps
2.	Additional security stock to be issued	22	Additional cover to be issued to: - ANZ $12M - Kiwibank $10M
	Total	70

Background

2. Extract from Treasury Risk Management Policy (TRMP):

“Interest rate risk is the risk that funding costs (due to adverse movements in market wholesale interest rates) will materially exceed or fall short of projections included in the LTP or Annual Plan so as to adversely impact revenue projections, cost control and capital investment decision/returns/feasibilities….Certainty around interest costs is to be achieved through the active management of underlying interest rate exposures.”

3. Council manages interest rate risk in line with policy through the issuance of interest rate swaps. An interest rate swap is a financial derivative contract in which one stream of future interest payments is exchanged for another based on a principal amount. They involve the exchange of a fixed interest rate for a floating rate, or vice versa. In the case of the Council we want to reduce our exposure to fluctuations in interest rates so we exchange a floating rate for a fixed interest rate.

4. To simplify this, interest rate swaps could be equated to a homeowner’s mortgage, where the homeowner agrees to a fixed interest rate for a period of time (say three years). This gives the homeowner certainty as to what interest costs will be incurred for the next three years and helps with their household budgeting and management of finances. In simple terms, this is what Council is doing with interest rate swap agreements.

5. The continued decline of interest rates in the domestic (and international) financial markets has resulted in the valuations of Council’s interest rate swap portfolio becoming increasingly negative (as is the case globally with users of fixed interest rate derivatives). Banks are requiring assurance from Council that it will continue to meet its obligations under interest rate swap contracts. This assurance is provided via the issuance by Council to banks of security stock.

6. Security stock is a legal commitment which secures Council’s obligations to swap counterparties and also to its lenders. Security stock is issued under Council’s Debenture Trust Deed which allows for the securing of the indebtedness of Council via issuing security stock and providing a charge over rates. It is desirable to issue as little security stock as possible, thus limiting the charge over Council’s rates.

7. If Council was not to honour a swap agreement for which Council had issued security stock, then the swap counterparty bank would have a claim over Council’s rates revenue equal to the amount of the security stock issuance. Note this is a very unlikely risk and has never happened before.

8. Council’s Treasury Risk Management Policy requires Council approval for “charging assets as security over borrowings”.

9. The audited reporting certificate for 30 June 2018 is summarised in Table 1 that follows and shows the stock issuances in place at this time.

Table 1 – Stock issuances as at 30 June 2018

	Type of stock	Value $M	Commentary
1.	Global stock	100	Issued to cover borrowings when the Debenture Trust Deed was originally put in place
2.	Security stock	48	Covers bank facilities and interest rate swaps
3.	Debenture stock	35	Covers floating rate note borrowings to specific banks
4.	Security Stock – LGFA	186	Covers HCC debt from LGFA and accrued interest on HCC debt
5.	Security Stock	9	Covers Council’s share of LGFA guarantee contingent liability (being HCC 0.4% shareholding of LGFA)
	Total	378

Proposed security stock issuance

10. Council has a strong AA Credit Rating from Standards and Poor’s. Banks generally require Councils that do not have a credit rating to issue security stock for all interest rate swap facilities. For Hutt City Council, there has been a mixture of practices across the banks, with some banks requiring cover and others requiring partial cover. Both ANZ and Kiwibank have requested security stock to be issued by Council.

11. Whilst there is a need to address this additional security cover, there is also an opportunity to look into the future and enable Council to transact further interest rate swaps in this low interest rate environment. The current face value of swaps in place is $135M. These swaps are spread across four banks.

12. With the Long Term Plan/Annual Plan projecting increases in borrowings in the medium term, there is a need to proactively manage interest rate risk into the future. Officers work closely with PricewaterhouseCoopers (PwC), Councils external treasury advisors, in relation to the strategy and approach to manage interest rate risk.

13. Additional security stock issuance of $22M is proposed. This includes cover for both the existing interest rate swap portfolio of $10M, as well as providing additional capacity to increase future cover which is likely to be needed of $12M.

Table 2: Proposed changes to security stock issuance

	Type of stock	Value $M	Commentary
1.	Current existing Security stock	48	Covers bank facilities and interest rate swaps
2.	Additional security stock to be issued	22	Additional cover to be issued to: - ANZ $12M - Kiwibank $10M
	Total	70

Decision

14. Approval is sought to issue further security as detailed in Table 2. The mix proposed has been developed with the support of our PWC Treasury advisors.

Options

15. There is an option to reduce the values of the security issuance to cover only existing interest rate swap portfolio, however this will limit officers capacity to manage interest rate risk going forward as per the TRMP.

Legal Considerations

16. The issuance of security stock is legally binding on Council as detailed in this paper. Council’s legal advisors will review any documents before the requested additional stock security is issued by Council.

Financial Considerations

17. PwC have done some stress testing on Councils swap portfolio and are supportive of the additional security stock issuance requested by the banks.

18. There will be some minor legal fees incurred to complete the required processes. These costs will be covered from existing budgets.

Appendices

There are no appendices for this report.

Author: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

64 04 September 2019

Finance and Performance Committee

13 August 2019

File: (19/1061)

Report no: FPC2019/4/182

Health & Safety Update Report - January 2019 to June 2019

Purpose of Report

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

“thinksafe-worksafe-homesafe”

Recommendations

That the Committee notes and receives the report.

Background

2. Council is described as a Person Conducting a Business or Undertaking (PCBU) under HSWA 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 Chief Executive and General Managers are referred to as Officers under the HSWA and are required to help the PCBU comply with this duty and they do this by performing due diligence. Exercising due diligence as an Officer means taking reasonable steps to:

a) Continuously learn about, and keep up to date with, work health and safety issues

b) Understand the work of the organisation

c) Know the risk that workers, volunteers, and any other people who could be affected by the organisation’s actions may face

d) Check that the organisation has processes:

i. and appropriate resources to eliminate or minimise risks to health and safety, and uses them;

ii. in place to communicate and consider information about work health and safety, and to respond to that information; and

iii. in place to comply with any duties and requirements under the HSWA, and uses them.

Discussion

Health and Safety Statistics

3. 1 January 2019 to 30 June 2019

a) Accidents: – 21 accidents in total were reported for this period, with no notifiable accidents.

b) Minor Accidents: – 42 minor accidents were reported for this period. The severity of these accidents were either insignificant or minor (first aid treatment required only).

c) Pain and Discomfort: – 28 events relating to pain and discomfort were reported during this period. The high number of reports in January related to fumes in the War Memorial Library and surrounding area due to maintenance work being undertaken at the Little Theatre. Once the hazard was identified, access to the area was restricted and additional measures to enhance ventilation were put in place and no further concerns were raised.

d) Near Misses: – 64 events were reported as near misses. These events are all investigated and used as lead indicators to address areas of concern.

e) Lost Time Injuries (LTI): - 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.

In the six month period to 30 June 2019, we had three LTI’s with a loss of 20 working days.

The LTI’s are summarised below:

1. An ACL injury occurred while an employee was conducting a group activity at the Taita Clubhouse.

2. An employee tore ligaments in their foot as a result of slipping on stairs.

3. An employee sustained an open wound injury due to the car door slamming on their leg while they were getting out of a Council car.

4. The majority of event risk ratings were medium. This means that events can easily move into either the low or urgent category, if the likelihood or consequences are adjusted.

5. Our current focus is to address events with medium risk ratings. All events that are being reported will be reviewed by the HSW team to ensure that appropriate ratings and controls are assigned. Investigations will be conducted on these events to identify the hazard source and mitigate the risk.

6. Following are some 12 month rolling graphs relating to events for the period 1 June 2018 – 30 June 2019. Note that there were no serious injuries for this period

Health and Safety Compliance

7. Ongoing review of our policies and procedures is undertaken to ensure that we have practical and best practice procedures in place.

8. A new Health and Safety Policy (the policy) has been drafted. The policy aligns Council’s commitment to health and safety with the national and international standards of ISO 45001.

9. A new approach is being adopted to effectively manage our contractors’ health and safety. This approach will ensure that Council and it’s contractors are fulfilling their obligations under the HSWA.

Hazard Management

10. Hazards are being identified and managed on a daily basis. The majority of our hazards are minimised to a great extent. The objective is to eliminate any hazard or to minimise the risks as far as reasonably practicable. The HSW team work with Divisional Managers to achieve this objective.

Employee Participation

11. Listed below are the Wellness initiatives and health and safety training programmes undertaken during the 6 month period to 30 June 2019:

MONTH	ACTIVITIES
Feb	· Keeping cool in summer communication on Ourspace + posters
Mar	· Melanoma Awareness Posters
Apr	· Gumboot Day for Mental Health fundraiser
May	· Stop Drop and Breath Workshop · CoLiberate Mental Health First Aid for Leaders · Flu Vaccinations (150+ along with 50+ vouchers) · Smokefree communications and GM message · Pink Shirt Day and Team Photo Competition · Melon health (free wellbeing programme), promoted to staff on Ourspace · Kiwisaver seminar
June	· The Energy Injection nutrition seminar (Mission Nutrition) · ‘Enhancing Your Wellbeing’ programme (Umbrella Clinical Psychologists) · Top tips for winter wellbeing posters and communications on Ourspace

H&S TRAINING COURSES	NUMBER COMPLETED
H&S induction training (essential, online and managers)	62
Health and Safety Representative Training	4
Contractor Management Training (US17595)	11
Office Health online training	23
Office Manual Tasks online training	25
Workstation ergonomics online training	23
First Aid Level 1 and Refresher training	22
Opsafe stop violence and crisis resilience (for new staff and site refreshers)	63

12. Ongoing initiatives:

• Weekly Heartfulness meditation sessions on a Wednesday afternoon

• Monthly 10 minute subsided massage sessions

Notifiable Events / Investigation

13. Whilst outside the reporting period, on Monday 5 August, a piece of metal sheet dropped from the ceiling in the reception area at Fraser Park Sportsville. This had the potential for major consequences, however, the likelihood of similar events is rated as unlikely. We immediately notified WorkSafe of the incident, which triggered their internal procedure.

14. WorkSafe confirmed on 13 August, that they will not be investigating the event further. The Lead Contractor (Armstrong Downes Commercial) is currently conducting an investigation to determine the root cause and prevent similar incidents from occurring and the HSW team are supporting them with this.

Consultation

15. There is no requirement for consultation.

Legal Considerations

16. Any legal issues are covered in the report.

Financial Considerations

17. There are no financial considerations. Health, Safety and Wellbeing activities are funded by existing operational budgets.

Appendices

There are no appendices for this report.

Author: André Kok

Health, Safety and Wellbeing Manager

Reviewed By: Kelly Alkema

Divisional Manager, People and Capability

Approved By: Brent Kibblewhite

General Manager Corporate Services

71 04 September 2019

Finance and Performance Committee

30 August 2019

File: (19/1004)

Report no: FPC2019/4/190

2019 Standard and Poor's Credit Rating

Purpose of Report

1. The purpose of this report is to inform the Committee that on 30 August 2019, Standard and Poor’s Global Ratings affirmed Council’s credit rating as AA long term with “stable” outlook, and A-1+ short term, being unchanged from 2018.

Recommendations

That the Committee notes and receives the report.

Background

2. There is no legislative requirement for Council to have a credit rating, likewise the Council’s Treasury Risk Management Policy does not require a rating.

3. Across New Zealand there are currently 29 Councils that have a credit rating. This includes for example Wellington City Council, Greater Wellington Regional Council, Tauranga City Council and Auckland Council. The credit rating is essentially a ‘signal’ to lenders that Council can fully meet its interest and principal obligations.

4. The credit rating enables Council to access multiple debt markets (Local Government Funding Agency, banking institutions, private placements), at a lower cost due to the perceived risk.

5. The table that follows shows how the Local Government Funding Agency (LGFA) provides lending at range of margins dependant on Councils’ credit rating.

Table 1: LGFA lending margins

Credit Rating	Additional Lending Margin
AA	Nil
AA-	0.05%
A+	0.10%
Unrated Guarantor	0.20%
Unrated Non-Guarantor	0.30%

6. Hutt City Council has an AA credit rating which reduces the cost of borrowings by up to 0.30% compared to other borrowers. When compared to a local authority with an A+ credit rating, Council’s annual cost of borrowings is $50,000 less for every $50M borrowed.

7. Credit ratings are re-assessed annually and a fee is paid to the Rating Agency. At 30 June 2019, Council’s total net debt was $172 million. The savings achieved directly from Council’s credit rating more than offset the annual fee payable to Standard and Poor’s (S&P).

Outcome of the most recent credit rating review

8. S&P annually review Council’s credit rating. The most recent review was completed in early August 2019. The outcome of the review was made publicly available on the 30 August 2019.

9. S&P rating affirmed Council’s credit rating as AA long term with “stable” outlook, and A-1+ short term. This is unchanged from the previous year.

10. The rating received by Council is the same as the New Zealand sovereign rating so any upward movement of the rating is restricted by the sovereign rating. In addition, Council has the equal best rating of any Council in New Zealand and is better than New Zealand banking institutions.

11. The S&P detailed review is attached as Appendix 1. This includes a summary rating score snapshot which is summarised in Table 2 that follows. A six-point scale is used, with 1 being the strongest and 6 being the weakest score.

Table 2: Rating score snapshot results

Key rating factor	2019
Institutional framework	1
Economy	2
Financial management	2
Budgetary performance	4
Liquidity	2
Debt burden	4

12. S&P has changed the methodology applied over the last year so it is not possible to compare directly with the prior year results. Key messages include:

- ‘A supportive institutional framework and experienced management underpin Hutt’s creditworthiness’

- ‘Substantial capital investment leading to deficits and debt levels rising from moderate base’.

13. Further to this, the report includes the following commentary:

a. Strong institutional framework that operates for New Zealand local government. Reference is made to 10 year long term plans and 30 year asset management strategies.

b. Overall strong financial management in line with similar rated domestic peers.

c. The appointment of a new Chief Executive who ‘brings a wealth of experience from the UK’.

d. The substantial capital investment programme is discussed, together with the funding through intergenerational equity with long term borrowings rather than through immediate rate increases. With commentary that ”while this is a common approach among domestic peers and results in higher debt levels, we believe the council has been more reluctant than peers to substantially raise rates”.

e. Regarding the financial strategy, the report includes commentary that the borrowing limits have changed three times since 2014 (but not since 2017), to allow room to fund higher capital expenditure through debt, and that debt limits could be increased in the future to potentially fund the rebuild or replacement of the Naenae pool.

f. Strong liquidity is noted, with supportive commentary related to pre-funding debt maturities strategy and access to funding via NZ Local Government Funding Agency.

Consultation

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

Legal Considerations

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

Financial Considerations

16. There are no further financial considerations apart from those noted in the report.

Appendices

No.	Title	Page
1 ⇩	S&P Ratings Direct - Credit Rating for 2019	72

Author: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

82 04 September 2019

Finance and Performance Committee

18 July 2019

File: (19/947)

Report no: FPC2019/4/181

Financial Performance for the Year ended 30 June 2019

Purpose of Report

1. The report provides an overview of the Hutt City Council financial performance results for the period 1 July 2018 to 30 June 2019.

Recommendation

That the Committee receives Council’s performance report for the period 1 July 2018 to 30 June 2019.

Background

2. The performance results presented in this report are for Hutt City Council – the parent entity and not the consolidated group. The external audit by Audit New Zealand (Audit NZ) is currently underway and the results presented here are interim unaudited results.

3. The Annual Reports for the Council Controlled Organisations (CCOs) will be presented to the Finance and Performance Committee on 26 September 2019. The Annual Report for the parent entity and consolidated group is currently being prepared and will be presented to Council on 9 October 2019 for approval and adoption. Following this, Audit NZ will release their signed audit opinion.

Highlights and Achievements

4. There have been a wide range of highlights and achievements achieved in areas that are important to achieving our organisational objectives. A selection of the key highlights and achievements are summarised here:

a. Highlight Carnival of Lights event had over 135,000 attendees and was recognised as New Zealand’s best community event at the 2018 NZEA Event Awards.

b. Wainuiomata Shared Path opened and Eastern Bays shared path consent lodged.

c. Hutt Park in Seaview received international recognition with a Green Flag status for its outdoor spaces.

d. Innovative Young Minds programme expanded nationwide for female senior secondary school students.

e. New Events Centre and refurbished Town Hall opened July 2018 and has hosted 300 events and 37,000 guests in the first year. The building design was recognised at the Wellington Architecture Awards.

f. Rona Bay Wharf refurbishment completed and the Days Bay Wharf refurbishment commenced.

g. RICOH Sports Centre at Fraser Park opened and is the first “Sportsville” in Lower Hutt enabling shared facilities for sports groups.

h. Ongoing and effective outcomes being achieved through key council initiatives including Empowering Tamariki and Healthy Families.

i. Matt Reid, General Manager City and Community Services, won the Sport NZ CK Doig leadership award in June 2019.

j. ‘Core finance, rating and property IT systems successfully transitioned to the Cloud, enabling improved resiliency, business continuity and system stability.

k. Record number of building and resource consent applications processed during the year contributing to increased growth.

l. First Te Wā Heke Festival (previously STEMM) held in May 2019 with 4,000 visitors over two days.

m. TAKA Wifi project went live in August 2018 enabling tamariki in the north east suburbs to access their school’s secure network from home so learning can continue outside the classroom

n. First stage of Seaview Wastewater Plant seismic strengthening successfully completed.

o. Critical water supply pipelines seismic upgrade successfully completed. This work was to better protect the seven artesian wells that supply water from the Waiwhetu Aquifer.

p. The Council’s AA credit rating reconfirmed by Standard and Poor’s, reflecting our prudent and sustainable financial management.

Performance Measure Results

5. The year-end performance measure results are currently progressing through the audit review process and will be presented to the Finance and Performance Committee on 26 September 2019.

Financial Performance Results

6. This section provides an overview of the financial performance results for the year ended 30 June 2019.

7. The financial performance results provide an indication on how Council performed against the budget, and the associated financial risks. The year-end net operating financial results were $5.2M unfavourable compared to budget. This was largely due to expenditure of $4M incurred as operational expenditure which was budgeted as capital expenditure.

8. Table 1: Operating Results

$Millions	Actual	LTP Budget	Variance		Forecast
Operating revenue	53.0	51.3	1.7	3.3%	52.8
Operating expenditure	177.8	(170.7)	(7.2)	(4.2%)	(174.6)
Net operating deficit before rates income	(124.8)	(119.4)	(5.4)	(4.5%)	(121.8)
Rates income	105.3	105.1	0.2	0.2%	105.0
Net operating deficit	(19.5)	(14.3)	(5.2)	(36%)	(16.8)
Capital contributions	11.1	12.2	(1.1)		12.7
Net deficit before adjustments	(8.4)	(2.1)	(6.3)		(4.1)
Other non-operating adjustments	(8.3)	-	(8.3)		(5.1)
Net deficit	(16.7)	(2.1)	(14.6)		(9.2)

9. Year-end results: The overall result shows a deficit of $16.7M, which is $14.6M unfavourable compared to budget.

10. Operating revenue: The overall result is $1.7M favourable (3.3 per cent) to budget. This is largely due to higher landfill fees $2.2M, together with higher regulatory consents revenue $0.9M, which are offset by lower Reserve Contributions and Parking and Infringement revenue.

11. Operating expenditure: The year end result is $7.1M (4.2 per cent) higher than budgeted for the year. Increased costs were incurred across regulatory services $0.8M (due to increase in service demand and offset by higher revenue), landfill $1M (offset by higher revenue), bulk water levy costs $0.5M, insurance $0.5M and depreciation $0.9M. In addition costs of $4M were budgeted as capital expenditure and were transferred to operational expenditure (Development Incentives Package $1.5M, RiverLink project $1.1M, IT system upgrade $1M and facility maintenance $0.2M). These increased costs were partially offset by $1M of savings in borrowing costs.

12. Rates income: is slightly above budget for the year due to higher final growth numbers in 2017/18 than were estimated when setting the budget.

13. Net operating deficit: Overall deficit of $19.5M which is $5.2M unfavourable to budget. This is largely due to the $4M of costs budgeted as capital expenditure which were transferred to operational costs together with higher than budgeted costs for bulk water levy, insurance and depreciation.

14. Capital contributions are lower than budgeted by $1.1M largely due to delays in capital expenditure impacting NZTA funding.

15. Non-operating adjustments: Losses on the fair value of derivatives of $11.6M are included here – these are accounting (non-cash) adjustments related to fair value of the treasury derivatives portfolio. This loss is partially offset by a net gain recorded on the disposal of assets of $3.3M.

16. Asset sales proceeds totalled $6.1M for the year and included Mitchell Park, Avalon Park North and Durham Crescent. Other planned sales but now concluding in 2019/20 include Copeland Street Reserve.

17. Naenae pool and hall: With the closure of the Naenae pool and hall, an impairment assessment was undertaken which resulted in a write off in the asset values of $10.6M. Whilst this result does not show in the performance results published here, it will be evident in the audited financial statements where it will show as an adjustment “below the line” as part of “other comprehensive expenditure”.

18. Included in the operating result is $3M (against a budget of $4.4M), of grants paid to the Hutt City Community Facilities Trust (CFT) for capital projects. (Refer appendix 2 activity ‘Community Facilities Development’). In the group consolidated results, the net impact for the group of this expenditure is capital expenditure.

19. Table 2 that follows provides a revised view of the year end results after adjusting for the capital grants for CFT. Also adjusted below is the development stimulus package and accounting (non-cash) fair value movements in the treasury derivatives portfolio, which shows a year end operating surplus of $0.6M.

Table 2: Revised operating results after adjusting for CFT, development stimulus package and accounting (non-cash) treasury derivatives

$Millions	Actual	LTP Budget	Variance
Net deficit before adjustments	(16.7)	(2.1)	(14.6)
Less: Community Facilities Trust capital grants	3.0	4.4	1.4
Net surplus (deficit) excluding CFT capital grants	(13.7)	2.3	(16.0)
Less: Development stimulus package*	2.8	1.3	1.5
Less: Accounting(non-cash) adjustment for treasury derivatives portfolio	11.5	-	11.5
Net surplus	0.6	3.6	(3.0)

*The Development Stimulus Package (the Package) can be viewed as an investment in growing the city's rating base at a faster rate than it would otherwise have grown. It is impossible to know exactly how much additional growth in the rating base has been generated through the Package, however the rapid rise in the number of RMA and Building Act consents is evidence of a significant increase in the rate of growth of capital investment in the city. This supports the view that the Package is an investment which will generate an increase in the city's rating base and has therefore been adjusted out in order to give a clearer view of the underlying operational performance.

20. Table 3: Capital expenditure results

$Millions	Actual	LTP Budget	Variance		Forecast
Replacements	14.9	18.7	3.8	20%	16.6
Improvements	29.3	53.9	24.6	46%	37.4
Total	44.2	72.6	28.4	39%	54.0

21. Capital expenditure delivery performance is significantly underspent for 2018/19 largely due to delays in a large number of projects. Appendix 1 includes a list of projects and activities where there are significant underspends. This includes Cycleways/Shared Path projects $4.7M, Three Waters $3.5M, Strategic Property purchases $5.7M, together with the $4M of costs which were budgeted as capital but expensed as operating expenditure.

22. At the Community Plan Committee meeting in June, Council approved a list of budget carryovers that are now included in the 2019/20 Annual Plan. These carryovers were based on the year-end forecasts prepared in May 2019 for projects that were unlikely to be completed by 30 June 2019. Since preparing those carryovers the actual year end results for all projects are now known and this indicates that for some projects the carryovers need to be adjusted. This is the subject of a separate report to this Committee entitled “Budget Update 2019/20”.

23. Balance sheet performance: Property, plant and equipment has increased in line with capital investment and asset sales progressed. The results are also impacted by the unexpected asset impairment loss of $10.6M for the Naenae pool and Naenae hall.

Table 4: Balance sheet

$Millions	Actual as at June 2019	LTP Budget	Actual audited June 2018
Assets
Property, plant and equipment	1,471.2	1,472.5	1434.8
Other assets and investments	73.0	97.3	120.9
Less liabilities
Borrowings	204.0	208.0	192.0
Other liabilities	55.0	45.1	51.2
Net assets (ratepayers’ equity)	1,285.2	1,316.7	1312.5

24. Borrowings of $204M are gross borrowings. After adjusting for cash holdings and loans to CCOs, Council’s net debt position is $172M. This is in line with LTP 2018-2028 projections.

Treasury Compliance

25. Council has been fully compliant with Financial Strategy borrowing limits:

Measures	Policy	Actual 30 June 2019	Compliance
Net external debt/total revenue	Maximum 150%	103%	Yes
Net interest on external debt/total revenue	Maximum 10%	4%	Yes
Liquidity ratio	Minimum 110%	122%	Yes

26. The average cost of funds for the year was 3.8 per cent, which was 0.8 per cent below the budgeted level. Interest cost savings of $1M were achieved mainly due to this lower interest rate environment. In addition $0.4M of unbudgeted interest revenue was earned on cash holdings.

27. Further information available in the appendices to this report include:

Appendix 1 – Detailed financial information, including capital expenditure

Appendix 2 – Detailed financial activity statements and project lists

Appendix 3 – Treasury report for the year ended 30 June 2019.

Consultation

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

Legal Considerations

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

Financial Considerations

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

Appendices

No.	Title	Page
1 ⇩	Appendix 1 - Detailed Financial Information Including Capital Expenditure	87
2 ⇩	Appendix 2 - Detailed financial information by activity including projects	94
3 ⇩	Appendix 3 - Treasury report for the year ended 30 June 2019	138

Author: Philip Benseman

Budgeting and Reporting Manager

Author: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

Attachment 1

Appendix 1 - Detailed Financial Information Including Capital Expenditure

Appendix 1 – Detailed Financial Information Including Capital Expenditure

Operating Expenditure

The following is the Whole of Council Statement of Comprehensive Revenue & Expenses. It includes the full year actual, the full year budget, the variance, the forecast for 2018/19 that was included in the 2019/20 Annual Plan and the budgets carried over and included in the 2019/20 Annual Plan.

The following provides a brief description and the year-end variances explanations for each of the above categories.

Explanation of Key Variances

1. Rates

Brief Description	Rates include all rates earned by Council. Rates refunds, rates remissions and rates billed to Council owned properties are excluded.
Year End Variance:	$0.2M favourable to budget as actual growth in the rating database as at 30 June 2018 was higher than planned (1.04% vs. 1%).

2. 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 End Variance:

$1.3M favourable variance mainly due to expected additional Landfill revenue of $2.2M, consents revenue of $0.9M (of which $0.5M relates to the Development Stimulus Package and $0.4M from additional building consents). The overall favourable variance is reduced by unfavourable forecasts for the Fitness Suites of $0.4M and Learn to Swim of $0.1M, and $0.8M in Reserve Contributions, and $0.4M in Parking & Infringement Revenue.

3. Operating Subsidies (Including Upper Hutt City Council (UHCC)) and Grants

Brief Description	Includes mainly subsidies received from the New Zealand Transport Agency (NZTA) for its share of Council’s Roading operating maintenance costs and UHCC’s share of wastewater costs.
Year End Variance:	The year-end variance is close to budget. NZTA subsidies are over budget due to additional subsidised work being carried out while the UHCC subsidies are under budget due to delays in some of the subsidised Wastewater maintenance work.

4. Capital Subsidies

Brief Description

Includes subsidies received for capital works. The majority of subsidies are received from NZTA for their share of Council’s spend on Roading projects, plus the spend on the Cycleways/Shared Paths projects.

Full Year End Variance:

$2.7M under budget at year end mainly due to delays in the Eastern Bays Cycleway and other subsidised work that was not completed. This is timing related and there is a corresponding under spend in capital which has been carried over to next financial year. The difference between the actual and the forecast is less due to the delays in the forecast subsidised overspend on the Wainuiomata Hill Cycleway/Shared Path.

5. Development Contributions

Brief Description	Development Contribution fees go towards the capital costs of providing growth-related infrastructure such as Roading, Water Supply, Wastewater and Stormwater assets required to serve new developments.
Year End Variance:	$0.1M favourable variance due to more Development Contributions than budgeted as a result of developments arising from the incentives provided by Development Stimulus Package.

6. Interest Earned

Brief Description	This is revenue received from financial investments.
Year End Variance:	$0.3M slightly favourable to budget mainly due to more cash held on deposit especially in first half of year.

7. Vested Assets

Brief Description	This relates to assets created by external parties that are vested to Council. These are non-cash. Council has no control on the timing or value of assets vested to Council.
Year End Variance:	$1.5M favourable to budget mainly due to more developments than expected as a result of Developments Incentives. These assets are mainly in Roading and the Three Waters and include developments such as Leighton Avenue, Taita Drive (Avalon), Randwick Road and a number in Wainuiomata.

8. Other Revenue

Brief Description	This includes petrol tax, sale of goods, animal shelter fees and central government subsidies for Ministry of Health initiatives, Kiwi Sport and Waste Minimisation levies.
Year End Variance:	Close to budget.

9. Employee Costs

Brief Description	Includes total costs of salary and wages for all employees and fixed term contractors, including PAYE, Kiwi Saver contributions, annual leave entitlements, allowances, and staff training and development.
Year End Variance:	$0.5M favourable to budget mainly due to staff vacancies particularly in the Environmental Consents team and Integrated Community Services.

10. Operating Costs (Excl CFT & Dev Stimulus Package)

Brief Description

Includes direct operating costs, excluding internal rates, employee costs, grants paid to the CFT, development stimulus payments, finance charges, support costs and depreciation.

Year End Variance:

$5.8M unfavourable to budget mainly due to:

· $0.6M relates to operating costs associated with the Making Places (including RiverLink) project. This includes about $1.1M of costs that have been moved from Capital. In capital there is a $0.65M credit which relates to a prior period adjustment from last financial year with the transfer of capital costs that should have been treated as operating. In both operating and capital the total cost this year will be about $1.1M under budget for which there is a carryover;

· $0.2M of costs in Integrated Community Services and Parks budgeted as capital;

· $1M in higher landfill costs including $0.4M for purchases of Emission Trading Units which have recently significantly increased in price. This unfavourable variance is more than offset by higher user charges;

· $0.5M in additional Bulk Water Levy costs due to a higher percentage of usage compared to other local authorities across the region;

· $0.5M in increased insurance premiums;

· $0.5M related to Council run events including Highlight due to additional one-off setup costs related to the scale of the event; Adjustments have been made to other planned events to reduce the impact of the over spend;

· $0.8M related to increased specialist services costs to process resource consent applications due to vacant staff positions. This is offset by additional revenue;

· $2.1M of extra costs in City Leadership mainly due to about $1M of IT capital costs being transferred to operating, Other Specialist Services Costs being about $0.6M higher than budgeted, and other insurance costs being $0.2M above budget;

· $0.4M underspend in Roading operating costs due to delays in some maintenance work; and

· $0.6M other underspends including $0.2M for promotion and publicity mainly in City Environment & City Development, $0.14M for advertising, $0.25M Hutt Valley Tennis (Carried over to 2019/20).

11. 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 and at a Group level they are accounted for as capital investments.

Full Year End Variance:

The slight $0.01M favourable variance is due to the favourable variance and planned carryover of $2.5M for Wainuiomata Sportsville which offsets the additional funding of $0.75M for Fraser Park Sportsville and an operating grant payment of $1.5M to the CFT. (The $0.75M additional funding, agreed to by Council in February 2018, was originally incorrectly budgeted as a loan to CFT in the 2018/19 Long Term/Annual Plan to be repaid to Council over a 15 year period, in return for the transfer from CFT to Council of the building naming rights). $3M of grants were paid to fund capital projects (Fraser Park Sportsville) compared to the total capital budget of $4.4M (Fraser Park Sportsville $1.9M and Wainuiomata Sportsville $2.5M).

12. Development Stimulus Package

Brief Description	The Development Stimulus Package also referred to as the Development Charges and Rates Remissions Policy, was set up to encourage development in the city. This policy was suspended at 31 December 2018.
Year End Variance:	$1.5M unfavourable to budget due to the high volume of applications received at 31 December 2018. This expected spend is offset by a reduction of $2.9M in the Urban Growth Strategy capital budget (for growth infrastructure) and an increase in revenue for consents and development contributions.

13. Interest Expense

Brief Description	This is the interest cost for borrowing to fund Council’s capital projects not covered by depreciation and any operating deficits.
Year End Variance:	$1M favourable variance to budget mainly due to a lower weighted average cost of borrowing (interest rates) compared to budget but is partly offset by an unbudgeted cost of $0.3M for interest costs related to the Landfill aftercare provision.

14. Depreciation

Brief Description	Includes Depreciation for Councils Infrastructural and Operational assets.
Year End Variance:	$0.9M unfavourable to budget mainly due to higher than budgeted depreciation for Road and Footpath construction ($0.3M), Event Centre ($0.2M) and Reserves ($0.2M).

15. 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 dates and is treated either as an unrealised gain (fair value has decreased) or an unrealised loss (fair value has increased). This is an accounting(non-cash) adjustment.

Year End Variance:

$11.6M unfavourable to budget because fair value movement in mark to market value of interest rate swap portfolio lower when compared to 30 June 2018.

16. Gains/Losses on Revaluation of Assets

Brief Description	Council re-values 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/disposal of its assets.
Year End Variance:	$3.2M favourable due to realised gains made on recent asset sales/disposals that were expected to have settled in 2017/18 but were delayed into 2018/19.

Capital Expenditure

17. A summary of the 2018/19 capital works programme is shown below.

18. The actual capital expenditure for the year is $44.2M compared to the total budgeted capital expenditure for the year of $72.6M and compared to the forecast used in the Annual Plan of $53.9M.

19. The underspend in capital is due to a significant number of projects being delayed plus costs for some projects being transferred to operating expenditure. The main variances are itemised below.

The following are comments on the above forecast variances. The variances for a number of projects (as noted in brackets) are due to the timing of work between years rather than a variance in the project’s total costs compared to the total budgets.

· Cycleways /Shared Path Projects ($4.6M underspend) – mainly due to underspend on the Eastern Bays project ($3.5M) plus an underspend on the Beltway Project ($1.4M) which included a contribution ($1.0M) to the Petone/Ngauranga shared path project. These underspend have been carried over to 2019/20.

· Other Roading Projects ($2.5M underspend) mainly due to underspends on roading resurfacing work ($0.8M), Cross Valley Link ($0.9M), substandard roads ($0.6M).

· Three Waters ($3.5M underspend) mainly due to delays in a number of projects for which there are carryovers to completed this work in 2019/20.

· Pools, Halls, Libraries, Museums ($3.0M underspend) mainly due to delays in a number of projects for which budgets have been carried over plus some costs ($0.1M) been transferred to operating.

· Wharves Refurbishment ($0.3M overspend, timing related) – the Rona Bay wharf was completed ($0.1M) over budget and the Days Bay wharf refurbishment has been brought forward to this year with a corresponding underspend next year.

· Avalon Park Development ($0.7M overspend, timing related) – the over spend this year is offset by an under spend last year when some of the work on the project last year was not able to be completed.

· Other Parks Projects ($1.0M underspend mainly due to delays with a number of projects (Manor Park Cycleway $0.4M, Valley Floor Review $0.2M, Sportsground Drainage $0.2M) plus costs transferred to operating ($0.1M).

· Making Places Projects (Riverlink) – the budgeted capital component of this project will not be spent as costs at this stage are treated as operating. The operating component that relates to Riverlink is unfavourable by $1.0M mainly due to a $0.7M prior year adjustment due to a transfer of capital costs that should be treated as operating.

· Making Places Civic Event Centre Upgrade ($0.2M overspend) project delays last year (mainly suppliers and labour shortage) have resulted in pushing work on the project into 2018/19.

· Strategic Property Purchases ($5.7M underspend) mainly due to the timing of the purchase of these properties which are now expected to be completed in 2019/20.

· Urban Growth Strategy Improvements ($2.9M underspend) – this is to offset agreed additional operating costs with the Development Stimulus Package.

· System Upgrade & Other It Projects ($2.4M underspend) this includes the “Cloud” project. The variance is mainly due to about $1.0M of cost being moved to 2018/19 operating and a further $1.4M being treated as operating expenditure in future years due to the move to “software as a service”.

Asset Sales

20. The following table is a summary of the year end net asset sales position:

21. The favourable variance is due to a significant number of sales that were planned for the 2017/18 financial year but were not completed in that year but have now been completed in 2018/19. These include Mitchell Park, Avalon Park North, Durham Crescent. Other planned sales due to be completed in 2019/20 include Copeland Street and Strategic Properties.

Debt

22. The following table is a summary of the year end net debt position:

23. Net debt is slightly below budget mainly due to reduced capital spend offset by an unfavourable operating result and timing differences of cashflow projections.

Attachment 2

Appendix 2 - Detailed financial information by activity including projects

Appendix 2 – Detailed Financial Activity Statements and Project Lists

Attachment 3

Appendix 3 - Treasury report for the year ended 30 June 2019

Appendix 3 - Treasury Report for the year ended 30 June 2019

This treasury report provides a summary of how Hutt City Council is complying with Treasury Management Policy limits and the performance of treasury activities against plans.

The focus of treasury management activity has been on

- managing interest rate risk and minimising funding costs,

- monitoring cashflow and liquidity,

- managing debt requirements and the maturity profile.

Key highlights for the year include:

Ø Average cost of funds of 3.8% achieved, which was 0.8% lower than budgeted.

Ø Interest cost savings of $1M for the year mainly due to lower interest rate environment.

Ø Additional $0.4M of unbudgeted interest earned on cash holdings.

Debt portfolio performance

Debt increased during 2018/19 in line with Long Term Plan 2018-2028 projections. Net debt (excluding cash holdings and CCO investment) increased during the year from $154M to $172M, whilst gross debt increased by 6% from $192M to $204M. A revolving credit facility of $35M remained undrawn at year end.

	Actual	Budget	Variance
Average cost of funds	3.8%	4.6%	0.8%
Interest expense – borrowings	$7.8M	$8.8M	$1M
Interest earned	$0.6M	$0.2M	$0.4M
Fair value of derivatives loss	($11.6M)	-	($11.6M)

The Council has a range of interest rate swap agreements in place to manage interest rate risk and to provide some certainty of future interest costs. Due to fluctuations in the interest rate market the overall mark-to-mark value of these agreements is constantly changing. The fair value loss in the swap portfolio was $11.6M for the year ended 30 June 2019. This is an accounting adjustment required to be recorded and there is no cash flow implications.

Policy compliance

Measures	Policy	Actual 30 June 2019	Compliance
Net external debt/total revenue	Maximum 150%	103%	Yes
Net interest on external debt/total revenue	Maximum 10%	4%	Yes
Liquidity ratio	Minimum 110%	122%	Yes

Funding risk control limits

Period	Minimum %	Maximum %	Actual debt	Actual % 30 June 2019	Compliance
0 to 3 years	15%	60%	$98M	48%	Yes
3 to 5 years	15%	60%	$39M	19%	Yes
5 years plus	10%	60%	$67M	33%	Yes
		Total	$204M	100%

Debt maturity profile

Interest rate risk control limits

Interest rate risk is managed and mitigated through the risk control limits. The graph that follows shows the level of fixed rate cover in place is within the minimum and maximum limits of the treasury risk management policy.

After overlaying interest rate swaps, the split between fixed and floating debt is as follows:,

140 04 September 2019

Finance and Performance Committee

12 August 2019

File: (19/1057)

Report no: FPC2019/4/183

Audit New Zealand Interim Management Report for the Year ended 30 June 2019

Purpose of Report

1. To provide the Committee with Audit New Zealand’s Interim Management Report for the year ended 30 June 2019.

Recommendations

That the Committee notes Audit New Zealand’s interim management report for the year ended 30 June 2019, attached as Appendix 1 to the report.

Background

2. The primary purpose of the external audit is to complete checks that enable Audit New Zealand (Audit NZ) to issue an audit opinion on Council Groups’ performance results for the year end.

3. The Audit NZ management report for the year ended 30 June 2018 was presented to the Finance and Performance Committee on 28 November 2018.

4. Audit NZ has completed the interim audit for the year ended 30 June 2019 and issued an interim management report which is attached as Appendix 1. The primary purpose of the interim audit is to review the control environment and evaluate the key internal controls for financial and performance information.

5. The Group Annual Report is due to be approved and adopted by Council on 9 October 2019. Following this Audit NZ will issue their audit opinion. Audit NZ’s final management report will be available shortly thereafter and will be tabled for discussion with the relevant Council committee.

2018/19 Audit interim finding to-date

6. In the management report from 2017/18 there were 15 non-urgent improvement recommendations raised by Audit NZ. As part of the interim audit for 2018/19, Audit NZ noted updates on these recommendations:

- one implemented and closed;

- six in progress to be implemented/resolved; and

- eight where there has been limited progress in addressing.

7. Details of these, along with status updates are included in the Interim Management Report attached. There have been resourcing challenges during 2018/19 which have impacted and limited progress on a number of these Audit NZ recommendations. During 2019/20 these matters are being given a high priority and improved progress is planned in addressing these. Resourcing will be reprioritised in order to address these recommendations of Audit NZ.

8. Included on this Committee’s agenda is a paper proposing approval of a Financial Delegation Policy. This policy is a response to one of the Audit NZ recommendations which is recorded as having limited progress.

9. The interim audit for 2018/19 included a review of internal controls in key financial and non-financial information systems (eg, revenue, expenditure, payroll, service performance measurement). There is one new recommendation raised by Audit NZ in relation to creditor and payroll masterfile changes. As noted in the management response to this matter, actions are being taken to address this issue raised.

Legal Considerations

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

Financial Considerations

11. The financial considerations are detailed in this report in the relevant areas.

Appendices

No.	Title	Page
1 ⇩	Audit NZ interim management letter for the year ended 30 June 2019	142

Author: Jenny Livschitz

Chief Financial Officer

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

Approved By: Jo Miller

Chief Executive

Attachment 1

Finance and Performance Work Programme 2019

Finance & Performance Committee Work Programme

Cycle 4 4 September 2019	Officer	For Council
Final SOI for CFT	B Kibblewhite	·
Financial Delegation Policy	J Livschitz	·
Budget Update 2019/20	P Benseman/J Livschitz	·
LGFA AGM Related Nominations	J Livschitz	·
Treasury Management – Approval of Issue Security Stock	J Livschitz	·
2019 Standard and Poor’s Credit Rating	J Livschitz
Financial Performance for the Year Ended 30 June 2019	P Benseman/J Livschitz
Audit New Zealand Interim Report for the Year Ended 30 June 2019	D Newth/J Livschitz
Health & Safety Officer Six Monthly Report	A Kok
Finance & Performance Work Programme	Committee Advisor
26 September 2019	Officer	For Council
Draft Hutt City Council Annual Report	W Moore/J Livschitz	·
Annual Reports for CCOs – CFT, SML, UPL	B Kibblewhite
Annual Report for LGFA	J Livschitz
Annual Report for WWL	J Livschitz
Sale & Supply of Alcohol (Fees) Regulations 2013 – Regulation 19 (1) – Reporting by Territorial Authorities	D Bentley

2020

Meeting 1 2020	Officer	For Council
Draft SOIs for CCOs – CFT, SML, UPL	General Counsel/B Kibblewhite	·
Appointment of Board Members SML and UPL	General Counsel	·
Rating Sales Policy	J Livschitz	·
Treasury Risk Management Policy Review	J Livschitz	·
Draft SOI for LGFA	J Livschitz
Six Monthly Reports for CCOs – CFT, SML, UPL	J Livschitz
Financial Performance Report for the Period Ended 31 December 2019	J Livschitz
Audit NZ Final Management Report	J Livschitz
Risk and Assurance Update and Strategic Risk Register	E Davids
Health & Safety Update	A Kok
Finance & Performance Work Programme	Committee Advisor

Meeting 2 2020	Officer	For Council
Appointment of Trustees CFT	General Counsel	·
Procurement Policy Review	J Livschitz	·
Tax Risk Management Update	D Newth
Six Monthly Strategic Property Update	G Craig
Financial Performance Report for the Period Ended 31 March 2020	J Livschitz
Insurance Update	J Livschitz
Finance & Performance Work Programme	Committee Advisor

Meeting 3 2020	Officer	For Council
Final SOIs for CCOs – CFT, SML, UPL	B Kibblewhite	·
Revenue and Financing Policy Review	J Livschitz	·
Risk and Assurance Update and Operational Risk Register	E Davids
Internal Audit Plan	E Davids
End of Financial Year Report back on the Mayor’s Donations and Grants	K Crowley Nepia
Review of Agreement with GWRC to Collect Rates	J Livschitz
Finance & Performance Work Programme	Committee Advisor

Meeting 4 2020	Officer	For Council
Standard and Poor’s Credit Rating Review	J Livschitz
Interim Unaudited Group Financial Performance - Results	J Livschitz
Sale & Supply of Alcohol (Fees) Regulations 2013 – Regulation 19 (1) – Reporting by Territorial Authorities	D Bentley
Audit NZ Interim Management Report	D Newth
Property Revaluations	D Newth
Annual Reports for CCOs – CFT, SML, UPL	J Livschitz
Annual Report for LGFA	J Livschitz
Annual Report for WWL	J Livschitz
Health & Safety Update	A Kok
Finance & Performance Work Programme	Committee Advisor
Meeting 5 2020	Officer	For Council
Hutt City Council’s Annual Report	W Moore/J Livschitz	·

Meeting 6 2020	Officer	For Council
Following Years LTP High level Plan	W Moore/J Livschitz
Following Years LTP Financial Strategy and Considerations	J Livschitz
Risk and Assurance Update and Strategic Risk Register	E Davids
Six Monthly Strategic Property Update	G Craig
Financial Report for the Period Ended 30 September 2019	P Benseman/D Newth
Insurance Update	J Livschitz
Audit NZ Final Management Report	D Newth
General Manager’s Update	B Kibblewhite
Activity Report – Information Technology	L Allott
Finance & Performance Work Programme	Committee Advisor

Previous 2019 Meeting

Cycle 3 17 July 2019	Officer	For Council
Risk and Assurance Update and Operational Risk Register	E Davids
Internal Audit Plan 2019 - 2022	E Davids
Carbon Targets for CCOs	J Scherzer
Information on Options for Delivery of Council Housing	J Pritchard
Final SOIs for CCOs	B Kibblewhite	·
Technology One SaaS Project Update	R Newton
Finance & Performance Work Programme	Committee Advisor

Deputy Mayor D Bassett	Cr G Barratt
Cr C Barry	Cr J Briggs
Cr MJ Cousins	Cr S Edwards
Cr M Lulich
Mayor WR Wallace (ex-officio)

Determine and monitor:

Consider and make recommendations to Council:

General: