HuttCity_TeAwaKairangi_SCREEN_MEDRES
 

 

 


HUTT CITY COUNCIL

 

Extraordinary Council virtual meeting to be held on

Thursday, 9 April 2020 commencing at 2pm

 

 

 

 

SUPPLEMENTARY AGENDA

 

 

 

 

 

8.       COVID-19 pandemic response plan and Draft Annual Plan 2020/21 next steps (20/350)

Report No. HCC2020/3/85 by the Budgeting and Reporting Manager             2

Mayor’s Recommendation:

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

 

 

 

 

 

 

 

 

 

 

 

Kathryn Stannard

HEAD OF DEMOCRATIC SERVICES

 


                                                                                       2                                                            09 April 2020

-     Extraordinary Meeting of Council

03 April 2020

 

 

 

File: (20/350)

 

 

 

 

Report no: HCC2020/3/85

 

COVID-19 pandemic response plan and Draft Annual Plan 2020/21 next steps

 

Purpose of Report

1.    To provide an update on the Covid-19 pandemic response plans.

2.    To review the plans for the Long Term Plan 2018-2028 (LTP) Amendment and Draft Annual Plan 2020/21.  This report provides updated information about the audit process and advice to Council about the options available going forward. 

Recommendations

That Council:

(i)        receives the information;

(ii)       notes that Covid-19 has had material impact on households and businesses and that Council has developed a Covid-19 response plan with a wide range of initiatives to support the Lower Hutt community;

(iii)      agrees to the Covid-19 response plan as detailed in Appendix 1;

(iv)      notes that the Covid-19 response plan will continue to be developed and further initiatives included over time in consultation with Council and other key stakeholders;

(v)       notes that the planned public consultation on the Amendment to the Long Term Plan (LTP) and the Draft Annual Plan 2020/21 that was to start on 6 April 2020 has been paused due to Covid-19; 

(vi)      notes that as a result of Covid-19 lockdown officers have reviewed the impact on work plans and budgets for both the current financial year and for future years;

(vii)     notes that as a result of Covid-19 the Consultation Document on the Amendment to the LTP 2018-2028 has progressed through a review and a further audit process and the updated draft version is attached as Appendix 2;

(viii)    notes the LGNZ and SOLGM guidance for the development of 2020/21 Annual Plans, based on legal advice from Simpson Grierson, as outlined in Appendix 3;

(ix)      notes the alternative options in regards to progressing the Draft Annual Plan 2020/21 and the LTP Amendment as detailed in Section D of the report;

(x)       agrees that the “Emergency Budget” Draft Annual Plan 2020/21 be progressed as the preferred option, which includes a rates revenue increase of 3.8%;

(xi)      agrees to progress the engagement plans as detailed in Section E of this report;

(xii)     considers any further guidance to be provided to Officers ahead of Draft Annual Plan being developed;  

(xiii)    appoints a Subcommittee of the Mayor, Deputy Mayor and Chairs of Committee to make all final decisions on the content and design of the Draft Annual Plan 2020/21 and questionnaire for consultation.

 

Acronyms:

DAP – Draft Annual Plan 2020/21

FAP – Final Annual Plan 2020/21

LTP – Long Term Plan 2018-2028

Summary

3.    Council is faced with a number of challenges as we, and our community, deal with the current social and economic impacts of COVID-19 in an evolving situation. People’s attention is focused on keeping themselves and their families safe. Our community is in lockdown and there are social and economic impacts on communities and businesses right now and into the foreseeable future.

4.    We understand the reasons for the lockdown and fully support our country’s approach as together we are doing everything we can to contain the pandemic. Not to do so would put our people and our economy at even more risk. Our response plan and proposed options for the Annual Plan 202/21 are designed to alleviate the current and future pressure on our community as we do not yet know when our regular lives and routines will resume.

5.    We know that many of the issues we are facing locally in terms of infrastructure and growth are not going to stop. We also know that business as usual cannot continue. New options are presented in this report which focus on lessening the burden on our community and pressing the pause button on major capital projects. This means focusing our engagement with the community on the things we can progress within financial constraints.

6.    Council has responded to Covid-19 with a range of initiatives to support the Lower Hutt community. This includes support to ratepayers, such as extending payment terms for rates, support through the Community Resilience Fund, removing parking fees and fast tracking payments to suppliers to support cash-flow of businesses that are contracted to provide services to Council (Refer Appendix 1 for the full Covid-19 response plan). These responses by Council, along with the support of central government, aim to alleviate some of the stress and financial hardship faced by businesses and households. The environment is changing rapidly and there is a need to continue to be responsive and provide immediate benefits.

7.    Plans are also being developed for the recovery phase. This includes working with central government to prepare a list of “shovel ready” projects that can be funded to act as an economic stimulus package.

8.    The financial impact for Council on the 2019/20 results is not yet known. The closure of facilities has reduced revenue and together with other responses to Covid-19 Council is expected to have a larger operating deficit than previously forecast. The capital programme will also be delayed.

9.    This report outlines the next steps in proposed LTP Amendment and Annual Plan 2020/21, and considers the impact of Covid-19 and alternative options that could be progressed. In setting the budgets and rates for 2020/21, it will be important to strike the right balance between supporting the needs of the current community who are facing financial hardship, without overly burdening future generations with an inappropriate level of debt and thereby reducing choices in respect of investments required in infrastructure and preparing for the impacts of climate change. It is important that Council take a prudent approach – one that involves an overall assessment of circumstances, and ensures decision-making recognises the future impact of financial and non-financial consequences of any decision. This approach has been strongly emphasised by both LGNZ and SOLGM in their advice to Councils around New Zealand (refer to Appendix 3 for more information).

10.  This report proposes two options that could be progressed going forward:

Option 1 - Progress LTP Amendment and Annual Plan 2020/21 consultation as previously planned with 7.9% rates increase. Noting that further work is required to develop the Consultation Document due to the Covid-19 pandemic and to further progress through the audit.

Option 2 – Progress an Emergency Budget for Draft Annual Plan 2020/21 with a proposed 3.8% rates increase. A “light touch “engagement process would take place with a focus on one year budget for 2020/21 only.

The pros and cons of these options are reviewed, together with a risk assessment (refer Section D). 

In light of the Covid-19 pandemic and the uncertainties ahead Officers recommend progressing Option 2 as the preferred option.


 

Section A – Covid 19 pandemic response plan overview

11.  The plan includes a range of initiatives to support the Lower Hutt community. The environment is changing rapidly and there is a need to continue to be responsive and provide immediate benefits that reduce financial stress and provide social support to our residents. In summary the plan includes four key areas as follows:

-     Rates and charges

Lobbying for an extension to rates rebates funding by central government

Rates postponement policy extension (refer separate agenda item)

Extended rates payment arrangements, with penalties for late payment waived

National initiative to put on hold recent general property revaluation changes for a year

No parking charges

No library fines and extended access to library books.

-     Support to businesses

Planning for “shovel ready” infrastructure projects which can be progressed during recovery period to provide stimulus to economy

Paying suppliers within 5 days

Working with partnerships in Hutt Valley Chamber of Commerce and Upper Hutt City Council to provide support to local businesses.

Proactive direct contact with Chamber of Commerce businesses expanded and issues/concerns being responded to.

-     Focus on welfare

Grants to foods banks and charities supporting food distribution

New Community Resilience Fund established of $100k

Council staff at Emergency Operations Centre are leading welfare support efforts around regional needs assessment and commissioning established local organisations to meet demand

-     Other initiatives

IT investment brought forward to enable online services to be activated so that council business can continue and staff can work from home

Extending contact centre service through extended hours and a local service over the weekends where needed.

 

Further details of the response plan are available in Appendix 1.

 


 

Section B - Background and high-level plan for Annual Plan 2020/21

12.  Council is legislatively required to prepare a LTP every three years and an Annual Plan each year. The most recent LTP was adopted in June 2018 and covers the period 2018 to 2028. In a LTP year the first year of the plan becomes the Annual Plan and no separate document is required. Council prepared an Annual Plan in 2019/20 and is again required to prepare an Annual Plan for 2020/21. Following this a LTP will be prepared for the period 2021-2031.

13.  Council has approved the high-level plan and approach to the Annual Plan 2020/21 and LTP Amendment (refer Table 1 for a summary of the plan). At the Council meeting held on 18 March 2020 Council adopted the Consultation Document (CD) for the LTP Amendment and the Draft Annual Plan 2020/21. An audit opinion was also issued on this day. Consultation on the LTP amendment was planned to start on 6 April 2020.

14.  Key topics included in the approved LTP Amendment include:

a)   Our capital investment programme

Naenae Pool and fitness centre redevelopment

Three waters, Roading and Cycleways

b)   How we finance our work programme

Includes changes to financial strategy for rates revenue increase and debt limits

c)   How rates are spread between different property categories (rating differentials)

d)   Proposed changes to recycling and rubbish collection from 1 July 2021.

15.  On the 26 March the audit opinion on the CD was withdrawn in light of the government announcements relating to the Covid-19 pandemic and the need to review accounting standard requirements for “subsequent events”.

16.  Officers have worked through an initial review of the CD to consider the impact of Covid-19. This has included a review of underlying assumptions and consideration of the impact of Covid-19 on financial projections. This has been particularly challenging given the high degree of uncertainty. Initial changes have been made to the CD (Refer Appendix 2 which is a copy of the updated draft CD). 

17.  The revised content acknowledges the current uncertainty and council’s focus while consultation is being undertaken on looking at all the ways to decrease costs and/or reconfigure services with an aim to reduce rates for the start of the new rating year (Refer page 3 of the draft CD).  There is additional content referencing reducing the rates increase for 2020/21 below 7.9%, including a personal commitment statement from the Mayor and Chief Executive. The engagement plans have been updated to reflect the Covid-19 lockdown environment.

18.  Early feedback from Audit NZ is this draft CD needs to be expanded and further developed to provide further assessment and review of the Covid-19 impact and the underlying assumptions and risk, and the potential impact on rates and debt.  So for example for Naenae pool redevelopment further content about the underlying assumptions related to projected construction costs post Covid-19 would be added into the CD, together with further information on the financial projections. There is a risk that this would make the CD difficult to understand and not fit for purpose as a consultation Document.

19.  The LTP Amendment covers a wide range of complex areas; to progress further development of the CD in the current Covid-19 environment and to obtain external audit clearance will be very challenging and it is unclear what the revised timeline would be. There is also a risk that if the Council consults on the current financial projections and that post Covid-19 that they turn out to be significantly different, then the Council would need to re-consult. 

20.  Table 1: High-level plan

Activity

Date

Status

Council adopts key assumptions and risks for  budgets and high-level consultation approach for Annual Plan and LTP Amendment

10 December 2019

Complete

Council agrees engagement plan, consultation process and key decisions

11 February 2020

Complete

External audit of Consultation Document and LTP Amendment 

February to  March 2020

Complete

Council meets to approve final Consultation Document and adopts underlying information

18 March 2020

Complete

Covid-19 pandemic response plans developed, including reviewing the Consultation Document and Annual Plan 2020/21.

From 26 March and ongoing

In progress

Council meets to consider Covid-19 pandemic response and agree next steps for LTP Amendment and DAP

9 April

Today

Public consultation

TBC

 

 

Not started

Council meets to make final decisions

16 June 2020

Council sets the rates for 2020/21

30 June 2020

 


 

Section C - The impact of Covid-19 on Council finances

21.  There are significant uncertainties as to the impact of Covid-19 on households and businesses in Lower Hutt. The priority is on:

- ensuring our city functions properly;

- supporting economic recovery when the lockdown ends;

- finding the right balance between supporting those in need now, while not over burdening ratepayers in future years; and

- making savings to improve cash flow and reduce the rates funding requirements.

22.  It is very early to provide an estimate of the financial impact on 2019/20. For the four week lockdown period there is a projected loss of revenue due to the closure of facilities of $0.7M, with the largest part of this being pools and fitness centres. Parking revenue is also reduced. Cash flow is also impacted with a number of ratepayers entering into extended payment arrangements and a few tenants seeking reduced or extended payment terms. The rates postponement policy is likely to be taken up by a number of ratepayers over the next six months and will impact on the borrowing requirements of Council. Capital investment programmes are also experiencing delays due to the lockdown.

23.  Already included in the budgets for 2020/21 are budgeted savings to be achieved of over $1M together with changes to staff resourcing which is required to be funded through savings.

24.  A zero based budget review will be completed ahead of budgets being finalised in June 2020. The findings and outcomes of that review will be provided to Council together with advice on budget cuts that could be potentially implemented in 2020/21. There are likely to be a range of invest to save options together with service level change options. Some of these changes will be required to be consulted on as part of the next LTP.

25.  Covid-19 has added further pressure to deliver cost savings. There are a range of options being explored as part of the base budget review.

One key area of focus is the budget assumptions for staff resourcing levels and future salary increases. Councils’ new collective employment agreement came into effect on 23 March 2020. This includes at 1 July 2020, eligible employees receiving a minimum 1.5% pay increase until a cap of 105% position in range is reached. Given the current Covid-19 crisis and the impacts of this on our organisation and communities, we are discussing a variation to the remuneration provisions in the collective agreement with the unions.  This would be for no wage or salary movements in July this year. If this is successful, the budgets will be adjusted to reflect the variation.

26.  Shovel ready projects: Council is finalising a proposal to the Infrastructure Industry Reference Group for key capital projects that will reduce the impact of the COVID-19 lockdown on the economy. Government is seeking infrastructure projects that can achieve a rapid lift in infrastructure when the construction sector returns to work. The projects must be ‘shovel-ready’ or likely to be within six months. The following projects are being finalised for submission:

-    Mixed residential housing developments through Hutt City Council owned developer Urban Plus Ltd

-    Eastern Bays Shared Path – currently in the consenting phase, but requires funding to start work

-    Naenae Pool and fitness centre

-    Wharves refurbishment of Petone wharf and a portion of Point Howard wharf

Wellington Water, on behalf of the councils it serves, is also putting forward a proposal. At this stage for the Hutt Valley a $28M project for a new Wastewater storage tank at Seaview Wastewater Treatment Plant has been included.

 

 


 

Section D - Reviewing the LTP Amendment and Annual Plan 2020/21 options in the context of the Covid-19 pandemic

27.  With the fast-changing events of the past month it is important that Council reviews the planned LTP Amendment and Annual Plan 2020/21 process, and considers the options available ahead of progressing further. Officers have reduced the options down to three key options which are summarised below.

28.  Option 1 - LTP Amendment progresses, with 7.9% rates revenue increase in 2020/21

The previously approved LTP Amendment progresses with a 7.9% rates increase and updated content to reflect Covid-19, together with messaging about working to reduce the rates increase down.

 

If the rates increase was reduced and smoothed then any gap in revenue in 2020/21 would be funded through additional debt as a one-off solution and resolved over the medium term therefore not significantly impacting future ratepayers.

 

This option would require a 30 day consultation process, with changes to reflect the lockdown and better use of digital platforms.

 

This option has significant reputational risks as there may be misunderstanding about Council progressing a large works programme and high rates increase of 7.9% and not taking into consideration Covid-19 impacts. 

As noted in paragraphs 18 and 19 there are challenges with progressing through the external audit process with this option due to the uncertainties due to the Covid-19 pandemic. 

 

Whilst this option is considered the most prudent of the options, it is not recommended by officers in the current context of Covid-19.

 

29.  Option 2 - Emergency budget with 3.8% rates revenue  increase in 2020/21

Do not progress with the LTP Amendment. Instead prepare an “Emergency Budget” for the Annual Plan 2020/21 with a proposed 3.8% rates increase in 2020/21. This would be a one year budget only.

This option would involve a two week “light” engagement process that would not be the special consultative procedure required for an LTP Amendment.

Proposed changes to rates differentials would be included in the process. All 2020/21 budgets would be retained as per the LTP Amendment approved 18 March 2020, including Three Waters and Naenae Pool operational funding of $1.5M in 2020/21 (to progress the early stages of project, including consenting and demolition).  Funding for projects from 2021/22 and beyond (e.g. Cycleways, Cross Valley Connection) would effectively be placed on hold pending decisions from the LTP 2021-2031 process, which concludes in June 2021. Recycling and refuse service changes consultation would be deferred to August 2020 to progress consultation.

Any gap in revenue in this option would be funded through additional debt as a one-off solution and resolved through the LTP 2021-2031.

In the context of Covid-19, Officers recommend this option as the preferred option.

30.  Option 3 – zero rates revenue increase in 2020/21

Officers have also reviewed the option of a zero rates increase while maintaining current service levels. Officers’ advice is that we cannot reduce costs to this extent while maintaining current service levels. If service level cuts were proposed this would trigger a LTP Amendment.

There is insufficient time to complete an LTP Amendment process of this nature ahead of the rates setting decision in June 2020.

If Council attempted to achieve a zero rates increase by debt funding further operating costs this would not be financially prudent, and therefore would not be consistent with Section 101 (Financial Management) and section 100 (Balanced Budget) of the Local Government Act. It also passes a significant rates impost onto future ratepayers.

Officers do not recommend this option.

31.  All these three options are based on an assumption of 1% growth in the rating base, although there are currently significant risks of this being achieved due to the Covid-19 lockdown.

32.  All the options include a zero based budget review being completed with an aim to find savings and to reduce the rates funding requirements.

33.  The table below summarises the pros and cons of the options.

 

Option 1

LTP Amendment with full consultation

Option 2

Emergency budget with “light” engagement

Option 3

Zero rates increase, with “light” engagement

Rates increase 2020/21

 

7.9% with option to reduce/ spread

3.8% with option for minor changes

0%

Rates increase 2021/22

 

LTP 2021-2031 to determine rates increase. Lower rates increases in 2020/21 likely to result in higher increases in future years, depending on service level decisions.

Rates differential policy change progressed

Yes

Yes

Yes

Fees and charges updated

Yes

Yes

Yes

Naenae pool progressed

Yes

Progress planning (incl. demolition) in 2020/21.  Construction pending LTP 2021-2031

No

Refuse &recycling service changes progressed

Yes

Deferred LTP Amendment until August 2020

No

No reduction in service levels (apart from minor changes)

Yes

Yes

No

Debt funds shortfall in revenue, reducing the impact on ratepayers in 2020/21

Yes

Yes

Yes

Additional debt funding is “one-off” so minimal impact on future years

Yes

Yes however risks

No

Unlikely to require  additional LTP Amendment changes

Yes

Yes

No

Likely to meet financial prudence test

Yes

Yes as one off

No

Meets balanced budget requirement

No

No

No

Likely that Standard and Poors AA credit rating retained

Yes

No Downgrade likely

No Downgrade likely

Recommended by officers

No refer risks paragraph 28

Yes in Covid-19 context

No

34.  Option 2 provides a pragmatic balance between managing the pressures on current ratepayers and ensuring the Council remains financially sustainable into the future, whereby the actions of today do not significantly impact unfairly on ratepayers in the future.

35.  The lower rates increase for 2020/21 is expected to be met favourably by ratepayers. The reduction in rates revenue of about $4M would require additional borrowings to offset this. Additional borrowing is for a specific purpose, in funding the one-off shortfall in operating revenue in 2020/21. While this does not meet the S100(i) balanced budget provision of the Local Government Act, it can be resolved that it is financially prudent due to the one off nature, with revenues recovering and repayment of the debt occurring over the medium term to avoid a significant impact on future ratepayers. In the context of Covid-19 this option is recommended by officers.

 

Section E - Further financial information and analysis of options 1 and 2

36.  Both the options include the same capital programme and assumed operating costs. The timing of rates revenue increases is the variable that changes between options, with flow on impacts to debt and interest costs.

37.  Tables A, B and C provide a comparison of projected rates increases and projected debt and operating results for options 1 and 2.  Option 2 assumes from 2021/22 LTP rates increases of inflation only per LTP 2018-2028. A balanced budget would not be achieved until 2029/30 in this scenario and debt would increase to $425M with a peak of debt to revenue ratio of 188%. If the LTP 2021-2031 adjusts the rates increase to be average of about 4% in future years, then a balance budget is achieved in 2024/25 and debt is reduced to $337M with a peak of debt to revenue ratio of 166%.

Table A: Projected rates revenue increases with comparison to options

 

2020/21

2021/22

2022/23

Future years

Option 1- CD LTP Amendment

7.9%

3.8%

4.3%

2.5%

Option 2 -Emergency budget, per LTP inflation only

3.8%

2.2%

2.2%

~2.5%

Option 2 adjusted – emergency budget post LTP 2021-2031

3.8%

4.4%

4.4%

4%

 

Table B: Other key financial projections with comparison of options

 

Net profit and loss* 2020/21

Balanced budget **

Projected net debt and debt to revenue ratio peak

Option 1- CD

 Deficit $6.5M

Achieved in 2023/24

Peak debt of $321M in 2024/25,  debt to revenue ratio 157%

Option 2 -Emergency budget

Deficit $10.9M

Not achieved until 2029/30 (ten years)

Peak debt of $425M in 2030/31. Debt to revenue ratio at 188%

Option 2 adjusted emergency budget post LTP 2021-2031

Deficit $10.9M

Achieved in 2024/25

Peak debt of $337M in 2024/25. Debt to revenue ratio at 166%.

*Statement of Comprehensive revenue and expenditure result 

** As per definition developed for LTP Amendment financial strategy

38.  Rating impact for ratepayer

Please refer to Appendix 4 which provides further information for ratepayers. The impact on the average residential property is as follows

Table C: Projected rating impact with comparison of options

 

2020/21 average rates revenue increase

Average residential property rates impact in 2020/21

Per annum

Per week

Option 1- LTP Amendment

7.9%

$212

$4.07

Option 2 -Emergency budget for 2020/21

3.8%

$122

$2.35

Difference

4.1%

$90

$1.72

Note that this assumes that changes to the rating differentials are progressed in 2020/21 (i.e. freeze differentials at same level as 2019/20).

Section F - Proposed consultation process for options for 1 and 2

 

39.  Option 1 includes a full 30 day special consultation procedure whilst option 2 proposes a “light” two week engagement process. Both of these could be progressed through the Covid-19 lockdown period.  

40.  Most suburban newspapers (including the Hutt News), all printed material like posters and leaflets and face-to-face engagement are no longer available to us as a channel due to the current lockdown.

41.  There are opportunities to really focus on digital engagement and also to reach residents in different ways. This includes utilising staff and councillors to connect with people to be their ‘neighbour’s news’ (see current messaging on HCC social media channels).

42.  During the consultation and engagement period advertising would be focused on Face Book and Neighbourly and any local publications which have an online presence or where they have indicated they may be able to publish. Our digital engagement plan includes video, radio, and online engagement (live feeds, video conferencing, social media, digital promotion and our digital engagement platform ‘Bang the Table’ which we used for last year’s Annual Plan and Naenae Pool). This approach will be extended to the submission process where people who wish to present to council will be able to do this via video or by ringing in.

43.  The detailed information that supports the Annual Plan/ LTP Amendment, including financial information, project lists, performance measures and targets, proposed fees and charges and other detailed supporting information would be published on ‘Bang the Table’ and made available via Council’s website.

44.  As part of reporting back to council following the engagement process we will measure the effectiveness of our engagement against previous data.

Section G - Next steps

45.  Council is requested to consider the options 1 and 2 and decide on the preferred option. In the context of the Covid-19 pandemic, officers recommend progressing option 2.

46.  If option 1 is the preferred option, then the next steps are:

Further develop the Consultation document and progress the external audit. There is uncertainty as to how long this would take as it is particularly challenging due to the complexity of the LTP Amendment and the uncertainties of Covid-19.

47.  If option 2 is the preferred option, then the next steps are

Council provide any further guidance to officers to support the preparation of an “emergency budget” Draft Annual Plan 2020/21 

48.  Officers will report back to Council in early May with the proposed emergency Annual Plan budget for 2020/21. A two week public engagement would progress shortly thereafter.

Section H - Legal Considerations

49.  The documents referenced in this report have been prepared to meet the requirements of the Local Government Act 2002.

50.  Sector advice from LGNZ and SOLGM (refer Appendix 3) is underpinned by legal advice from Simpson Grierson Lawyers.

51.  Option 1 relies on subsections 99(4) and (5) of the Act, which allow Council to amend the Long Term Plan at any time.  It must use the special consultative procedure to do this.

52.  Section 83 sets out the requirements of the special consultative procedure.  For a Long Term Plan (and any amendment) these consultation requirements are amended so that a Consultation document is required.  Section 93D sets out the content required of a consultation document for an amendment to the Long Term Plan.

53.  The Chief Legal Officer has reviewed the amendments to the proposed Consultation document and associated communications plan, together with the LGNZ and SOLGM advice, and is of the opinion that the special consultative procedure requirements could be met, even if Lower Hutt was still in lockdown.

54.  If Council resolved to follow Option 2, this would not involve an LTP Amendment and, in officers opinion would also not require a material or significant change to the current LTP.  In these circumstances, Council is not required to consult, under s95(2A) of the Act.

55.  Regardless, Council is proposing to engage in a lesser form of engagement on a voluntary basis.

Section I - Financial Considerations

56.  Financial considerations associated with adoption of the Draft Annual Plan 2020/21, Proposed Amendment to the Long Term Plan 2018-2028 and Consultation document for an Amendment to the Long Term Plan 2018-2028 have been addressed in detail in previous reports. In particular please refer to the LTP/AP Subcommittee agenda papers for 11 February and 18 March 2020. Further financial considerations are included in this report.

Section J – Further information

57.  Note that there is a range of content from the agenda papers from 18 March 2020 which is relevant to this report. This content has not been repeated in this report and should rather be accessed via 18 March 2020 agenda papers. Of particular note is the detailed LTP Amendment document, the draft Annual Plan 2020/21 with various related attachments (detailed project lists, financial statements, revenue and financing policy etc.)

Appendices

No.

Title

Page

1

Appendix 1 - COVID-19 Response Plan

18

2

Appendix 2 - Revised LTP Amendment Consultation Document following Covid-19 changes

21

3

Appendix 3 - LGNZ  SOLGM Advice to Councils - Budgeting planning and setting rates in the face of Covid-19

65

4

Appendix 4 - Detailed indicative rating information

71

 

 

Author: Philip Benseman

Budgeting and Reporting Manager

 

 

Author: Bradley Cato

Chief Legal Officer/General Counsel

 

 

Author: Jenny Livschitz

Chief Financial Officer

 

 

Approved By: Jo Miller

Chief Executive

 


Attachment 1

Appendix 1 - COVID-19 Response Plan

 

Hutt City Council COVID-19 Response Plan (as at 7 April 2020)

Council has responded to Covid-19 with a range of initiatives to support the Lower Hutt community. The environment is changing rapidly and there is a need to continue to be responsive and provide immediate benefits that reduce financial stress and provide social support to our residents. 

There are several aspects to Hutt City Council’s COVID-19 Response Plan. These include:

Ø Rates and Charges

Ø Support to Businesses

Ø Focus on Welfare

Ø Other initiatives

Rates and Charges

1.   Working to reduce the proposed rates rise of 7.9% and present two further options to council including a 3.8% rates rise and a 0% rates increase.

2.   A revised rates postponement policy which proposes combining two current policies. The new policy would extend to businesses (i.e. non-residential properties) with a capital value of up to $1M. Events like COVID-19 are included in the policy. The rates postponement would be for the period of the event and “until one year after the Council resolves the effects of the event are no longer felt in the community”. Note current rates postponement policy is available to all residential ratepayers

3.   New rates payment arrangements for those experiencing financial hardship. People encouraged to contacted council where they are having difficulty paying their rates. Payment arrangements are offered to people which extend the payment term over a longer period and there are no rates penalties.

4.   National initiative to defer the application of recent general property revaluations to rates to at least the 2021/22 financial year. Requesting government to review this so that suburbs with the greatest increases in rates due to the recent revaluation experience no change in rates%. This would particularly reduce the rates increase for suburbs like Wainuiomata, Naenae, Stokes Valley and Taita who had % changes in property values in excess of 40% due to the recent three-yearly general revaluation. If the current rules apply this would result in residents in these areas paying a higher proportion of the rates bill for the city.[1]

5.   Requesting government extend the existing rates rebates scheme[2] to a greater number of households (particularly those that can demonstrate loss of income as a result of COVID-19).

6.   No parking charges effective 23 March and for the duration of the lockdown

7.   No library fines, extensions re library books for the duration of the lockdown. An online membership service launched.

8.   Online payment of rates promoted and communications with ratepayers who pay in cash or cheque to move to online.

9.   Communicating with all stakeholders to encourage online applications and payments for consent applications.

Support to Businesses

1.   Working on major infrastructure projects which are ‘shovel ready’ and can get underway within 6 months. This is a proposal to the Infrastructure Reference Group which has been created as a national response to COVID-19. This will act as a key stimulus to the economy and get people working when the alert level is raised. It will also provide certainty to businesses. At this stage the proposed projects are: Naenae Pool, Eastern Bays Shared Path, RiverLink (includes Melling), Wharves Upgrades (Point Howard and Petone), Housing Developments via Urban Plus Limited.

2.   Keeping our suppliers going - online payments to suppliers processed in 5 days (as opposed to 30 days).

3.   Working in partnership with the Hutt Valley Chamber of Commerce and Upper Hutt City Council to provide support to local businesses including the Love Local campaign, networking opportunities and business advice.  An online resource hub has been established along with a business Facebook group (currently 480 members).  Livestreams and webinars are being hosted 4 days a week with local experts are providing advice on issues relevant to businesses. Further sector based networking opportunities are being explored and we are encouraging businesses to connect locally with suppliers.

4.   Proactive direct contact with Chamber of Commerce businesses has been expanded and issues and concerns are being either directly responded to or passed to appropriate experts.  Summary information is being shared with WellingtonNZ and since Tuesday with Ministry for Business, Innovation and Employment for collation of data on issues affecting businesses regionally and nationally. Proactive contact has been made with over 200 other businesses – in particular, supermarkets, pharmacies, accommodation suppliers, medical centres and vets to offer support and gather information.

Focus on Welfare

1.   Grants to Food Banks and charities supporting food distribution of $1500. Funded via proportion of Chief Executive’s given up to help during COVID-19 and during recovery.

2.   Redirected $100K towards a new Community Resilience Fund is proposed for organisations, groups and initiatives are supported across Lower Hutt during COVID-19 and during recovery. The fund allows for maximum grants of $2k to support community-led solutions and to support wellbeing.

3.   Welfare support – our staff in the Emergency Operations Centre (EOC) are leading welfare efforts around regional needs assessment and commissioning established local organisations to meet demand. We are further supporting this by providing the following:

A pool of staff working remotely to answer Lower Hutt calls to the national welfare hot-line and carrying out needs assessments by way of survey

Staff and vehicles to support local organisations to pick up and deliver food, medicine etc across our city

Providing vehicles to the local Runanga (Te Rūnanganui o Te Atiawa ki te Upoko o Te Ika a Maui) for the delivery of food and sanitation packages

A pool of staff working remotely to call Lower Hutt-based MSD clients who are aged over 70 and housebound to ensure their welfare needs are being met

Other initiatives

1.   Brought forward investment in IT to enable online services to be activated so that council business can continue and staff can work from home. This includes enabling the contact centre to work fully online.

2.   Extending Contact centre service through extended hours and a local service over weekends when needed.

3.   Partial payment of consenting fees. This allows applicants to pay in smaller instalments so they can maintain cashflow.

4.   Apply a leniency approach to resource consent and building consent enforcement, whilst maintaining safety

5.   Allowing online sales of alcohol to go ahead, with applications coming in after lockdown (if continuing) (although enforcement undertaken by NZ Police).

6.   Virtual events, activities and resources for the community – through the Hutt@Heart Community Hub on our website and the HCC Facebook page. This includes online content from all areas of the business such as health and fitness videos, arts and craft activities, competitions for tamariki and ideas on how to safely connect with and support neighbours. 


Attachment 2

Appendix 2 - Revised LTP Amendment Consultation Document following Covid-19 changes

 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


Attachment 3

Appendix 3 - LGNZ  SOLGM Advice to Councils - Budgeting planning and setting rates in the face of Covid-19

 

3 April 2020

Budgeting, planning and setting rates in the face of Covid-19

Local Government New Zealand (LGNZ) and Society of Local Government Managers (SOLGM) Guidance Paper for Covid-19 Local Government Response: Finance Workstream

Our headline messages

·    As existing law provides some flexibility around annual plan and rate setting processes, there is no need to change the law for the 2020/21 financial year.

·    An annual plan adopted after 30 June will still be lawful and, if challenged, is unlikely to be declared invalid.

·    Councils need to take care in considering significantly different levels of rates to what was previously indicated to the community and/or the option of setting an unbalanced budget for the 2020/21 year.

·    A prudent approach would involve an overall assessment of circumstances and decision-making that takes a long-term view with consideration of future financial and non-financial consequences of the decision.

·    Councils should seek information from a broad cross-section of their community to develop assumptions about Covid-19 impacts on revenue and expenditure options and to inform thinking about several rating options and how best to support:

o financially stressed ratepayers; and

o economic recovery within the council’s district/region and more broadly.

·    Councils should consider all options for supporting financially stressed ratepayers including: shifting penalty dates; reducing penalty rates; introducing different payment cycles for ratepayers with seasonal income; and considering how best to implement any recent revaluation.

·    Councils should consult in their usual ways unless it would breach Covid-19 lockdown rules or usual channels are no longer available.  Use of the internet alone is unlikely to be adequate and alternative engagement options should be considered (see below for some suggestions).

Legal advice jointly commissioned by LGNZ and SOLGM that supports some of the content of this Guidance Paper is attached for the information of council readers.

 


 

The 2020/21 annual plan process and setting of rates

Councils should continue their 2020/21 annual plan adoption and rate setting processes

Currently, the annual plan and rate setting processes for the 2020/21 financial year are not seen as ‘at risk’ and there is no current intention to amend or modify the law relating to such processes. 

Although Covid-19 is a major disruptor, councils should continue with the processes and consider carefully how best to complete consultation (see below for more information about consultation).

Before making decisions about rates, councils will need to gather and evaluate information from a broad cross-section of their community.  Although there are, and will continue to be, considerable uncertainties it should be possible to formulate working assumptions about Covid-19 impacts on revenue and expenditure options.

It is strongly recommended that councils consider more than one rating option for the 2020/21 financial year and the longer-term impacts of each option.

A late annual plan is still a valid plan

Councils should make best endeavours to adopt the annual plan by 30 June.  However, if a council expects to be late in adopting its annual plan and rate-setting, it should inform both the Department of Internal Affairs and the council auditors as soon as possible.

An annual plan adopted after 30 June will be lawful unless it is held to be unlawful by the High Court in a successful judicial review proceeding.  If the only issue in a judicial review is late adoption of the Plan, we consider it unlikely that the Plan would be declared invalid by the Court, particularly if it was adopted within a reasonable time after the statutory deadline, the delay can be explained, and the plan is not acted on until it is adopted.

In addition to the central government support packages, councils have options for supporting financially stressed ratepayers

In thinking about setting rates in your 2020/21 rates resolution, consideration could also be given to ways that financially stressed ratepayers might be supported by the council, including:

Shifting penalty dates on prior year’s arrears

The Local Government (Rating) Act 2002 (LGRA) lets councils charge 2 penalties of up to 10% on outstanding arrears from the previous year.  If your council doesn’t already push these out, you could recommend applying the first of these penalties in November or December 2020 and the second in May or June 2021. You’ll want a date that fits with your invoicing cycle, but by pushing penalties out you give ratepayers who couldn’t pay their last instalments the maximum time to fix the problem before further penalties are added. You will need to specify these dates at the time you set your rates.

Lowering the maximum penalty rate

The Rating Act permits penalties not exceeding 10%. You can set them lower.  With interest rates so low, you could consider a lower penalty charge this year. You will need to specify the penalty rate at the time you set your rates.

Introducing different payment cycles for ratepayers with seasonal income

Some councils already have different ratepayers on different instalment dates.  You could consider setting up instalment cycles for some seasonal businesses that more closely aligned with their income streams, to help with their cashflows. You would need to specify the different cycles and dates in your rates resolution. You would also need to be sure your rating software could handle this.

Considering how best to implement a recent revaluation

If you had a general revaluation this year, then no doubt you will be dealing with variable rates increases and decreases throughout your district. The law requires the revaluation to be implemented this year – it cannot be deferred. You could amend your rates remission policy so that rates increases were limited  this year.  However, the lost revenue from that remission would be spread over all ratepayers.

If the annual plan is going to be late you can still issue an interim rates invoice

A council cannot lawfully set rates for the 2020/21 financial year before its annual plan for that year is adopted.  However, s.50 of the LGRA enables councils to issue an interim rates invoice for not more than 25% of the rates payable in the previous year.

Thinking about changing rates from what was previously indicated?

Whether a council can adopt a different level of rates change from what it has consulted on (or not) depends on whether:

·    the option was within the scope of what was consulted on;

·    it is reverting to what the long-term plan (LTP) said the level of rates change would be; and

·    it is a significant or material change.

Any council considering significantly different levels of rates to what was previously indicated to its community, should assess their circumstances against their significance and engagement and revenue and financing policies.  This will inform judgements about how best to ensure ongoing statutory compliance and/or the need for consultation on the new or altered approach.

Changing service levels and transfer of strategic assets

If rates are to be held at lower levels than what was planned councils will, of course, look to reduce expenditure and in doing so s.97(1)(a) of the LGA02 will become particularly relevant. If a council proposes a change in service as an intended response to Covid-19, it would need to consider carefully whether that triggers the requirement for an LTP amendment.  Councils should engage with their auditors and other advisors throughout this process.

However, note that if a council did not plan to reduce a service level but simply could not meet the planned service level because of Covid-19 Alert rules then this would not usually require an LTP amendment.

A council response that would result in a council either losing or gaining control of a strategic asset would also require an LTP amendment.

Section 80 of the LGA02

Apart from the decisions that require an amendment to the LTP, councils always have the option of applying s.80 of the LGA02 to the decisions they need to make this year. It is important, if a council goes down this path, to consider and document the Council’s decision in a way that complies with that section.  Note that s.80 applies to decisions that are inconsistent with any policy or plan.

Balanced budget requirement and financial prudence

We are aware that some councils are considering borrowing to fund operating costs given the extraordinary situation they face.  Councils are therefore reminded that they are obliged to manage their financial dealings prudently and that includes consideration of the current and future interests of the community.

A council could decide to set an unbalanced budget for 2020/21 if it considers it financially prudent to do so after considering:

·    s.101(1) and (2) of the LGA02; and

·    the matters stated in section 100(2)(a) to (d) of the LGA02.

Prudence requires an overall assessment of circumstances and decision-making that takes a long-term view with consideration of future financial and non-financial consequences of the decision.  A short-term decision in response to Covid-19 (eg, reducing rates and/or service cuts) might seem prudent now, but may actually impact badly on the community’s longer-term capacity to recover – as the economic impacts of Covid-19 are likely to be felt beyond the 2020/21 financial year.

 

Councils may wish to consider options for balanced and unbalanced budgets in the next and following few years to ascertain which is the most prudent approach and that which promotes the interests of the community, noting that:

·    an unbalanced budget in one year will have future financial implications that will need to be managed in later years;

·    consideration will involve a balance between supporting local economies now while maintaining appropriate investment levels for the future; and

·    councils may consider it is too early to assess the effects of government support on the community and accordingly whether there is a need to run an unbalanced budget.

The decision to set an unbalanced budget should be made before the annual plan is adopted. The resolution should record the council’s consideration of the matters identified above.

 

Depending on what the budget for the relevant year in the LTP is, a desire to set an unbalanced budget may also require annual plan consultation. The consultation material should set out why the Council considers an unbalanced budget to be desirable, again with reference to the matters above. It should also provide an options analysis that complies with s.77 of the LGA02.

 

If the unbalanced budget decision involves materially funding operational expenditure from debt, this may be at variance with the revenue and financing policy and may need to be addressed by either an amendment to the policy (requiring consultation) or compliance with s.80 of the LGA02.

Note also that the decision to borrow money other than provided for in the LTP cannot be delegated and must be made by the full council [refer to cl.32(1)(c) of Schedule 7 of the LGA02].

Consultation considerations

Online engagement is sensible, but consultation using only the internet is unlikely to be adequate in terms of s.82 of the LGA 02.  Councils should provide consultation information in their usual ways except by any means which would breach Covid-19 lockdown rules, or which are no longer available due to external constraints (eg, community newspapers no longer being published/delivered).

Councils should also consider alternatives to the internet, such as:

·    using local radio stations to raise awareness and provide information about engagement and participation opportunities;

·    options for contacting people by telephone and enabling telephone submissions;

·    household mailouts and/or special deliveries of printed documents under certain circumstances; and

·    accepting and processing hard copy submissions by post with reference to advice from health authorities.

We note that current advice on essential services published by the Ministry of Business Innovation and Employment advises that “News (including news production) and broadcast media is considered essential. Daily delivery of newspapers is considered essential. Non-daily newspapers for communities that are hard to reach due to physical location and with limited access to digital connectivity, or for non-English language material audiences are considered essential.”

Legal advice commissioned by LGNZ and SOLGM from Simpson Grierson


Attachment 4

Appendix 4 - Detailed indicative rating information

 

Detailed rating impact information on options

 

Section A- Rates increase of 3.8% (for comparison purposes to 7.9%)

Table A: By Property category, 3.8% rates increase

 

Table B: Average residential property by suburb, 3.8% rates increase

 

Section B - Rates increase of 7.9%

Table C: By Property category, 7.9% rates increase


 

Table D: Average residential property by suburb, 7.9% rates increase



[1] Based on a 7.9% rates increase and average changes in property value Wainuiomata would have an 18% rates increase, Naenae 15%, Stokes Valley and Taita 13%.

[2] www.govt.nz/browse/housing-and-property/getting-help-with-housing/getting-a-rates-rebate/