HuttCity_TeAwaKairangi_BLACK_AGENDA_COVER

 

 

Komiti Iti Mahere ā-Ngahurutanga / Mahere ā-Tau Long Term Plan/Annual Plan Subcommittee

 

 

22 October 2021

 

 

 

Order Paper for the meeting to be held in the

Council Chambers, 2nd Floor, 30 Laings Road, Lower Hutt,

on:

 

 

Monday 1 November 2021 commencing at 2.00pm

 

 

This meeting will be held under Alert Level 2.

 

 

Membership

 

 

Mayor C Barry (Chair)

Deputy Mayor T Lewis (Deputy Chair)                                                                                             

Cr G Barratt

Cr J Briggs

Cr K Brown

Cr B Dyer

Cr S Edwards

Cr D Hislop

Cr C Milne

Cr A Mitchell

Cr S Rasheed

Cr N Shaw

Cr L Sutton

 

 

For the dates and times of Council Meetings please visit www.huttcity.govt.nz

 

Have your say

You can speak under public comment to items on the agenda to the Mayor and Councillors at this meeting. Please let us know by noon the working day before the meeting. You can do this by emailing DemocraticServicesTeam@huttcity.govt.nz or calling the Democratic Services Team on 04 570 6666 | 0800 HUTT CITY


HuttCity_TeAwaKairangi_SCREEN_MEDRES

 

PURPOSE

To carry out all necessary considerations and hearings, precedent to the Council’s final adoption of Long Term Plans (LTP) and Annual Plans (AP) which give effect to the strategic direction and outcomes set by the Policy, Finance and Strategy Committee through setting levels of service, funding priorities, the performance framework and budgets.

 

Determine:

§  Development of a framework and timetable for the LTP and AP processes.

§  The nature and scope of engagement and public consultation required.

§  Statements to the media.

§  Such other matters as the Subcommittee considers appropriate and which fall within its Terms of Reference.

§  Informal engagement with the community, and the hearing of any formal public submissions.

§  Consideration of submissions on Hutt City Council’s Assessment of Water and Sanitary Services.

 

Consider and make recommendations to Council:

§  Levels of service, funding priorities, performance framework, budgets, rating levels and policies required as part of the LTP or AP, excluding any policies recommended to Council by the Policy, Finance and Strategy Committee.

§  Consultation Documents.

§  Council’s proposed and final LTP.

§  Council’s proposed and final AP.

§  Final content and wording, and adoption of the final Hutt City Council Assessment of Water and Sanitary Services.

Note:

Extract from the Controller and Auditor General’s October 2010 Good Practice Guide: Guidance for members of local authorities about the Local Authorities (Members’ Interests) Act 1968

 

 

Appointment as the local authority’s representative on another organisation

5.47       You may have been appointed as the authority’s representative on the governing body of a council-controlled organisation or another body (for example, a community-based trust).

5.48       That role will not usually prevent you from participating in authority matters concerning the other organisation – especially if the role gives you specialised knowledge that it would be valuable to contribute.

5.49       However, you could create legal risks to the decision if your participation in that decision raises a conflict between your duty as a member of the local authority and any duty to act in the interests of the other organisation. These situations are not clear cut and will often require careful consideration and specific legal advice.

5.50       Similarly, if your involvement with the other organisation raises a risk of predetermination, the legal risks to the decision of the authority as a result of your participation may be higher, for example, if the other organisation has made a formal submission to the authority as part of a public submissions process.

 

    


HUTT CITY COUNCIL

 

Komiti Iti Mahere ā-Ngahurutanga / Mahere ā-Tau | Long Term Plan/Annual Plan Subcommittee

 

Meeting to be held in the Council Chambers, 2nd Floor, 30 Laings Road, Lower Hutt on

 Monday 1 November 2021 commencing at 2.00pm

 

ORDER PAPER

 

Public Business

 

 

1.       OPENING FORMALITIES - Karakia Timatanga     

Kia hora te marino

Kia whakapapa pounamu te moana

He huarahi mā tātou i te rangi nei

Aroha atu, aroha mai

Tātou i a tātou katoa

Hui e Tāiki e!

May peace be wide spread

May the sea be like greenstone

A pathway for us all this day

Let us show respect for each other

For one another

Bind us together!

 

2.       APOLOGIES

3.       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.

4.       CONFLICT OF INTEREST DECLARATIONS

Members are reminded of the need to be vigilant to stand aside from decision making when a conflict arises between their role as a member and any private or other external interest they might have     

5.       Recommendations to Council| Te Kaunihera o Te Awa Kairangi -
1 November 2021

a)      Draft Annual Plan 2022-2023 (21/1595)

Report No. LTPAP2021/5/241 by the Manager Financial Strategy & Planning           6

Chair’s Recommendation:

“That parts (1)-(5) contained in the report be endorsed and part (6) contained in the report be discussed.”

 

 

 

 

b)      Eastern Bays Shared Path Delivery Model (21/1655)

Report No. LTPAP2021/5/243 by the Head of Transport                           22

Chair’s Recommendation:

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

 

c)      Transport Programme 2021-2024 (21/1462)

Report No. LTPAP2021/5/242 by the Head of Transport                           33

Chair’s Recommendation:

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

 

6.       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.

 

 

 

 

Kate Glanville

SENIOR DEMOCRACY ADVISOR

 


                                                                                       0                                                 01 November 2021

Long Term Plan/Annual Plan Subcommittee

05 October 2021

 

 

 

File: (21/1595)

 

 

 

 

Report no: LTPAP2021/5/241

 

Draft Annual Plan 2022-2023

 

Purpose of Report

1.    The purpose of this report is to provide direction and set core assumptions in relation to the Draft Annual Plan 2022-2023.

Recommendations

That the Subcommittee recommends that Council:

(1)   agrees the high level plan as detailed in table 1 outlined in the officer’s report;

(2)   notes the Long Term Plan 2021-2031 Financial Strategy principles;

(3)   agrees that affordability of rates continues to be a key consideration in the preparation of the Draft Annual Plan 2022/23;

(4)   agrees to maintain the balanced budget projection to be achieved by 2028/29, refer section C outlined in the officer’s report;

(5)   agrees to the proposed assumptions as detailed in section E outlined in the officer’s report; and

(6)   considers any further direction and guidance to be provided to officers ahead of preparation of the Draft Annual Plan 2022-2023.

 

Acronyms:

DAP – Draft Annual Plan 2022-2023

LTP – Long Term Plan 2021-2031

Capex – capital expenditure

Opex – operating expenditure

LGA – Local Government Act 2002

Section A - Background Long Term Plan 2021-2031

2.    The LTP was adopted by Council on 30 June 2021.  This lays out Council’s strategic intent and direction for the 10 years from 2021-2031.

3.    The LTP sets Council’s new strategic direction of getting the basics right to address the challenges that are being faced by the city and achieve the vision for Lower Hutt of a city where everyone thrives.

4.    The LTP focused on six key priority areas:

·    Investing in infrastructure | Whanake i ngā poupou o te hapori

·    Increasing housing supply | Hei āhuru mōwai mō te katoa

·    Caring for and protecting our environment | Tiaki taiao

·    Supporting an innovative, agile economy and attractive city | Taunaki ōhanga auaha, tāone whakapoapoa

·    Connected communities | Tūhono hapori

·    Being financially sustainable | Whakauka ahumoni

5.    The LTP included a significant increase in investment in core infrastructure, including $587M investment in three waters, $406M investment in transport, and up to $68M in Naenae pool.

6.    The rates revenue increase in 2021-22 was 5.9% (excluding growth and the impact of changes to Council’s waste services).

7.    A significant amount of work went into the LTP to ensure the budgets were appropriate.  Council made a range of decisions to address matters across Lower Hutt. As such the DAP is not expected to be a full rework of the decisions in the LTP.  It is only expected to be an update and refresh on where we were when the LTP was completed.

8.    The LTP went through an extensive consultation process with the community where we went out to the community to ask if they agreed with Council priorities. This included publication through a range of media channels, community meetings and in person hearings with Council.

9.    The LTP also went through an audit process by Audit New Zealand.  It received an unqualified audit opinion. In essence this means the LTP provides a reasonable basis for long term decision making and accountability to the community.

Section B - High Level Plan for AP 2022-2023

10.  Council is required to prepare an Annual Plan in the intervening years between an LTP.

11.  Table 1 below sets out the proposed timeline for the Annual plan process.

Table 1: High Level Plan

Activity

Date

Status

Officers progress initial planning and preparation

August/September 2021

Complete

Council endorsement of high level plan and key assumptions.

1 November 2021

Today

Council meeting – Review of cost pressures, work programme changes and reprioritisation, funding options.

16 December 2021

Not started

Initial DAP and draft engagement material reviewed by Council

16 February 2022

Council adopt DAP and engagement material for public engagement

21 March 2022

Public engagement

April 2022

Hearing of submissions and related advice

May 2022

Council meets to make final decisions

7 June 2022

Council adopts the AP and sets the rates

30 June 2022

Section C – Strategic Financial context

12.  Council’s Financial Strategy promotes the sustainable funding of services and is guided by the key principles of:

·    The financial strategy enables Council’s contribution to the vision for Lower Hutt.

·    Fairness and equity – the funding of expenditure is equitable across both present and future ratepayers.

a.  Intergenerational equity – the cost of long-term assets should be met by ratepayers over the life of those assets. This is reflected by debt funding new assets and funding the replacement or renewal of assets from rates.

b.  Balanced budget – projected operating revenue over the lifetime of the Long Term Plan is set at a level sufficient to meet projected operating expenses, ensuring that current ratepayers are contributing an appropriate amount towards the cost of the services they receive or are able to access; i.e., ‘everyday costs are paid for from everyday income’.

·    Prudent sustainable financial management – budgets are managed prudently and in the best interests of the city in the long term. Debt must be maintained at prudent levels and be affordable.

·    Ability to pay (affordability) – affordability is an important consideration as it ensures that we transparently consider the ability of our diverse community to pay rates as part of the decision-making process. Consideration will be given at both the macro level (i.e., generally affordability to most) and also at the micro level (i.e., for a specific individual where rates rebates, remissions or postponement policies may be required).

·    Value for money – any proposals must contribute to the strategic outcomes agreed with the community, and the total cost must be reasonable. The cost-effectiveness of the funding mechanism must be considered.

·    Prioritisation of investment choices – careful consideration is given to investment choices and options, and priority given to core infrastructure investment and ‘invest to save’ options.

·    Environmental sustainability – funding decisions will consider community outcomes Council seeks, including wider environmental and climate change impacts.

·    Distribution of benefits – consideration is given to the distribution of the benefits from Council activities over identifiable parts of the community, the whole community or individuals (users). Where there are identifiable direct benefits, the proportion of costs associated with these benefits should be covered by the user(s).

·    Growth pays for growth – the capital costs incurred to develop infrastructure that supports growth within the city should be primarily covered by those causing the growth and increasing the demand on Council infrastructure.

·    Good financial governance and stewardship – good stewardship of Council’s assets and finances requires Council to ensure that its actions now do not compromise the ability of future councils to fund future community needs. Under this principle:

a.  Assets must be maintained at least at current service levels to avoid placing a financial burden on future generations.

b.  Debt must not be used to fund operating expenditure other than in specific exceptional circumstances.

c.  The level of debt is regularly reviewed to ensure that it is at a level that will not restrict a future council’s ability to fund new assets through debt.

d.  The consequential operational expenditure implications of capital expenditure decisions are considered.

Balanced budget and requirement for financial prudence

13.  Council’s total assets are worth $1.7B and include infrastructure assets, land and buildings; whilst total liabilities are lower at $0.3B and include borrowings and payables to suppliers. The LTP includes capital investment plans for the 2022/2023 year of $167M, which comprises $59.9M to replace existing assets, $102.7M to improve the level of service and $4.1M to meet additional demand for services.

14.  As part of the LTP a direction was set to move Council towards achieving a balanced budget.  However, this will not happen until the 2028/29 financial year. Council is currently projected in the LTP to make a balanced budget deficit of $24.6M in the 2022/23 year. Council budgets fund the wide range of services delivered by Council and cover the cost of asset maintenance.

15.  There are a range of cost pressures facing Council for both existing services and assets (such as contractual cost escalations), as well as for new funding and investment needs.

16.  In determining the rates revenue requirements for the DAP, the legislative requirements related to a balanced budget and financial prudence are fundamental considerations.

17.  Section 101 of the LGA requires all local authorities to “manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community.”

18.  Section 100 subsection 1 of the LGA states: A local authority must ensure that each year’s projected operating revenues are set at a level sufficient to meet that year’s projected operating expenses.

Section 100, then goes on to say:

2) Despite subsection (1), a local authority may set projected operating revenues at a different level from that required by that subsection if the local authority resolves that it is financially prudent to do so, having regard to—

(a) the estimated expenses of achieving and maintaining the predicted levels of service provision set out in the long-term plan, including the estimated expenses associated with maintaining the service capacity and integrity of assets throughout their useful life; and

(b) the projected revenue available to fund the estimated expenses associated with maintaining the service capacity and integrity of assets throughout their useful life; and

(c) the equitable allocation of responsibility for funding the provision and maintenance of assets and facilities throughout their useful life; and

(d) the funding and financial policies adopted under section 102.

19.  The balanced budget is calculated by removing non-cash items and revenue received for capital improvements.  Council’s balanced budget target is defined as the Local Government (Financial Reporting and Prudence) Regulations 2014 definition, modified to exclude from the definition of revenue Waka Kotahi NZ Transport Agency’s capital improvement subsidies and central government’s COVID-19 Response and Recovery co-funding for Naenae Pool and the Eastern Bays Shared Path. This modified target provides a better reflection of what council’s operating result by removing further capital revenue items than required by the legislative standard.

20.  Graph 1 below shows Council’s balanced budget position with the direction set for the next 10 years in the LTP.

Graph 1: Balanced budget forecast

21.  The LTP included a significant uplift in Council’s capital programme. Debt levels increase in line with this to fund the increased capital programme.  Debt limits in the financial strategy were increased to 250% of revenue to accommodate the increased capital programme


 

22.  Graph 2 below shows Council’s net debt position projected for the next 10 years in the LTP compared to the financial strategy debt limit.

Graph 2: Council debt projection

23.  It is important that Council remains financial prudent and continues to move towards achieving a balanced budget by 2028/29. Council decisions to increase service levels along with fund cost pressures will need to be balanced to stay on the path laid out in the LTP.

Section D - Non-financial drivers, assumptions and priorities

24.  As part of the background work for the LTP, officers researched the global forces and trends that are shaping and changing the world and their implications for New Zealand and Lower Hutt. We began with a PESTLE analysis[1] and, to help investigate and analyse the likely local impacts of these global trends, officers from across Council completed a series of papers providing a Te Awakairangi ki Tai view of the potential impacts of these trends on the social, cultural, economic, and environmental wellbeing of our communities.

25.  Research also explored the factors needed for our communities to thrive and local government’s role in ensuring these components are present in our communities. The agreed directions, assumptions and priorities are:

·    Strong mana whenua partnership

·    Adapt and develop Council’s role to enable communities to shape and determine their future

·    Need to adapt to climate change and consider this across all business areas – it’s everyone’s responsibility

·    Inequity will grow unless addressed

·    Achieving our aims in a financially sustainable way

·    Population growth will be consistent with forecasts

·    Housing need and demand will continue to grow as will need for higher quality housing

·    Significant investment is required in the water system

26.  Officers have reviewed the work completed and considered whether there has been sufficient movement or change in any of the areas to warrant revising the agreed directions, assumptions and priorities.  Officers consider the current agreed directions, assumptions and priorities are still relevant and will continue to be in the short to medium term.

27.  The ongoing impact of COVID-19 will continue to be felt across all sectors in the city economically. There may be social issues associated with people’s ongoing refusal to be vaccinated and the reaction to this by others in the community causing a split in the wider community and also potentially a greater number of COVID-19 cases and deaths in the community. Strong community connectedness becomes even more important as a way of mitigating this potential impact.  

Section E – Budgeting process & key financial assumptions

Budgeting process

28.  As part of the LTP a full base budget review was undertaken to help ensure baseline funding and projects in the plan were appropriate. As such budgets set in the LTP are intended to be used as the baseline for the DAP.

29.  The baseline budgets will be used as a starting point and adjusted for specific circumstances detailed as follows:

·    Unavoidable increases (such as known rent reviews, contractual cost escalations and reviews, salary increases).

·    Known decreases (such as one-off items, items no longer required, known savings such as contract rate reductions).

·    Approved service level changes.

·    Other justifiable changes approved.

30.  There are a range of cost pressures facing the council for existing services and assets. Some examples include the Waka Kotahi funding gap (referred to in a separate report on this agenda), increasing Emissions Trading Scheme costs as well as general cost escalations.

31.  A range of financial risks have also been identified in preparation of the DAP.  The impact of COVID-19 continues to disrupt supply chains and reduce the talent pool for staffing resources. Wage growth, including the cost of the living wage, continue to add pressures to our staffing costs.

32.  Council has budgeted a significant uplift in in its capital programme over the initial years of the LTP. In conjunction with COVID-19 supply chain issues, the achievability of the capital programme remains an area of risk.

33.  Project costs will be updated to reflect the latest information relating to projects, which will include likely timing and the latest estimated costs of projects.

34.  There will be the opportunity for Council to potentially stop, pause or delay projects where possible, or consider opportunities to review the level of service planned with the proposed programme. Council may have early direction or guidance for officers ahead of the preparation of these budgets and options. A $10M delay in capital expenditure for one year, results in lower debt and savings in interest costs of about $250k for the year the project is delayed.

Revenue Assumptions

Estimated growth in the rating base

35.  Rates income is expected to be received from growth in the rating base as a result of new builds and property investment. This will increase the net rates revenue earned without impacting on existing ratepayers. The growth rate used in the LTP is shown in Table 2. This assumption remains valid.

36.  This growth impacts for 2021/22 will be updated as the year progresses to reflect real growth impacts before the preparation of the final AP.

Table 2: Proposed assumption for rates revenue from growth in the rating base

 

2022/23

2023/24

2024/25

2025/26

2026/27

2027-2031

Growth in the rating base

1.1%

1.1%

1.1%

1.1%

1.1%

1.1%


Planned rates increase

37.  Council signalled in the LTP a rates increase for the 2022/23 year of 5.9% (refer table 3). Council is under a number of known cost pressures. Council decisions subsequent to the LTP affecting service levels and any cost pressures that cannot be managed within the operating baseline will require consideration on the impact on rates or will impact Council’s ability to achieve a balanced budget by 2028/29.

38.  Delaying the timeframe for achieving a balanced budget is a balance of rates affordability compared to financial prudence.  Without finding corresponding savings or additional revenue to balance any cost increases, council will need to consider the use of rates to continue to move towards a balanced budget. Officers do not recommend moving the achievement of a balanced budget past 2028/29.


 

39.  Table 3 details the rates increases planned in the LTP for the 2022/23 year and future years.

Table 3: Planned rates increases in the LTP

 

2022/23

2023/24

2024/25

2025/26

2026/27

2027-2031

LTP planned rates increase (excluding growth)

5.9%

5.9%

7.2%

7.2%

7.2%

7.2%


Waka Kotahi funding

40.  Council receives significant funding through Waka Kotahi as our funding partner for transport related activities. In the LTP Council assumed a funding assistance rate of 51% for almost all roading spend.  Waka Kotahi has since confirmed actual funding that will be available for the first three years of the LTP. This shows there will be a funding deficit for maintenance activities. A separate report is included in today’s agenda requesting Council decision on how to address this funding deficit.  The DAP will be updated to reflect this decision.

Fees and charges

41.  The starting assumption for all fees and charges set through the LTP was for them to increase by a minimum of inflation each year to ensure revenue through fees and charges kept pace with rising costs. Officers propose that this assumption remains appropriate for the DAP.

42.  There will be some exclusions, such as fees and charges set by bylaw or other legislative means. Further changes may also be required following detailed budget review for fee funded activities.

Development Contribution funding

43.  Alongside the LTP, Council consulted on an updated development and financial contributions policy.  This policy included updates for Council’s capital programme and reflects the financial strategy principle of growth pays for growth.  Under the new policy Council expects to receive approximately $37.5M of development contribution revenue over the 10 years of the LTP. This assumption remains valid.

Crown Infrastructure Partners funding

44.  The LTP includes funding of $27M for Naenae Pool and $15M for eastern bays shared path from Crown Infrastructure Partners through the COVID-19 response and recovery fund.  The total revenue expected for these projects remains a valid assumption. However, timing of the revenue will be adjusted to reflect updated phasing of these projects.


 

Operating and capital expenditure assumptions

Three waters reform

45.  The LTP was prepared on the basis that Council will continue to operate three waters services.  This is on the basis that there remain uncertainties unto the outcome and implementation of the proposals.

46.  The reforms have the potential to affect a range of financial and service aspects for the Council. While the changes will impact the information that the Council presents, the activity will continue, led by any new entity created.

47.  Based on the information available at this point it remains appropriate to continue to assume council will continue to operate these services and therefore will include three waters in DAP forecasts.

Inflation rates

48.  The published BERL Local Government Cost Index for New Zealand (LGCI) is applied. This is standard practice across New Zealand Councils. Table 4 shows the published BERL projections from the LTP together with the most recent updated BERL projections received 21 October 2021. Officer advice is to update the LTP inflation adjustors with the latest BERL projections for the Annual Plan 2022/23. This would impact both budgeted revenue and expenditure. Whilst would this would be the default applied across budgets, where budget managers have actual known inflation cost adjustors (for example in contractual arrangements) then these would be applied. 

Table 4: LTP inflation adjustors

 

2022/23

2023/24

2024/25

2025/26

2026/27

2027-2031

Inflation increases in LTP (BERL LGCI 2020)

2.9%

2.9%

2.9%

2.9%

2.8%

2.85%

Inflation increases in DAP (BERL LGCI 2021)

2.4%

2.3%

2.4%

2.6%

2.7%

2.1%

 


 

Interest rates

49.  Specialist treasury advice is being provided to inform the DAP. Initial base interest rate assumptions for borrowings are proposed in table 5. This is based on information from Council’s treasury portfolio and market conditions.

Table 5: Proposed assumption for interest costs of borrowings

 

2022/23

2023/24

2024/25

2025/26

2026/27

2027-2031

LTP cost of borrowings

2.46%

2.64%

2.89%

3.18%

3.32%

3.66%

DAP Cost of borrowings

2.92%

2.93%

3.01%

3.15%

3.19%

3.32%


Employee costs

50.  Council’s remuneration advisors Strategic Pay complete salary surveys and provide advice on the likely market increases. The March 2021 data has forecasted movements for local government to be 1.9%, whilst market movements for private sector are 1.5% and public sector 1%, with a combined general market rate of 1.4%. A recent Strategic Pay poll has since suggested that at least a third of participants felt base salary forecasts of 2 to 3% were more likely.

51.  Council’s remuneration policy is to pay on average, market median. Our framework is designed to ensure staff initially paid at the lower end of the salary range for a position can make progress towards the midpoint of that position and enables higher increases, where required, to address market pressures, to recognise performance and to retain key staff and critical skillsets. Our Collective Agreement provides for a minimum increase of 1.5% for eligible union members.

52.  Officers recommend an annual 2.5% assumed budget increase to employee costs for the DAP, which is in line with the LTP assumption. This is expected to enable Council to meet market increases as well as our obligations as a living wage employer which is leading to compression, particularly of lower level roles across our organisation. The Living wage increased 4.5% in 2020 and 3% in 2021. New hires (predominantly from the public sector) are expecting higher levels of pay, which has caused parity issues and puts pressure on pay and expectations of existing staff.

53.  Ongoing COVID related issues such as skill shortages, higher levels of turnover and increased employee expectations in relation to pay are also expected to continue. While the public sector has introduced pay restraint, their existing rates of pay can be significantly higher that Councils. With public sector being where a number of our people come from, while we can not always be competitive on pay alone, we will need to ensure we have the ability to attract the right people with the key capabilities we require.

Section F – Consultation and engagement

54.  The LTP engagement and consultation process enabled many opportunities to improve the planning process and address a range of challenges associated with engaging with communities that are harder to reach out to, timeframes, the scheduling of hearings, and the collation, analysis and reporting of submissions for Council and our communities. 

55.  The success of the engagement and consultation in involving our communities in decision making resulted in a LTP/10 Year-Plan, vision and six priorities for the city that are largely supported across the community.

The legislation

56.  Under Section 95(2A) of the Local Government Act 2002, if the proposed Annual Plan does not include significant or material differences from the content of the LTP for the financial year to which the proposed Annual Plan relates then Councils can choose not to formally consult. 

Significance and Engagement Policy

57.  Council’s Significance and Engagement Policy: 

·    sets out the general approach Council will take to determine the significance of proposals and decisions relating to issues, assets or other matters; and

·    provides clarity about how and when communities can expect to be engaged in decisions about different matters depending on the degree of significance the council and its communities attach to those matters.

58.  All Council decisions must be made in accordance with the decision-making requirements of the Local Government Act 2002 (set out in sections 76AA-81). Council must also ensure that the community gets every opportunity to engage with the decision making process particularly in cases where the decision being made is significant and may be a material departure from existing policy.  Council must make a judgement about how to comply with the Act in a way:

·    that reflects the significance or materiality of the matter under consideration; and

·    enhances the community’s ability to engage.

59.  This policy explains Council’s approach to determining the significance or materiality of a decision and lists the thresholds, criteria and procedures that Council and its community will use in the assessment. 

60.  A decision about budgets, assets and other matters is significant if it will mean a material departure from existing policy.  A difference or variation is material if it could, itself or in combination with other differences, influence the decisions or assessments of those reading or responding to the engagement document. 

61.  The type of decisions a Council and its community must make can range from those that are trivial in nature to those that are of major importance. The Council must decide where in the range of trivial to very important a decision sits and what level of analysis and engagement is appropriate every time a decision is made.

62.  The significance (materiality) range has a threshold at which point decisions are deemed to be ‘significant’. If an issue requiring decision is determined to be ‘significant’ the council must meet its consultation obligations under the LGA 2002.

63.  The three key areas of the Significance and Engagement Policy that will be most relevant to decisions on the extent of engagement for the DAP are: 

i.    The extent to which the matter flows logically and consequentially from a significant decision already made or from a decision in the LTP or the Annual Plan.

 


Matter has not been signalled in the LTP or is contrary to a position taken in the LTPMatter has been signalled in the LTP 

 

 

 

ii.   The extent of the matter in terms of its net cost to the Council. Where a decision has not been highlighted through the LTP or Annual Plan, a decision involving a change in spending of more than 10% of the planned capital expenditure for capital items or 5% of the planned operating expenditure for operating decisions will be considered significant. In the LTP this equates to $145M for capital expenditure and $137M for operating expenditure.

 

Low $ amount,High $ amount
 

 

 


 


iii.  The extent to which the matter under consideration is of public interest or controversial within the community.

Low degree of public interest and controversy,High degree of public interest and controversy 

 

 

 


64.  As discussed in the financial section of the paper, there are a number of areas that have budget pressures as a result of increasing costs.  If corresponding savings or revenue cannot be found to compensate for this, there is a risk that the required rates increase or movement in balanced budget position may have to depart from the LTP.  A change such as this would require consultation.

Engagement on the DAP

65.  At this stage, officers are proposing a light touch engagement (not formal consultation) for the DAP.  This recommendation is based on:

·    The assumption that there will not be any significant changes to the budget or rates planned and agreed for the LTP; and

·    the success of the LTP engagement and consultation, the high level of community support that the vision and investment in the six priorities received and the importance of ensuring delivery of the capital investment and operational programme over the next three years. 

66.  A light touch communications/engagement approach would likely include:

·    Some social media

·    Local media advertisements/notices

·    An online survey

67.  In addition we will develop ward based documents that will be similar to the booklets developed in late 2018/early 2019 for the Annual Plan 2019 engagement when Council made the decision not to formally consult.  The 2019 engagement had the tag line “All Going to Plan” and the booklets included information about their rohe and key projects being delivered in their area.  These were well received in the community and provided a good base for engagement.

68.  Preparation work on a communications and engagement plan has started. This will take the approach of ranging from light touch to full consultation. It will enable the organisation to step up to full consultation if this is required.


 

Climate Change Impact and Considerations

69.  The matters addressed in this report have been considered in accordance with the process set out in Council’s Climate Change Considerations Guide.

70.  Implementing the annual plan will help Council achieve its environmental goals through the implementation of key climate related projects in the plan.

Legal Considerations

71.  The most relevant legislation includes the Local Government Act 2002, Local Government (Rating) Act 2002 and the Rating Valuations Act 1998.

Financial Considerations

72.  There are no further financial considerations apart from those detailed in the report.

Appendices

There are no appendices for this report.   

 

 

 

 

Author: Daniel Koenders

Manager Financial Strategy & Planning

 

 

 

Author: Wendy Moore

Head of Strategy and Planning

 

 

 

Reviewed By: Matt Boggs

Director, Strategy and Engagement

 

 

 

Reviewed By: Jenny Livschitz

Group Chief Financial Officer

 

 

 

Approved By: Jo Miller

Chief Executive

 


                                                                                       0                                                 01 November 2021

Long Term Plan/Annual Plan Subcommittee

12 October 2021

 

File: (21/1655)

 

 

 

Report no: LTPAP2021/5/243

 

Eastern Bays Shared Path Delivery Model

 

Purpose of Report

1.    This report provides a progress update on the alliance integration work for Eastern Bays Shared Path Project (the Project) and seeks Hutt City Council (HCC) approval of an alliance delivery model for construction.

Recommendations

That the Subcommittee recommends that Council:

(1)     notes the project budgets (both capital expenditure and revenue) approved by Council in the Long Term Plan 2021-2031 following public consultation, as detailed in the “Financial Considerations” section outlined in the officer’s report;

(2)     notes that Council will be required to approve any increase in funding requirements which exceeds the Long Term Plan 2021-2031 budgeted position;

(3)     notes that officers will report back to the Long Term Plan/Annual Plan Subcommittee meeting on 16 December 2021 on the updated project cost estimates and advice on the funding options;

(4)     notes the nationwide increase in construction costs and that early discussion are on-going with Crown Infrastructure Partners (CIP) and Waka Kotahi to seek additional funding;

(5)     approves the alliance delivery model for the construction of the first two bays (Sunshine Bay and Windy Point);

(6)     delegates to the Chief Executive the authority to sign the Hutt City Council and Waka Kotahi Agreement (the Agreement) to integrate the Eastern Bays Shared Path Project into the Te Ara Tupua Alliance;

(7)     notes that the Agreement will be for construction of the first two bays (Sunshine Bay and Windy Point), with construction of the remaining bays being conditional on Council approval of any increased funding, if necessary; and

(8)     agrees that this Chief Executive’s delegation is limited to the Eastern Bays Shared Path project budget in the Long Term Plan 2021-2031.

 

Background

2.    The Eastern Bays Shared Path Project is a 4.4-kilometre shared path from Point Howard to Eastbourne (excluding the section of Days Bay). This project addresses long term safety concerns for pedestrians and cyclists and will help improve the resilience of the coastal road and shared path from exposure to swells, high winds, and increasing flood events.

3.    The shared pathway also aims to provide links to other parts of the network for recreation and tourism purposes including the Remutaka Cycle trail and Te Ara Tupua. The shared path will range from 2.5m to 3.5m wide and includes reclamation and construction of new structures in the coastal marine area.

4.    The Project objectives are to:

a.    develop a safe and integrated walking and cycling facility on Marine Drive

b.    connect communities along Hutt City’s Eastern Bays

c.     provide links to other parts of the network (current and future) for commuting, recreation and tourism purposes (e.g. the Remutaka Cycle Trail, Te Ara Tupua – Ngā Ūranga ki Pito-One and Petone to Melling sections).

5.    In March 2021, the resource consent was initially granted. Although an appeal was lodged, this was resolved in June 2021, meaning the project is approved to proceed to construction. The project is now shifting from the consenting stage to the delivery stage.

6.    Total funding currently available to the Project is $30m which includes $15m of Crown Infrastructure Partner (CIP) funding, and $7.5m allocated from both HCC and Waka Kotahi

Discussion – Construction Delivery Model

7.    Hutt City has been exploring delivery model options for construction. The Project team have been developing plans and designs and planning to start main construction works on the Windy Point and Sunshine Bay sections of the Project in the first quarter of 2022.

8.    The traditional contract approach (NZS 3910 Measure and Value Contract model) and the alliance model have been considered and explored for the construction phase of the Project.


 

9.    Characteristics of the two models are summarised below:

 

NZS 3910 Measure and Value Contract (Traditional Contract Model)

Alliance Model

1. Programme

Can be controlled with the submitted programme but delivery to time not guaranteed with unforeseen issues and design issues affecting critical path.

Allows for ‘design as you go’ programme of works. Allows for more local resourcing to be used as the project can procure the right resource at the right time to meet programme needs.

2. Budget

Becomes a contractual delivery model where variations and extensions of time will be pursued with any issues that affect the critical path.

Budget can be controlled with a pain/gain relationship. Risk allocation is set at the beginning of the contract, with risk value and ownership shared.

3. Design

Full design responsibility and risk remains with the client.

Design risks will be held, shared and controlled by the alliance team. Mitigations can be outlined and actioned in a timelier manner.

4. Stakeholder engagement

Stakeholder risks can be shared with the contractor.

Stakeholder team will be 100% embedded with the team and able to influence design decisions to deliver best for project outcomes which incorporate and address stakeholder concerns.

 

High risk - budget overspend, programme delays, stakeholders unsatisfied, reputational damage

Medium risk – budget issues, programme creep and acceleration, stakeholder satisfaction is low, some reputational damage.

Low risk – on budget, on or ahead of programme, high stakeholder satisfaction, good reputation.

10.  The traditional contract model is usually selected for lower scale (size and value) and low risk projects with low opportunity for design flexibility and innovation. There are minimal programme constraints and stakeholder management issues. The traditional contract model was contemplated earlier by the Project team during the consenting phase due to the Project’s value (below $50m) and the Project had no programme constraints, which looked into a staged approach over a six-year construction programme for the six bays.

11.  The key influencing factors considered in the selection of the preferred delivery model for the Project are:

a.    the need for speed, to stimulate the economy as soon as possible by creating employment opportunities.

b.    the presence of unquantified risks, including:

i.     constructability risks due to high value ecology environment and constrained road corridor.

ii.    potential challenging weather conditions, creating programme and health and safety risks

iii.   there are multiple stakeholders who have strong expectations on the design and delivery of the Project.  Stakeholder management will be delicate during the construction phase.

12.  This results in a preference for a:

a.    a collaborative style model that allows for collective input and contractor involvement to ensure that high risks associated with constructability are addressed during detailed design, maximising innovation opportunities, flexibility and cost savings.

b.    a model that enables fair risk allocation/ or shared pain/gain model, as the Project includes high risks that cannot be quantified or minimised due to absence of detailed design plans.

13.  In contrast, the alliance delivery model is a relationship-style arrangement, that brings together the client (owner participant) and one or more parties (non-owner participants) to work together to deliver the project, sharing project risks and rewards. Alliances are usually suited to large scale and high risks projects, with complex stakeholders’ issues, difficult environment, social issues, and need for design flexibility.

14.  The traditional procurement approach provides an easier option to go to the market and provides HCC with full control of the scope of the project. In an Alliance, the scope is agreed as part of the negotiations and the Alliance provides a price to deliver the project based on the scope and the risk. This can make the upfront cost of using an Alliance higher, but it provides certainty of the cost.

15.  While HCC would have control of the scope of the project under the traditional approach, the costs can escalate quickly as the Council don’t have control of the costs. If this happens, HCC may need to reduce the scope to ensure the project remains affordable.

16.  The construction of the project under the Alliance would need to be timed with Te Ara Tupua which has a construction period of three years. If the project was not completed by the time the Alliance completed Te Ara Tupua, HCC would be responsible for the full cost of the Alliance until completion.

17.  Waka Kotahi has recently undergone a robust procurement process for the Te Ara Tupua Project, which identified an alliance delivery model and selected Downer, HEB and Tonkin & Taylor team as its partners to deliver the construction of the Ngā Uranga ki Pito-One section of Te Ara Tupua.

18.  Te Ara Tupua is a project to create a walking and cycling link between Wellington and Lower Hutt. It will deliver a safe, connected and attractive route, enabling more people to walk or bike, and connect with local paths in both Wellington and the Hutt Valley. It will also improve the resilience of the corridor and provide a safe transport alternative.

19.  Waka Kotahi selected an alliance delivery model due to the nature of the works involving reclamation and seawalls, working in a highly constrained environment, high value ecology area and managing multiple stakeholder relationships. All these risks support a shared risk delivery model that is flexible and collaborative.

20.  The Eastern Bays Project is very similar in every aspect of the risks highlighted above with the Te Ara Tupua project, thus there is great opportunity to partner with Waka Kotahi in integrating the Project into the Te Ara Tupua alliance (the Alliance).

21.  If Waka Kotahi does not agree on the final price for the Te Ara Tupua project with the Alliance, HCC would need to go out to the market via the traditional procurement approach for construction.

22.  The recommendation is for HCC to enter into the Alliance for construction of the first two bays only. This allows HCC to review the project and determine whether the remaining four bays should be constructed by the Alliance or whether HCC should go to the market.

Alliance integration – update and next steps

23.  In July, HCC and Waka Kotahi signed a Memorandum of Understanding to explore the benefits of integrating the Project into the Alliance. As project best practice, HCC requested the Alliance to carry out a review of the work to date to ensure that the Project is in the right track to construction delivery.

24.  The Alliance review was carried out in phases. Phase 1 of the integration process was to have an initial high-level review of the Project design, cost, risks, programme and understand the benefits and whether the Project is suitable to be delivered through the Alliance. The Alliance Board confirmed in August that there is great opportunity for integration and recommended to proceed to the next phase. 

25.  Phase 2 of the integration process involved the following tasks:

a.    complete a design review of the Issue for Tender (IFT) drawings and provide recommendations and plan to get to Issue for Construction (IFC) for Sunshine Bay and Windy Point. Identify risks and forward plan for design of the remaining four bays.

b.    explore and investigate value engineering opportunities to mitigate design, cost and constructability risks.

c.     develop a detailed construction methodology and programme

d.    undertake a detailed parallel estimate and risk quantification for the first two bays and an updated cost estimate to deliver the other four bays

26.  The Alliance has identified from the Phase 2 review work the following key findings:

a.    The 2020 project cost estimate of $30m for the consent design needs to be updated to reflect current cost escalations in line with COVID-19 effects, an overheated market, and the increasing costs of labour/materials.

b.    Further detailed design and pricing work needs to be completed on the other four bays to have a more robust cost estimate

c.     The cost estimate was based on construction methodology of constructing the seawalls ‘in-situ’ which has constructability, programme, and traffic management issues.

d.    The current design has a ‘falls from height’ issue and there may be additional costs associated to resolve this issue and manage stakeholder expectations.   

 

e.     Community engagement is required for the Land Use and Urban Design Plan before these are submitted and certified before construction can commence.

f.     A traditional contract delivery model has been previously considered to deliver the Project within a six-year programme. There is a risk of significant contract variations, if the identified risks are unresolved prior to a contract award, following an NZS3910 delivery model; with limited collaboration (ie Council owns all risks in a traditional contract model).

g.    The Alliance is currently undertaking a parallel estimate based on the review of the current designs and risks. Initial advice indicates that the cost to build the six bays will be significantly higher than the previous $30m estimate. The Alliance will provide updated costings for the 16 December 2021 Long Term Plan/Annual Plan Subcommittee meeting.

27.  The alliance has identified key opportunities to address these risks:

a.    Proposed gravity block seawall design and ‘pre-cast’ construction method. This reduces the risks of work stoppage due to weather events/sea surge and reduces the construction time by at least 25%. This also addresses the constructability and programme risks. It is also expected to be a reduced risk on the impacts associated with the disruption to residents and the environment.

b.    The new gravity block seawall design has considered the incorporation of wider landings to address the fall from height issue. This addresses the potential safety risk of pedestrians and cyclists falling from a height of more than a metre. This proposal requires further consideration of the consent and falls from height compliance.

c.     Transparent and collaborative pricing approach to achieve affordability in an efficient way, including the integration of an independent estimator to develop a parallel estimate and robust quantification of risks.

d.    Following the Alliance’s review and communication with Wellington Electricity, the power poles will be located on the seaward side. This has required further methodology and design development to ensure the solution is fit for purpose.

e.     Review of 2D utility data has shown that utilities are likely to clash with the excavation footprint; the Alliance’s construction methodology and programme reflect the need to work safely around these services.

f.     The Alliance’s coastal engineer has updated the coastal modelling to better reflect design wave loading to input into the construction methodology and programme.

g.    The Alliance involvement has been able to leverage on the existing relationships with Mana Whenua ensuring best practice are reused on this project, creating tangible efficiencies. 

h.    The Alliance includes key individuals with penguin management experience. The knowledge has been shared with the Project and conservation dogs will be used to confirm penguin location and inform the construction programme and forward management.

i.     The Alliance involvement has enabled the Project’s design to benefit from the extensive experience of contractor involvement. This includes a robust construction programme and consideration of the interface with key design and planning activities. The allocation of risk has been agreed and ensures that best for project approach is ensured.

28.  Based on the assessment of the pros and cons of the two delivery models and understanding the project risks and opportunities, the Project team recommends an alliance delivery model to deliver the construction phase of the Project.

29.  To realise the opportunities and deliver the Project at an affordable cost, the Alliance needs to further progress the designs for the gravity block seawall to develop a robust price and fully understand any consenting and constructability risks. This work will be completed by late November 2021 and the Project team will be in a position to seek HCC’s approval to accept the Alliance’s price proposal to construct the Windy Point and Sunshine Bay sections and cost estimate for the other four bays.

30.  HCC’s procurement policy ordinarily provides for an open, contested tender for this level of spend. The policy does allow for a departure if there are compelling reasons to do so. In this case, the reasons outlined in this report provide a compelling case to consider departing from the policy.

31.  Once the Alliance’s price proposal is accepted by HCC and in order to enable the Alliance to mobilise and start construction in early 2022, the HCC-Waka Kotahi Agreement needs to be signed off as soon as possible. In this regard, the Project team seeks HCC approval to delegate authority to the Chief Executive to sign on behalf of HCC into the HCC-Waka Kotahi Agreement to enable the Project to be integrated into the Te Ara Tupua Alliance.

Climate Change Impact and Considerations

32.  The matters addressed in this report have been considered in accordance with the process set out in Council’s Climate Change Considerations Guide.

33.  On 13 October 2021, an extreme weather event resulted to high swells and debris closing off Marine Drive, which cut-off access for the Eastbourne community. This type of weather event is expected to continue occurring, which places road users and residents at risk. The existing seawalls and road will also be exposed to further damage if nothing is done justifying the need to progress the Project as soon as possible.

34.  The Project will help improve the resilience of Marine Drive by replacing the existing seawalls along the route. Although, the new seawalls are not a full solution to sea level rise (as the road level will remain the same), they will provide the first step enabling future adaptation through later upgrades. This approach means that sea level rise can be monitored, and the seawall can be further modified to meet future needs.

35.  In terms of measuring the sustainability performance outcomes of the Project, the Alliance will be utilising the Infrastructure Sustainability Council of Australia (ISCA) Rating Tool.

36.  The ISCA rating tool covers:

a.    Management and Policies,

b.    Climate Change,

c.     Resource Efficiency,

d.    Environmental Impacts, Ecology and Waste, and

e.     Community, Heritage and Stakeholder Engagement.

37.  In applying the ISCA tool, the Alliance will be required to document the Project’s performance and submit suitable documentation to the rating tool body for independent assessment.

38.  The assessment is completed at the end of the project (ie at the end of the design, end of construction etc).

39.  Projects are assessed on the level of their performance and the number of credits achieved, earning a final rating. The Alliance are seeking to attain a rating of ‘Excellent.’

40.  The ISCA rating tool is being used on a number of projects across Australia and New Zealand. Examples in New Zealand include the City Rail Link (CRL) in Auckland, the McDougall’s Lift Replacement at Cardrona and the Scott Point Sustainable Sports Park.

41.  A CRL example of resource use tracking using the ISCA rating tool is given below.

Consultation

42.  The Project team through the assistance of the Alliance carried out the community open day which was well attended on 2 October 2021. The community appreciated the project update and the opportunity to provide feedback on key design elements of the Project. Further community engagement and focussed discussions will be carried by the Project team in line with the Land Use and Urban Design Plan and the Bay Specific Urban Design Plan. 

43.  The Project was also part of a joint iwi engagement hui along with the Te Ara Tupua and Riverlink projects on 19 October 2021 at the Te Tatau O Te Po Marae in Lower Hutt. This gave the Project the opportunity to consult with iwi and confirm the gifted Māori project name, cultural narrative, and cultural design overlays.

Legal Considerations

44.  A HCC – Waka Kotahi Agreement which covers the integration of the Project into the Te Ara Tupua alliance is currently being drafted between HCC and Waka Kotahi legal teams. The final draft will be ready by December 2021 for HCC’s sign-off if the proposal for alliance integration is accepted.

Financial Considerations

45.  It is important to note that the price to deliver the overall Project (six bays) is likely to be above the $30m approved funding. The new COVID world has resulted in high cost escalations associated with professional services, labour and construction materials.  Some materials such as steel pile casings have increased by as much as 85% over the last year. It is also evident that cost of delivering projects within the region are escalating which can be attributed to an overheated market and high inflation. 

46.  Design review, value engineering opportunities and quantification of risks are being undertaken to have greater price certainty for delivering the overall Project. The Project team will also explore additional funding opportunities with CIP and Waka Kotahi once construction costs have been confirmed by the alliance.

47.  As it relates to the application of the ISCA tool, a recent study, IS Rating Scheme Return on Investment, found that infrastructure projects rated under the ISCA Rating Scheme can deliver up to NZ$2.60 in benefits for every dollar spent.

48.  HCC will need to consider how any cost increase without further CIP or Waka Kotahi funding will be met.  The cost of capital projects is generally met through an increase in debt and the cost of servicing this debt through ratepayer funding. This will have an impact on HCC’s balanced budget position and will need to be considered as part of the Annual Plan 2022-23 process. 

49.  Table 1 and 2 show the budgets in the Long Term Plan 2021-2031 which were approved by HCC following the public consultation process.  This shows the timing of the capital investment as well as the funding from Waka Kotahi and from the COVID response and recovery fund. The Financial Delegations Policy states that HCC’s approval is required to exceed the total LTP budget level. The updated project cost estimates for the Eastern Bays Shared Path Project will be reported to the Long Term Plan/Annual Plan Subcommittee on 16 December 2021, together with advice on the funding options. This will enable HCC to then progress any necessary decisions that may be required and consider the implications for the Annual Plan 2022/23 process.  

 

Table 1: Revenue/Funding sources  included in the LTP

Financial year

$M

2020/21

2021/22

2022/23

2023/24

2024 /25

2025-2031

Total

LTP 2021-2031

 

0.51

3.78

2.64

4.53

3.78

7.17

22.41

Further details:

Waka Kotahi subsidy funding

0.51

1.28

0.89

1.53

1.28

2.42

7.91

Covid response and recovery co-funding*

 

2.50

1.75

3.00

2.50

4.75

14.50

*Covid Response and Recovery co-funding pays for up to $15M share of the Capital outlay of $30M

Table 2: Capital budgets – This is aligned with the signed crown funding agreement

Financial year

$M

2020/21

2021/22

2022/23

2023/24

2024/25

2025-2031

Total

LTP 2021-2031

1.00

5.00

3.50

6.00

5.00

9.50

30.00

 

Appendices

There are no appendices for this report.   

 

 

Author: Jon Kingsbury

Head of Transport

 

Reviewed By: Bradley Cato

Chief Legal Officer

 

Reviewed By: Jenny Livschitz

Group Chief Financial Officer

 

Approved By: Kara Puketapu-Dentice

Director Economy and Development

 


                                                                                       0                                                 01 November 2021

Long Term Plan/Annual Plan Subcommittee

08 October 2021

 

 

 

File: (21/1462)

 

 

 

 

Report no: LTPAP2021/5/242

 

Transport Programme 2021-2024

 

Purpose of Report

1.    The purpose of this report is to inform members that Waka Kotahi, New Zealand Transport Agency, has advised that subsidy from the National Land Transport Programme (NLTP) 2021-24 for our Maintenance, Operations and Renewals work programme has been reduced. Our funding submission for the three year work programme had a total expenditure of $53.3M whereas the approved funding is for a work programme with a total expenditure of $49.0M. The subsidy component of this reduction is $2.2M over the three years. This report also recommends options to accommodate the decrease in funding and seeks Council’s decision on the recommendation.

Recommendations

That the Subcommittee recommends that Council:

(1)     notes and receives the report;

(2)     notes that there is no proposed reduction in the transport operating and capital expenditure as included in the 2021-31 Long Term Plan;

(3)     agrees that the revenue shortfall in operating subsidies estimated at $1.0M in 2023-24 will be considered as part of the Draft Annual Plan 2022-23 funding review process; and

(4)     agrees that the revenue shortfall in capital subsidies estimated at $1.2M in 2023-24 be met through increased borrowings.

For the reasons outlined in the report.

 

Background

2.    Council has tendered a submission to Waka Kotahi for subsidy funding at a Funding Assistance Rate (FAR) of 51% for our Maintenance, Operations and Renewals (MOR) work programme over the 2021-24 NLTP period.

3.    The submission was for $53,268,500, inclusive of subsidy, over the three year period. This work programme is split almost equally between operational expenditure and capital expenditure.

4.    Council’s Long Term Plan 2021-2031 included this work programme and assumed the full programme would receive subsidy at a FAR of 51%.

5.    The submission was supported by the Hutt City Transport Activity Management Plan which provides investment assurance via various information, evidence and data sources.

6.    The MOR work programme includes the maintenance and renewal of our sealed road pavements, drainage assets, traffic assets, footpaths, bridges, retaining walls, seawalls and network services.  It is essentially everything we are responsible for apart from our Improvement Activities (significant projects) and Low Cost Low Risk work programme (minor projects less than $2M in value).

7.    Waka Kotahi has advised that due to budget constraints resulting from Covid related income reductions and major project over-runs, our MOR programme will only receive subsidy funding for a work programme of $49,002,500 over the next three year period. This decision is based on affordability rather than the merit of our investment submission.

8.    Council also tendered a submission to Waka Kotahi for subsidy funding at a FAR of 51% for our Low Cost Low Risk (LCLR) work programme over the 2021-24 NLTP period.

9.    The submission was for total expenditure of $16,647,000, inclusive of subsidy, over the three year period and we received approval for total expenditure of $15,210,000.

10.  The LCLR work programme is more discretionary and less time sensitive than the MOR programme and officers are comfortable the programme can be reduced to align with the approved subsidy without unduly impacting levels of service.

Discussion

11.  Consultation has confirmed that the level of subsidy reduction for the MOR programme is consistent with other Councils across the region.

12.  There are two primary considerations in our response to this subsidy reduction:

a.    Work programme – to what level do we reduce the original programme to align with Waka Kotahi subsidy in the knowledge that replacement Council funding is required to meet any subsidy shortfall.

b.    Timing – when do we accommodate the subsidy reduction with replacement Council funding or a reduced work programme.


 

Options

13.  The options are to:

a.    Reduce the MOR work programme over the three year period to align with the Waka Kotahi subsidy level.

b.    Maintain the proposed work programme via Council funding to replace the reduced subsidy.

c.    Partially reduce the work programme which would require a reduced level of replacement Council funding than Option b.

14.  Officers recommend Option b which will sustain the objectives targeted in the Activity Management Plan, and in particular, maintain the appropriate level of service while optimising the whole of life costs for our transport system. 

15.  The timeliness of maintenance and renewal of our transport network is important in optimising the whole of life cost of these assets. In particular, ingress of water to the road and footpath assets leads to compromised integrity and high remedial costs very quickly. While it is difficult to quantify the impact we would experience with Options a and c, net present value analysis is undertaken in determining the preferred work programme which confirms the economic benefit of Option b.

16.  A reduced work programme as proposed in Options A and C would also result in a reduced level of service on our network and we could expect an adverse reaction from the public with respect to the quality of ride on our roading network and safety of our footpath network.

17.  Further, officers recommend the subsidy reduction, and replacement Council funding, is taken up in Year 3 of the programme.  This will ensure any reduction in programme delivery or improved funding situation is realised before the replacement Council funding is required.

18.  Programme delivery is sometimes compromised by factors beyond our control such as Covid 19 and contractor capacity to carry out the work. In these situations the work programme is reduced, which results in reduced levels of service and increased whole of life costs, but as a consequence of circumstance rather than by design.

19.  Similarly, the Waka Kotahi funding situation can change over each three year funding period and it is not uncommon for funds to become available in year three as work programmes across the country lag behind their forecast timing.

20.  The recommended subsidised expenditure profile for the reduced subsidy MOR work programme is attached as Appendix 1.

21.  There is an expected shortfall in funding in the 2023- 24 financial year of the Long Term Plan of $2.2M covering both operating and capital subsidies. This equates to 51% of $4.27M which is the difference between the original work programme and the reduced work programme that is aligned with the recently advised Waka Kotahi subsidy level. It is proposed that the original work programme as set out in the 2021 – 31 Long Term Plan be retained and the subsidy shortfall for operating and increased borrowings for capital will be considered as part of the Draft Annual Plan 2022 – 23 funding review process.

Climate Change Impact and Considerations

22.  The matters addressed in this report have been considered in accordance with the process set out in Council’s Climate Change Considerations Guide.

23.  There are no climate change impacts or considerations arising from this report.

Consultation

24.  Discussion with officers from Waka Kotahi has been undertaken and no objection has been raised with the recommendation proposed.

Legal Considerations

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

Financial Considerations

26.  The Long Term Plan 2021-2031 was adopted in June 2021.  This included a significant increase in capital budgets across the life of the plan. The plan also details how Council will not achieve a balanced budget until the 2028/29 financial year.  Any increase in costs to the council may impact the timeline for Council achieving a balanced budget position if compensating savings or revenue sources are identified. If further rates revenue funding is required, then there will be an impact on the rates revenue increases to higher levels than was set out in the LTP.

Appendices

No.

Title

Page

1

Appendix 1 -  Budget Request

38

     

 

Author: Jon Kingsbury

Head of Transport

 

 

Reviewed By: Jenny Livschitz

Group Chief Financial Officer

 

 

Approved By: Kara Puketapu-Dentice

Director Economy and Development

 


Attachment 1

Appendix 1 -  Budget Request

 




[1] This is an analysis of the political, economic, social, technological, legal, and environmental trends, and their implications for people, organisations, and regions.