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

Thursday 26 September 2019 commencing at 5.30pm

ORDER PAPER

Public Business

1. APOLOGIES

Cr Milne.

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 – 9 October 2019

i) Hutt City Council Annual Report to June 2019 (19/1107)

Report No. FPC2019/4/198 by the Divisional Manager, Strategy and Planning 8

Chair’s Recommendation:

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

ii) Motor Vehicle Fleet and Budget Changes (19/1212)

Report No. FPC2019/4/211 by the General Manager Corporate Services 233

5. Sale and Supply of Alcohol (Fees) Regulations 2013 - Regulation 19(1) - Reporting by Territorial Authorities (19/999)

Memorandum dated 1 August 2019 by the Team Leader Environmental Health 243

Chair’s Recommendation:

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

6. Hutt City Community Facilities Trust - Annual Report for the Year ended 30 June 2019 (19/1022)

Report No. FPC2019/4/199 by the Senior Management Accountant 247

Chair’s Recommendation:

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

7. Seaview Marina Limited - Annual Report for the year ended 30 June 2019 (19/1023)

Report No. FPC2019/4/200 by the Senior Management Accountant 275

Chair’s Recommendation:

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

8. Urban Plus Group - Annual Report for the Year ended 30 June 2019 (19/1024)

Report No. FPC2019/4/202 by the Senior Accountant 308

Chair’s Recommendation:

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

9. Wellington Water Limited Annual Report for the Year ended 30 June 2019 (19/1174)

Report No. FPC2019/4/203 by the Strategic Advisor, City and Community Services 343

Chair’s Recommendation:

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

10. New Zealand Local Government Funding Agency 2019 Annual Report (19/1155)

Report No. FPC2019/4/204 by the Chief Financial Officer 405

Chair’s Recommendation:

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

11. 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.

Kathryn Stannard

DIVISIONAL MANAGER DEMOCRATIC SERVICES

8 26 September 2019

Finance and Performance Committee

21 August 2019

File: (19/1107)

Report no: FPC2019/4/198

Hutt City Council Annual Report to June 2019

Purpose of Report

1. The purpose of this report is for the Committee to consider Council’s Annual Report and Annual Report Summary for the year ended 30 June 2019 and recommend the documents be adopted by Council.

Recommendations

That the Committee recommends that Council:

(i) notes that a public notice will be published in the Hutt News, as well as on Council’s website and Facebook page advising of the availability of the Annual Report and Annual Report Summary attached as Appendix 1 and 2 to the report;

(ii) notes the Annual Report and Annual Report Summary will be available on Council’s website within one month of adopting the Annual Report;

(iii) agrees hard copies of the Annual Report Summary will be made available by request and in the City’s libraries, Community Hubs and at the main administration building;

(iv) notes that a subcommittee comprising of Mayor Wallace and the Council Committee Chairs namely Deputy Mayor Bassett, Cr Barratt, Cr Cousins and Cr Milne will sign off the final documents;

(v) approves the draft Annual Report and Annual Report Summary for the year ended 30 June 2019 attached as Appendix 1 and 2 to the report, both subject to satisfactory resolution of the following outstanding items:

(a) completion of final edit checking;

(b) completion of any final audit adjustments; and

(vi) receives Audit New Zealand’s opinion on the 2018-19 Annual Report; and

(vii) adopts the 2018-19 Annual Report.

For the reasons outlined in the report.

Background

2. Under Section 98 of the Local Government Act 2002 (LGA) Council must complete and adopt an Annual Report within four months after the end of the financial year to which it relates (by 30 October 2019).

3. The purpose of an Annual Report is:

a. to compare the actual activities and the actual performance of the local authority in the year with the intended activities and the intended level of performance as set out in the Long Term Plan and the Annual Plan; and

b. to promote the local authority’s accountability to the community for the decisions made throughout the year by the local authority.

4. Within one month of adopting the Annual Report (by 9 November 2019), Council must make the Annual Report and a summary of the information (Annual Report Summary) publicly available.

5. For 2019, officers intend making the Summary Annual Report available on the Council’s website as soon as possible after adoption.

Discussion

2018-19 Annual Report

6. The draft 2018-19 Annual Report is attached as Appendix 1. Any significant amendments requested by auditors following publication of the order paper will be highlighted at the meeting.

7. Consistent with previous years the document has been structured around the rejuvenation of Lower Hutt in line with our four key strategies and community outcomes.

8. There is greater use of infographics, photography and case studies this year to make the document more accessible and attractive for the community to read. This is consistent with the approach used in the 2018-2028 Long Term Plan and Consultation Document.

9. The Annual Report is complete, subject to final review following any changes requested by Council and any final audit adjustments.

10. Officers from Audit New Zealand will be present at the Finance and Performance Committee meeting to provide an update on the status of the audit. Audit New Zealand will issue their opinion on the Annual Report once the Report is approved by Council prior to adoption.

2018-19 Summary Annual Report

11. The Annual Report Summary is attached as Appendix 2. If any significant amendments are requested by the auditors following publication of the order paper, updated copies will be tabled at the meeting.

Customer research

12. Providing the best local government services is a priority for Council. To achieve this we need to know how satisfied our customers are, how we can do better and what is most important to our customers so we can prioritise and deliver better value for the community. To answer these questions we changed our research approach and provider in 2016-17.

13. While the change in research approach has delivered the information we need to build on the service Council already offers, it has meant some of the 2017-18 and 2018-19 results in this Annual Report while comparable to each other, are not directly comparable to previous years or the targets. This has resulted in us not achieving some of the targets sourced from customer research. This has been referenced throughout the document and is consistent with the approach taken to last year’s Annual Report.

14. Performance measures and targets were reviewed as part of the 2018-2028 Long Term Plan process to ensure future survey results are comparable to previous years and targets. We now have a strong research base for future years that will enable us to build consistent tracking data.

Publicity Considerations

15. A public notice advising the availability of the Annual Report and Annual Report Summary will be published in the Hutt News, on Council’s website and Facebook page.

16. As in previous years, the Annual Report and Annual Report Summary will be published on Council’s website. Hard copies of the Annual Report Summary will be available from all Council libraries, community hubs and the main administration building.

17. Council is committed to environmental stewardship and sustainability, using technology to make it easier for our customers to do business with us and greater use of online engagement consistent with our marketing and communication approach.

18. In the past hard copies of the Annual Report Summary were posted to approximately 500 rural households who do not receive the Hutt News. To reduce waste we propose making hard copies of the Annual Report Summary available by request through calling the contact centre, from any Council library, community hub and the main administration building.

19. The Local Government Act 2002 requires copies of both documents to be provided to the Secretary, the Auditor General and the Parliamentary Library within one month of adopting the Annual Report. Their preference is to receive copies electronically.

20. The cost of producing, printing and distributing the Annual Report and Annual Report summary is provided for within current budgets.

Legal Considerations

21. The Annual Report and Annual Report Summary have been prepared to meet the requirements of the Local Government Act 2002.

22. The Annual Report Summary must represent, fairly and consistently, the information regarding the major matters dealt with in the Annual Report.

23. The Local Government Act 2002 requires each Annual Report to be completed and adopted by resolution within four months after the end of the financial year to which it relates i.e. by the end of October.

24. The Local Government Act 2002 further requires that the Annual Report and Annual Report Summary be made publicly available within one month of adoption.

Financial Considerations

25. The Finance and Performance Governance Committee meeting 4 September 2019 included report FPC2019/4/181 “Financial performance for the year ended 30 June 2019”. This report included the interim unaudited financial results for the parent entity together with commentary and analysis. The financial content of the draft Annual Report included here in Appendix 1 and 2 aligns with the results previously reported to the Committee.

26. The individual CCO Annual Report results are included in this agenda, and include commentary about the performance of these entities.

27. The draft Annual Report includes interim unaudited consolidated Group financial results. Due to timing constraints with early agenda cut-offs, there may be further minor amendments to the results. A verbal update will be provided at the meeting on any changes identified. The final audited group results will be presented to the Council meeting on 9 October 2019, together with commentary about any changes that have been made.

Appendices

No.	Title	Page
1 ⇩	Draft Summary Annual Report v2.pdf	12
2 ⇩	FULL DRAFT OF ANNUAL REPORT 2018-19 V.1	44

Author: Wendy Moore

Divisional Manager, Strategy and Planning

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Helen Oram

Acting General Manager, City Transformation

Reviewed By: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

Attachment 2

FULL DRAFT OF ANNUAL REPORT 2018-19 V.1

241 26 September 2019

Finance and Performance Committee

16 September 2019

File: (19/1212)

Report no: FPC2019/4/211

Motor Vehicle Fleet and Budget Changes

Purpose of Report

1. To seek approval to a change in policy to move from leasing motor vehicles to owning them, plus approval of associated budget changes.

Recommendations

That the Committee recommends that Council:

(i) receives and notes the report;

(ii) approves a policy change to move to a full ownership model for Council’s vehicle fleet and that Electric Vehicles be the default option when vehicles are replaced;

(iii) notes an expected reduction of five vehicles in the motor vehicle fleet;

(iv) approves additional budget of $946k over the next 20 years with $776k of this in 2019/20; and

(v) agrees to amend operating and capital budgets as detailed in the report.

For the reasons fleet ownership as opposed to leasing is financially advantageous for Council and replacing wherever possible combustion vehicles with electric vehicles aligns with Councils environmental objectives and commitments.

Background

2. In early 2019 Officers engaged fleet lifecycle specialist, Optimal Fleet Solutions (“Optifleet”), to audit the vehicle register, develop a vehicle replacement plan and review fleet utilisation and management practices. Initially the review was in response to the need to identify recurring cost savings but the scope was subsequently extended to incorporate Councils environmental objectives following the Zero Carbon by 2050 commitment made by Council in December 2018.

3. Optifleet’s report contained 34 recommendations with the significant ones being;

i. Own all vehicles and apply a consistent replacement policy;

ii. Reduce the number of vehicles in the fleet through better sharing of vehicles between departments (i.e., department vehicles becoming pool vehicles where practical);

iii. Review greater use of scooters and bikes for short trips, and the use of alternative transport modes (taxi’s, ridesharing, public transport);

iv. Replace as much of the fleet with Electric Vehicles (EVs) to align with Councils Zero Carbon by 2050 and Climate Change Emergency declarations;

v. Review the current policy of all vehicles being taken home overnight (in the main for storage/security reasons); and

vi. Strengthen Councils fleet management practices and policies.

4. The Corporate Leadership Team (CLT) has endorsed the above recommendations. The remaining 28 minor recommendations are or have already been implemented and will be embedded into Councils fleet management policies, processes and procedures.

Discussion

Current Fleet

5. Some characteristics of the fleet identified during the review include;

· 84 vehicles – 61 leased, 23 owned.

· 9 different makes and models – a mixture of petrol (34), diesel (36), hybrid (12), and fully electric (2).

· 5 lease/finance companies.

· Vehicles selected on a case-by-case basis, with no standard specifications.

· Average safety rating of 4.6 (stars). 9 vehicles are rated 3 stars or less.

· Adhoc replacement policy for owned vehicles.

6. A number of existing leases have expired and are being rolled over on a month by month basis pending approval of budget changes requested in this report to move to a full ownership model.

Fleet Funding Model

7. The current policy is to lease vehicles, however funding of the current fleet has been mixed with some vehicles owned and the majority leased.

8. Analysis by Optifleet of the total cost of ownership versus the total cost of lease shows Council would be financially better off owning its vehicles. Over 20 years, the estimated net cash cost (after disposals) to purchase and periodically replace 84 vehicles per Optifleets recommended fleet mix is $7.3M. The estimated cash cost to lease the same vehicles over 20 years is circa $10.3M, i.e., a difference of $3M ($150k per annum). These costs are the net purchase or lease costs only and do not include vehicle running or other costs which would be the same for both funding options.

9. The following simple net present value analysis using a discount rate of 2% supports the case for ownership;

10. The main contributing factor to Council in favour of ownership is access to All of Government (AoG) vehicle purchasing contracts. While AoG prices are available to Council for both purchased and leased vehicles, the benefits of ownership are;

(a) Council’s lower cost of borrowing versus the interest rates leasing companies charge, plus

(b) The smaller loss in market value available to Council on disposal compared to the majority of vehicles which are purchased privately. This is dependent on vehicle retention duration and disposal frequency.

11. The following diagram illustrates how vehicles depreciate over time and the best time to sell.

Retail pricing (A) is reserved for the public sourcing via dealerships, but Council can beat the depreciation curve through AoG pricing (B) and sell before the vehicle loses more than 50% of its retail value (C). The result is a smaller difference between the buying and selling prices (E). In this scenario the best time to sell is 3 years (D). This ownership period also has the lowest compliance cost as the initial warrant of fitness lasts for 3 years, and all New Zealand new vehicles come with a minimum 3 year, 100,000km mechanical warranty and can include service contracts.

12. Officers recommend a change to how the fleet is funded by progressively moving to a fully owned fleet upon expiry of existing vehicle leases, and to implement a fleet retention and disposal policy such that vehicles are replaced at the end of the manufacturers new vehicle warranty and service period which depending on the type of vehicle is typically 3 or 4 years.

Reduce Fleet Numbers

13. Optifleet and Officers reviewed the utilisation of individual vehicles, fleets at each Council site, and the overall fleet using 6 months of data gathered from in-vehicle GPS units.

14. The data indicates that many of Council’s vehicles are underutilised and fleet numbers could be reduced by at least 5 vehicles with minimal (up to 5%) loss of availability, if there was better sharing of vehicles between departments, plus greater use of scooters and bikes for short trips. A more responsive pool vehicle booking system with upgraded in-vehicle GPS units (both leased), is required to deliver the reduction in fleet size.

15. The estimated average net cash cost to purchase and periodically replace a vehicle over 20 years is $87,000. A reduction in the fleet of 5 vehicles will realise cash savings of $435,000 (over 20 years).

16. The upgraded GPS units have been installed across the fleet and the new pool vehicle booking system has been implemented and will very soon be ‘live’ for the expanded vehicle pool at the Laings Road site. Council’s vehicle fleets at Sports House and some of the departments at Market Grove will be the next sites to migrate to the new vehicle booking system with separate vehicle pools being created for each site.

17. Officers believe further reductions in fleet numbers are possible but further analysis and consultation with specific departments is required to confirm this. Data from the new pool vehicle booking system over the next 6 months will inform this further analysis.

Alternative Transport Modes

18. The utilisation study identified a significant number of small distance vehicle journeys. There will be many reasons why some of the short trips had to be by car, e.g., the need to carry passengers and/or equipment, bad weather, trip was part of a longer journey, however Officers believe there is huge scope for staff to opt for a bike or scooter instead of a car on many occasions.

19. Council already has some bicycles that it maintains and encourages staff to use instead of vehicles for short trips. These will now be managed by the Fleet Manager and will be included in the pool vehicle booking system and will prompt staff to consider a bicycle for short trips.

20. Rideshare companies where you book vehicles for specific trips, very much like a traditional taxi, are now available in Lower Hutt. Council has been part of a pilot with Zero Carbon Cabs who run a fleet of EVs whose drivers are paid (at least) the living wage. Officers will continue to promote this option, along with the use of taxis, should a pool vehicle not be available at the required time.

Increasing the number of Electric Vehicles (EVs)

21. Optifleet’s analysis indicates the following benefits from EVs:

· Working towards HCC’s goal of 50% of the fleet being fully electric.

· Increase sustainability by using NZ’s 80% renewable electricity.

· Reduce service costs of fully electric vehicles.

· Reduce fuel costs.

· Pollution-free driving - support CO2 reduction targets.

22. Taking into account the significant savings as a result of implementing the fleet review recommendations noted in paragraph 3, Optifleet’s analysis shows that a number of vehicles could be replaced with EVs while retaining overall fleet savings.

23. GPS data from the utilisation study was analysed to identify candidate vehicles that could be replaced with an EV. A vehicle is considered a candidate for EV where;

a. if a passenger vehicle (i.e. hatch, sedan, wagon, SUV);

· travels less than 200km per day at least 95% of the days it’s in use; and

· travels over 250km per day on 2% or fewer of the days it’s in use.

b. if a van;

· travels less than 120km per day on at least 95% of the days it’s in use; and

· travels over 150km per day on 2% or fewer of the days it’s in use.

Based on the analysis, 36 vehicles in the Council fleet could be electric. Two of these are already EVs.

24. It will not be feasible to immediately replace all candidate EVs as a large number are currently leased on fixed terms. This means that it will take three years to move to a fully owned fleet. This also implies that the decision of whether to opt for an EV will have to be aligned with when current vehicles come off lease.

25. There are some vehicles that do not yet have EV models available, specifically 4WD utility vehicles required for particular Council activities and emergency management response purposes. Until EV options become available, those vehicles will need to remain fossil fuel powered. Fit for purpose electric utility vehicles are expected to become available in the next 2-3 years.

26. In order to enable the wider roll-out of EVs, charging infrastructure will be required for those vehicles at key Council sites. While the costs of charging equipment is well understood, overall upfront costs will depend on the availability of electrical infrastructure at any given Council site and the complexity of the installation works. In order to minimise upfront costs, the initial roll out of EVs will be focused on the key Laings Road site. The feasibility of adding EV charging at other Council sites is still being investigated.

27. The upfront costs for EV charging equipment will over time be funded through a reduction in annual fuel (petrol and diesel) costs. Council expenditure on vehicle fuel in the last financial year was $142,000.

28. When it comes to the decision of combustion or EV, Officers recommend Councils default position should be EV, unless;

a. An EV vehicle will not be fit for purpose, or

b. Total cost of ownership is significantly higher, or

c. Charging of EVs is not practically feasible.

Review Overnight Storage Policy

29. Council’s current fleet policy provides for drivers to take vehicles home overnight because of a lack of secure overnight parking at Council sites. This provision was first included in the policy when there was a perception that the civic precinct was not safe. [There are strict rules around vehicles being taken home at night not being used for personal use.]

30. Because vehicles are for business use only, Fringe Benefit Tax (FBT) is payable on all vehicles other than utility vehicles when taken home at night as Inland Revenue perceive a benefit arises for staff through the provision of transport to get to and from their place of work. Council’s current FBT liability is $120,000 per annum and this will increase if utility vehicles are replaced with EV passenger vehicles and these continue to be taken home at night. EVs are also disadvantaged from an FBT perspective as while their operating costs are lower, their upfront purchase costs tend to be higher than combustion vehicles. However, over time this disadvantage will diminish as the capital cost of EVs reduces when EV production reaches critical mass.

31. With the recent rejuvenation of the civic precinct and the increased capability of Councils CCTV network, it is timely to examine if the lack of secure storage assumption is still valid. Anecdotal evidence from our Safe City Ambassadors suggests this assumption may no longer be valid.

32. Onsite overnight parking for all vehicles would provide other benefits, including;

· Ease of charging EVs.

· Greater availability of vehicles since they won’t be left at private homes when drivers are sick.

· Possible reduction in reputational risk from public perception that Council staff are receiving benefits at the expense of ratepayers.

· Reduced running costs from a reduction in km’s travelled.

33. There are advantages however from vehicles being taken home by staff at night, including;

· Council carparks in the civic precinct being available overnight and during weekends.

· Staff who have agreed to take vehicles home are required to maintain the cleanliness of their allocated vehicle, put fuel into the vehicle when required, and monitor warrant of fitness compliance.

34. Officers will review the current policy of all vehicles being taken home at night and limiting this practice to roles that have a genuine requirement such as being on call for service call outs or emergency management response.

35. A change in this policy area will also need to consider any HR contractual obligations, both expressed and implied. Advice will be sought on this specific aspect.

Fleet Management and Policies

36. Council’s fleet management practices can be improved and its fleet related policies need to be updated.

37. Standard vehicle specifications will be developed that ensure fit for purpose vehicles including 5 star safety ratings are purchased for the fleet. The specifications will remove any driver preferences that can creep into purchase decisions and will also reduce the number of different makes and models in the fleet. A reduced range of vehicle types will improve vehicle familiarity for drivers.

38. A fleet retention and disposal policy will be developed to ensure vehicles have valid manufacturer warranties and service contracts for appropriate vehicle types and that vehicles are programmed to be replaced upon expiry of these contracts. This will ensure a resale price is received that minimises the loss in value from purchase and lowers Councils total cost of ownership.

39. The upgraded GPS units and reporting tool will allow for a greater range of reports and alerts to monitor the performance and compliance of the fleet and drivers.

Budget Changes

40. Changes to the 2019/20 budgets are requested to commence the implementation now of the fleet review recommendations as a number of existing vehicle leases have expired and some already owned vehicles are overdue for replacement.

41. To implement the fleet mix recommended by Optifleet under a fleet ownership model, additional budget investment of $946,000 is required over the next 20 years with $776k of this required in 2019/20.

Table 1: Budget Changes Summary

[Appendix 1 provides the year by year budget changes for the next 20 years that Officers will need to make in the 2020/21 Annual Plan.]

42. While ownership of vehicles is financially advantageous over continued leasing, the additional budget is required as the current budgets in Councils Annual Plan to replace the 23 existing vehicles it currently owns, are grossly understated. Should Council continue with the status quo of leasing vehicles, the current vehicle lease budget will need to be increased by approximately $0.2M per annum for the next 19 years to lease another 23 vehicles when the vehicles currently owned by Council need to be replaced.

43. The additional budget in 2019/20 will be used to purchase 21 vehicles, 14 of which will be EVs. The 2019/20 budget also includes a $60,000 provision for one-off costs for rolling out charging infrastructure. The 2019/20 vehicle purchase recommendations have been endorsed by Councils Sustainability and Resilience Manager.

Summary Financial Overview of Proposed Budget Changes for 2019/20

44. At the Finance and Performance Committee 4 September 2019, revised budget changes were approved for 2019/20 which included changes to reflect carry forward of budgets due to timing changes, the transfer of budgets between opex and capex, together with some other minor budget changes. The table that follows provides an updated view of these, together with the proposed changes to the vehicle fleet budgets. In summary these changes for 2019/20 are not material with a reduction in the deficit for 2019/20 by $0.06M, an increase in capital investment from $65.4M to $66.3M and an increase in debt to $188.09M (below Annual Plan projection of $194.5M).

Table 2: 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 approved 4 September	8.53 Deficit	65.44	187.27
Proposed vehicle fleet changes	0.06	0.88	0.82
Revised Budget 2019/20 after vehicle fleet changes	8.47 Deficit	66.32	188.09

Options

45. Council could continue with the status quo of leasing vehicles however this will require budget changes via the next Annual Plan to increase the current vehicle lease budget by approximately $0.2M per annum for the next 19 years to lease another 23 vehicles when the vehicles currently owned by Council need to be replaced.

Consultation

46. There is no need for external consultation. Internal consultation is required in developing the standard vehicle specifications, when considering further reductions in the size of the fleet, and when reviewing the current policy of all vehicles being taken home overnight.

Financial Considerations

47. The financial considerations (budget changes) are included within this report.

Appendices

No.	Title	Page
1 ⇩	Motor Vehicle Fleet - 20 Year Budget Changes	242

Author: Brent Kibblewhite General Manager Corporate Services

Author: Jörn Scherzer Manager, Sustainability and Resilience

Author: Allen Yip Strategic Projects Manager

Approved By: Jenny Livschitz Chief Financial Officer

MEMORANDUM 246 26 September 2019

Our Reference 19/999

TO: Chair and Members

Finance and Performance Committee

FROM: Dean Bentley

DATE: 01 August 2019

SUBJECT: Sale and Supply of Alcohol (Fees) Regulations 2013 - Regulation 19(1) - Reporting by Territorial Authorities

Recommendation

That the Committee approves the publication of a ‘table of income versus expenditure’ on Council’s website showing the alcohol licensing income received from fees payable in relation to, and costs incurred in:

(a) the performance of the functions of Council’s District Licensing Committee under the Sale and Supply of Alcohol Act 2012 (the Act);

(b) the performance of the functions of Council’s Inspectors under the Act; and

Purpose of Memorandum

1. To advise the Committee on Council’s responsibilities to annually prepare and make publicly available, a report showing all income from fees payable in relation to, and costs incurred for all activities related to alcohol licensing and enforcement under the Sale and Supply of Alcohol Act 2012.

Background

2. The Sale and Supply of Alcohol Act 2012 (the ‘Act’) came into force on 18 December 2012 and became effective in December 2013.

3. The Act’s focus is on alcohol harm reduction. It has resulted in Licensing Inspectors having to spend a considerable amount of their time on greater monitoring and alcohol harm reduction initiatives. The team works in collaboration with the New Zealand Police and the Medical Officer of Health.

4. The Act requires Territorial Authorities to report annually as follows:

Regulation 19(1) Reporting by territorial authorities

· (1) Every territorial authority must, each year, prepare and make publicly available a report showing its income from fees payable in relation to, and its costs incurred in,—

· (a) the performance of the functions of its licensing committee under the Act; and

· (b) the performance of the functions of its inspectors under the Act; and

· (c) undertaking enforcement activities under the Act.

· (2) The first report required by this regulation must relate to the year commencing 1 July 2014.

5. In October 2018, the Ministry of Justice released a guidance document to assist local authorities with calculating revenue and expenses for these reports. Therefore, this guidance document has been used to calculate revenue and expenses for this year’s report, and also to revise the 2017/2018 report, as tabled below. This revision also factors in overhead costs, as per the guidance document.

6. The amounts received through application and annual fees are detailed in the table below. Total revenue has decreased from last year by $15,545 (6%).

7. The reasons for Council running a loss of $460,198 for the period of 1 July 2018 to 30 June 2019 are as follows:

a. a small decrease in overall revenue, and

b. the actual cost to inspectors and the District Licensing Committee to process, report and determine applications is not reflective of the fees received, and

c. an increase in the number of licensing inspectors reporting on applications from the previous year, when the team was under-resourced, and

d. an increase in the number of licensing inspectors over and above the ‘typical’ number required, in order to clear a backlog of applications from the previous year.

8. The percentage of cost Council recovered from fees for carrying out its functions under the Sale and Supply of Alcohol Act 2012 for the 2018/19 financial period is 35%.

9. Council approved a proposed alcohol fees bylaw on 17th September 2019. Fees are to be increased over three years in order to recover 90% of the costs of alcohol related work. While 10% of costs will still be subsidised by rates, it is acknowledged that there is a public good component in the licensing, monitoring activities and enforcement of the Act.

TABLE OF INCOME VS EXPENDITURE (GST EXCLUSIVE)

Required under Regulation 19 (1) of the Sale and Supply of Alcohol (Fees) Regulations 2013

Revenue	2018/2019	2017/2018 (Revised)	2017/2018
- Fees	$242,501	$258,046	$183,377

Expenses
- Alcohol Regulatory Licensing Authority (ARLA) Fees	$16,465	$18,188	$18,188
- District Licensing Committee Functions	$30,736	$34,762	$34,762
- Licensing Inspectors Functions	$351,791	$161,006	$121,502
- Licensing Inspectors Operating & Support Costs	$252,703	$107,522
- Administration and Sundry	$51,005	$48,960	$48,960
Total Expenses	$702,700	$370,438	$225,342
Surplus/Deficit	-$460,198	-$112,393	-$41,965
Cost Recovery Rate	35%	70%	81%

10. For the Committee’s information, a table of predicted income versus expenditure for 2019/2020.

Revenue	2019/2020	2018/2019
- Fees	$276,542	$242,501

Expenses
- Alcohol Regulatory Licensing Authority (ARLA) Fees	$18,935	$16,465
- District Licensing Committee Functions	$30,736	$30,736
- Licensing Inspectors Functions	$281,605	$351,791
- Licensing Inspectors Operating & Support Costs	$165,193	$252,703
- Administration and Sundry	$51,005	$51,005
Total Expenses	$547,474	$702,700
Surplus/Deficit	-$270,932	-$460,198
Cost Recovery Rate	%51	35%

Appendices

There are no appendices for this Memorandum.

Author: Dean Bentley

Team Leader Environmental Health

Reviewed By: Derek Kerite

Acting Divisional Manager, Environmental Consents

Approved By: Helen Oram

Acting General Manager, City Transformation

249 26 September 2019

Finance and Performance Committee

06 August 2019

File: (19/1022)

Report no: FPC2019/4/199

Hutt City Community Facilities Trust - Annual Report for the Year ended 30 June 2019

Purpose of Report

1. To provide the Committee with the Annual Report for the Hutt City Community Facilities Trust (CFT) for the year ended 30 June 2019.

Recommendation

That the Committee receives and notes the Annual Report for the Hutt City Community Facilities Trust for the year ended 30 June 2019, attached as Appendix 1 to the report.

Background

2. It is a requirement of the Local Government Act 2002 that Council Controlled Organisations deliver to the shareholders an annual report on the organisation’s operations. This report is presented to this Committee for information.

3. Mr John Strahl (Chairperson) will be at the meeting to present the Annual Report and answer any questions.

Discussion

4. The audited Annual Report is attached as Appendix 1 to the report. The Annual Report received an unmodified opinion from Audit New Zealand.

5. CFT achieved a surplus of $4.008M for the year ending 30 June 2019, $1.724M below budget, with revenue being $1.188M below budget, and expenses being above budget by $536k.

6. The shortfall in Grants revenue of $1.037M was due to total capital funding from the Council being $1.027M above budget and funding from external sources being $2.064M below budget:

· $2.763M of additional funding was received from Council for the completion of the RICOH Sports Centre. However, this was offset by a shortfall against budget of $1.736M relating to the Naenae Community Hub development, which was placed on hold pending a final decision on the Naenae Pool re-strengthening work; and,

· Fund-raising from external sources, resulted in a $2.064M shortfall against budget. While the Trust has been successful in raising large annual grants for other developments, the grants raised for RICOH Sports Centre have mainly been multi-year sponsorships, which precluded recognition of revenue in the current year as budgeted. $375k in multi-year sponsorships have been pledged and will be recognised as revenue in future reporting periods.

7. Expenses were above budget by $536k due to a $516k grant payment to Fraser Park Sportsville for fit-out of the RICOH Sports Centre. This amount had been budgeted as part of the total project capital budget, however it was agreed with the tenant that ownership of the fit-out should reside with them.

8. Further detail is contained in the Annual Report attached as Appendix 1 to the report.

Consultation

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

Legal Considerations

10. The board of Trustees must deliver to the Council (shareholder), and make available to the public, its 2018/19 Annual Report by no later than 30 September 2019.

11. The final Annual Report was provided to Council officers on 10 September 2019 and was made publicly available via the CFT’s website within the statutory deadline.

Financial Considerations

12. The audit has concluded and Audit New Zealand issued an unmodified audit opinion. At the time of writing this report, the final management letter had not been received from Audit New Zealand.

13. The Trustees of CFT approved the Annual Report on 9 September 2019 and the audit opinion was issued on the same date.

Appendices

No.	Title	Page
1 ⇩	CFT Annual Report 30 June 2019	250

Author: Sharon Page

Senior Management Accountant

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

277 26 September 2019

Finance and Performance Committee

06 August 2019

File: (19/1023)

Report no: FPC2019/4/200

Seaview Marina Limited - Annual Report for the year ended 30 June 2019

Purpose of Report

1. To provide the Committee with the Annual Report for Seaview Marina Limited (SML) for the year ended 30 June 2019.

Recommendation

That the Committee receives and notes the Annual Report for Seaview Marina Limited for the year ended 30 June 2019, attached as Appendix 1 to the report.

Background

2. It is a requirement of the Local Government Act 2002 that a Council Controlled Organisation (CCO) deliver to its shareholders an annual report on the organisation’s operations. This report is presented to this Committee for information.

3. Mr Alan McLellan (Chief Executive) will be at the meeting to present the Annual Report and answer any questions.

Discussion

4. The audited Annual Report is attached as Appendix 1 to the report. The Annual Report received an unmodified opinion from Audit New Zealand.

5. The surplus for the year was $429,049 compared to a budgeted surplus of $596,704.

6. While revenue was higher than budget by $80k, expenses were higher than planned by $247k due to higher electricity and water charges, environmental services, security, insurance and maintenance, including $52k of prior year expenses previously recognized as work in progress, which did not proceed. The higher environmental and security expenses reflect the increase in Marina users, and other visitors to the café and walkways, which resulted in additional cleaning and rubbish collections and additional security hardware being installed.

7. A 5% return on equity exactly in line with budget was achieved.

8. Revenue of $2,438,547 was 3.3% above budget and 7% up on 2017/18. Highlights included:

· Boat storage revenue, in line with budget, and 9% up on last year’s result. Demand for 12, 14 and 16 metre berths improved markedly over the past year. Over the year the occupancy improved to be in the 90 percentile range. High occupancy rates of close to 100% were achieved during the year for the trailer parks;

· Wellington Marine Centre revenue, 11.4% above budget, and 5.6% above last year’s result. Previous difficulties in filling some units have now been resolved, with most units occupied with longer term tenants;

· Ramp revenue, in line with budget, and 11% above last year’s result, notwithstanding two thefts from the coin dispenser during the 2018/19 financial year, necessitating a switch to card payments;

· Boatyard revenue was 92% of budget in the first half of the year, but picked up in the second half of the year being in line with budget at year-end and only 4.1% below last year’s result;

· Liveaboard revenue 8.1% below budget, but 8.4% above last year’s result due to the decision to be more selective in approving applications, resulting in actual numbers being lower than the 60 planned liveaboards.

9. Client service monitoring during the year resulted in a 91% positive response rate when asked the question “would you recommend Seaview Marina to other boat owners” – consistent with prior year ratings and last year’s full customer satisfaction survey (completed every second year), which scored above 90%.

10. There were no notifiable health and safety incidents during the year. A number of improvements were implemented – including the adoption of the People Safe programme and an app for on-site health and safety monitoring.

11. Cash flows have been strong with available cash at 30 June 2019 of $656,429, of which $656,000 was on call investments. Seaview Marina is now well placed to embark on the final phase of its in-water development.

12. Further detail is contained in the Annual Report attached as Appendix 1 to the report.

Consultation

13. There are no consultation requirements arising as a result of this report.

Legal Considerations

14. The board of a CCO must deliver to Council (shareholder), and make available to the public, its 2018/19 Annual Report by no later than 30 September 2019.

15. The final Annual Report was provided to Council Officers on 20 September 2018 and was made publicly available via SML’s website within the statutory deadline.

Financial Considerations

16. The audit has concluded and Audit New Zealand issued an unmodified audit opinion. At the time of writing this report, the final management letter had not been received from Audit New Zealand.

17. The board of SML approved the Annual Report on 19 September 2019 and the audit opinion was issued on the same date.

Appendices

No.	Title	Page
1 ⇩	Seaview Marina Annual Report	278

Author: Sharon Page

Senior Management Accountant

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

310 26 September 2019

Finance and Performance Committee

06 August 2019

File: (19/1024)

Report no: FPC2019/4/202

Urban Plus Group - Annual Report for the Year ended 30 June 2019

Purpose of Report

1. To provide the Committee with the Annual Report for Urban Plus Group (UPL) for the year ended 30 June 2019.

Recommendation

That the Committee receives and notes the Annual Report for Urban Plus Group to 30 June 2019, attached as Appendix 1 to the report.

Background

3. Mr Hugh Mackenzie (Board member) and Mr Craig Walton (Chief Executive) will be at the meeting to present the Annual Report and answer any questions.

Discussion

4. The audited Annual Report is attached as Appendix 1 to the report. The Annual Report received an unmodified opinion from Audit New Zealand.

5. The Group achieved a surplus after tax of $1.0M compared to $2.1M in 2017/18. The variance to the budgeted surplus before tax of $2.2M is purely due to the timing of property settlements. Construction timeframe changes resulted in only six of the budgeted twelve (of 24) houses from the Avalon Park development settling before 30 June 2019 which means the associated revenue, cost of sales, and profit on sales of the other six houses budgeted in 2018/19 will be recognised in the 2019/20 financial year.

6. Comprehensive revenue and expenses for the year was $5.4M inclusive of Gains on Property Revaluations of $4.0M.

7. Equity for the UPL Group is now $29.3M representing an increase of 22.4% from the previous year. This is primarily due to the Gain on Property Revaluations of $4M.

8. The Property Development division provided a significant contribution to the UPL Group surplus in 2018/19. UPL settled the remaining properties of the Fairfield Waters subdivision and the Avalon Park development has proven extremely popular in the market with all 24 standalone houses ‘sold’ and six settled in the 2018/19 financial year. Progress on other current and future projects is outlined on pages four to six of the Annual Report.

9. The Rental Housing division achieved three of its seven key performance measures in 2018/19. 45 new units were added to the rental portfolio during the year bringing the total portfolio to 189 units compared to the target of 220 by 30 June 2020. Occupancy was maintained at greater than 95%.

10. The Facilities Management division achieved four of its seven key performance indicators in 2018/19. UPL has since ceased its Facilities Management operations with these activities being consolidated within Council effective from 1 July 2019.

Consultation

11. There are no consultation requirements arising as a result of this report.

Legal Considerations

12. The board of a CCO must deliver to Council (shareholder), and make available to the public, its 2018/19 Annual Report by no later than 30 September 2019.

13. The final Annual Report was provided to Council Officers on 19 September 2019 and will be made publicly available via UPL’s website within the statutory deadline.

Financial Considerations

14. The audit has concluded and Audit New Zealand issued an unmodified audit opinion. At the time of writing this report, the final management letter had not been received from Audit New Zealand.

15. The board of UPL approved the Annual Report on 19 September 2019 and the audit opinion was issued on the same date.

Appendices

No.	Title	Page
1 ⇩	Urban Plus Limited Parent and Group Annual Report 2019	311

Author: Simon George

Senior Accountant

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

346 26 September 2019

Finance and Performance Committee

04 September 2019

File: (19/1174)

Report no: FPC2019/4/203

Wellington Water Limited Annual Report for the Year ended 30 June 2019

Purpose of Report

1. To provide the Committee with the Annual Report for Wellington Water Limited (WWL) for the year ended 30 June 2019.

Recommendations

That the Committee;

(i) receives and notes the Draft Annual Report for Wellington Water Limited for the year ended 30 June 2019;

(ii) notes that the audit opinion had not been issued at the time of publication of the Order Paper;

(iii) notes a verbal update from the Chief Executive of Wellington Water Ltd in regards to the finalisation and audit of the Annual Report will be provided at the meeting of this committee; and

(iv) notes that an update on the Wellington Water Ltd’s Annual Report will be reported to the Council meeting to be held on 9 October 2019.

Background

2. It is a requirement of the Local Government Act 2002 that Council Controlled Organisations (CCOs) deliver to the shareholders an annual report on the organisation’s operations.

3. Wellington Water Limited (WWL) is a Council Controlled Organisation owned jointly by five shareholder Councils: Wellington City Council, Hutt City Council, Upper Hutt City Council, Porirua City Council and Greater Wellington Regional Council. South Wairarapa District Council is shortly to join as a shareholder.

4. WWL does not operate to make a financial return and its purpose is to create excellence in regional water services so that communities prosper. WWL plans and delivers the three waters services (drinking-water, wastewater and storm water) to the metropolitan Wellington region on behalf of the five shareholder Councils.

5. The three waters services include the collection, treatment and delivery of drinking water and the construction, operation, management and maintenance of the three waters network assets and systems, as well as treatment facilities, pump stations reservoirs and related networks.

6. WWL is governed by a Board of directors. The chair of the Board reports to the Wellington Water Committee, which is made up of representatives of all five shareholder Councils and is currently chaired by Hutt City Council’s Deputy Mayor, David Bassett.

7. The Wellington Water Committee provides governance oversight of WWL and its management of the network infrastructure for the delivery of the three waters services. This is done by considering WWL’s half-yearly and annual reports, monitoring WWL’s performance, appointing directors to the Board and providing recommendations to shareholders on WWL’s proposals.

Discussion

Wellington Water Limited Annual Report

8. The Deputy Mayor David Bassett and Mr Colin Crampton (WWL Chief Executive) will attend the meeting to present the Annual Report and answer any questions.

9. The Draft WWL Annual Report is attached as Appendix 1 to this report. At the time of preparation of the agenda papers for this Finance and Performance Committee, the audit opinion had not been issued by Audit NZ. Officers have been advised that no further changes are expected to the Draft WWL Annual Report. A verbal update on the audit will be provided at the Committee meeting.

10. The WWL Annual Report details key achievements across the year, together with performance results compared to the Statement of Intent performance measure targets. The financial results for the year show a net surplus of $30k which aligns to the budget.

11. WWL develops and agrees operational and capital programmes based on the shareholder Council Long Term Plans. WWL enters into contracts directly with contractors to perform the work programmes and manage projects. The report discloses the Hutt City Council share of activity for the year which was at a similar level to the prior year. This includes a management fee of $4.1M, operational programme $11.8M and capital programme $12.6M.

Hutt City Council Annual Report

12. Each shareholder Council sets specific performance measures against each of the three customer outcomes:

a. safe and healthy water;

b. respectful of the environment;

c. and resilient networks that support the economy.

13. The Finance and Performance Committee agenda includes the interim unaudited Hutt City Council Group Annual Report 2018/19. Included here are the performance results for the wastewater, water supply and storm water activities of Council. WWL, on behalf of Council, achieved 70% of Council’s 2018/19 performance measures. The key performance measures that were not achieved include:

· Average drinking-water consumption per resident,

· Percentage of real water loss from the networked reticulation system,

· Response time to attend non-urgent callouts to a fault or unplanned interruption to the networked water reticulation system,

· Dry weather wastewater overflows,

· Number of flooding events where Stormwater enters a habitable floor.

14. Council’s 20% equity share in WWL means that for accounting purposes, the Company is treated as an associate and Council’s share of WWL’s post tax surplus/(deficit) is included in Council’s group accounts. Council has recognised a $6,000 surplus in its consolidated results for the year ended 30 June 2019 (2018: $6,000 deficit), being its share of WWL’s after tax surplus.

Legal Considerations

15. WWL must deliver to the Council (shareholder), and make available to the public, the 2018/19 Annual Report by no later than 30 September 2019.

16. The final Annual Report is scheduled to be provided to the Wellington Water Committee (as representatives of the five shareholder Councils) on 26 September 2019 following which it will be made publicly available via the Wellington Water Limited website within the statutory deadline.

Financial Considerations

17. There are no further financial considerations apart from those detailed in the paper.

Appendices

No.	Title	Page
1 ⇩	Wellington Water Limited Draft Annual Report 2018/19	347

Author: Bruce Hodgins

Strategic Advisor, City and Community Services

Author: Jenny Livschitz

Chief Financial Officer

Approved By: Brent Kibblewhite

General Manager Corporate Services

Attachment 1

Wellington Water Limited Draft Annual Report 2018/19

407 26 September 2019

Finance and Performance Committee

04 September 2019

File: (19/1155)

Report no: FPC2019/4/204

New Zealand Local Government Funding Agency 2019 Annual Report

Purpose of Report

1. The purpose of this report is to provide the Committee with the Local Government Funding Agency (LGFA) Annual Report for the year ended 30 June 2019.

Recommendation

That the Committee notes and receives the Local Government Funding Agency (LGFA) Annual Report for the year ended 30 June 2019.

Background

2. The LGFA was incorporated on 1 December 2011 with the primary objective of optimising the debt funding terms and conditions for participating local authorities. This includes providing savings in annual interest costs, making longer-term borrowings available and enhancing the certainty of access to debt markets. Council became a principal shareholding local authority in the LGFA in May 2012.

3. The LGFA issues bonds to wholesale and retail investors and on-lends the funds raised to participating local authorities with borrowing needs. The quality of the LGFA’s credit rating, and the liquidity created by issuing homogenous local authority paper, ensures that participating Councils can raise funds from the LGFA on better terms than if they were issuing in their own name.

4. Borrowing Councils are required to subscribe for LGFA Borrower Notes (subordinated convertible non-voting bonds), at 1.6% of the face value of each borrowing from LGFA. LGFA requires the Borrower Notes as equity as their balance sheet grows and this avoids the need to continually go back to shareholders for additional capital. Borrower Notes pay interest on maturity of the notes at LGFA’s cost of funds.

5. The LGFA meets the Local Government Act 2002 (the Act) definition of a Council Controlled Organisation (CCO) as one or more local authorities have the right, directly or indirectly, to appoint 50% or more of the directors.

6. As a shareholder in the LGFA, the Council must regularly undertake performance monitoring to evaluate its contribution to the achievement of the Council’s desired outcomes.

Discussion

7. By 30 June 2019, LGFA had loans outstanding of $9.3B, an increase of $1.4B on the prior year. LGFA provided 92% of the sector borrowing across 2018/19.

8. Eight new council members were added in the last year bringing the total number of member councils to sixty-four.

9. The LGFA recorded a strong financial performance result for the year ended 30 June 2019, realising a net operating profit of $11.2M (2018: $11.8M), with Shareholder Equity of $74.15M (2017: $64.3M) as at 30 June 2019.

10. Council had borrowed $179M from the LGFA as at 30 June 2019 (2018:$157M). This is an increase of $22M since 30 June 2018. $19M was issued to re-finance debt maturing during the year, $20M was issued to part-fund Council’s 2018/19 capital works programme, $4M was issued to fund new CCO borrowings and $17M was issued to pre-fund debt maturing in 2019/20.

11. LGFA Borrowings include those on behalf of Council’s CCOs and all borrowings are in accordance with approved limits contained in Council’s Treasury Risk Management Policy.

12. Council had $2.5M of LGFA Borrower Notes as at 30 June 2019 (2018: $2.5M).

13. The full LGFA 2018/19 Annual Report is attached to this report together with the cover letter advising of the dividend distribution.

Consultation

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

Legal Considerations

15. The Board of LGFA must deliver to Council (shareholder), and make available to the public, its 2018/19 Annual Report by no later than the 30 September 2019.

16. The final Annual Report was provided to Council Officers on 30 August 2019 and was made publicly available via the LGFA website within the statutory deadline.

Financial Considerations

17. The LGFA Board declared a dividend of $1.1M (2018: $1.3M) for the year ended 30 June 2019. The dividend rate was $0.04624 per paid up share. Council received a dividend of $4,624 (2018: $5,140) on 6 September 2019 from its $100,000 investment.

18. The Board of LGFA approved the Annual Report on 30 August 2019 and KPMG issued an unmodified audit opinion on the same date.

Other Considerations

19. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of local government in that it allows Council to operate in a cost-effective manner.

Appendices