Finance and Performance Committee

separately circulated item

 

 

Notice of Meeting:

An ordinary meeting of the Finance and Performance Committee will be held on:

 

Date:                                     Wednesday 4 April 2018

Time:                                    9.30am

Venue:                                 Council Chambers, Civic Offices,
53 Hereford Street, Christchurch

 

 

Membership

Chairperson

Deputy Chairperson

Members

Councillor Raf Manji

Deputy Mayor Andrew Turner

Councillor Vicki Buck

Councillor Jimmy Chen

Mayor Lianne Dalziel

Councillor Mike Davidson

Councillor Anne Galloway

Councillor Jamie Gough

Councillor Yani Johanson

Councillor Deon Swiggs

Mr Mike Rondel (Non-Voting Member)

 

 

3 April 2018

 

 

 

Principal Advisor

Carol Bellette

General Manager Finance and Commercial

 

Aidan Kimberley

Committee and Hearings Advisor

941 6566

aidan.kimberley@ccc.govt.nz

www.ccc.govt.nz

Note:  The reports contained within this agenda are for consideration and should not be construed as Council policy unless and until adopted.  If you require further information relating to any reports, please contact the person named on the report.
To view copies of Agendas and Minutes, visit:
https://www.ccc.govt.nz/the-council/meetings-agendas-and-minutes/

 


Finance and Performance Committee

04 April 2018

 

 


Finance and Performance Committee

04 April 2018

 

Part A        Matters Requiring a Council Decision

Part B         Reports for Information

Part C         Decisions Under Delegation

 

 

TABLE OF CONTENTS

 

STAFF REPORTS

A       10.     Capital Endowment Fund - Process for Distribution of Funds.................................... 5  


Finance and Performance Committee

04 April 2018

 

 

 

 


Finance and Performance Committee

04 April 2018

 

 

10.    Capital Endowment Fund - Process for Distribution of Funds

Reference:

18/303795

Presenter(s):

Lester Wolfreys – Head of Community Support, Governance and Partnerships Unit

 

 

1.   Purpose and Origin of Report

Purpose of Report

1.1       The purpose of this report is to propose a preferred option for a process to distribute funds generated by income from the Capital Endowment Fund.

Origin of Report

1.2       This report was written in response to Council Resolution CNCL/2016/00429 which confirmed the need for a report on “the process for distribution of funds from the Capital Endowment Fund.”

2.   Significance

2.1       The decisions in this report are of low significance in relation to the Christchurch City Council’s Significance and Engagement Policy.

 

3.   Staff Recommendations 

That the Finance and Performance Committee recommends that the Council:

1.         Resolves that the Capital Endowment fund continues to be managed as a separate ‘ring fenced’ fund that is available to fund projects that are not otherwise provided for through rates revenue or other funding sources available to Council.

2.         Resolves that proposals requesting financial support from the fund are considered by the Council as part of the annual plan process and after six months if there are unallocated funds available in the current financial year.

3.         Requests annual and six monthly reports on the:

a.         current balance of available funding;

b.         future commitments; and details of expended funds for the current financial year; and

c.         anticipated demand for funding during the next 6 months.

4.         Resolves that:

a.         The assessment criteria for proposals in the category of innovation, economic development and environment projects or activities are as follows:

i.          Evidence of the economic or environmental benefits that will be provided;

ii.         Evidence that the benefits will be for the people of Christchurch; and

iii.        Evidence that the benefits will be experienced now and in the future.

b.         The assessment criteria for proposals in the category of Civic and community projects and activities are as follows:

i.       Evidence that the proposal is for a specific project or activity projects;

ii.      Evidence that the project demonstrates a benefit for the City of Christchurch, or its citizens, or for a community of people living in Christchurch; and

iii.     Evidence that the benefits will be experienced now and in the future.

5.         Resolves that all reports proposing project or activities to be funded by the Capital Endowment fund must include:

a.         An assessment of the proposal against the agreed assessment criteria for the category of funding to be drawn from, as set out in clause 4. of this recommendation; and

b.         A clear statement about the effect of the proposed funding on the balance of funds for the category to be drawn from for the period funded.

6.         Resolves that a decision to use capital from the fund requires 80% of all councillors to vote in support.

 

 

4.   Key Points

4.1       This report does not support the Council's Long Term Plan (2015 - 2025).

4.2       The following feasible options have been considered:

·     Option 1 - Continue to manage the Capital Endowment Fund as a separate ring fenced fund

·     Option 2 - Integrate as part of the Strengthening Communities Metropolitan Discretionary Response Fund (DRF)

4.3       Option Summary - Advantages and Disadvantages (Preferred Option)

4.3.1   The advantages of this option include:

·        Improves the relevance and timeliness of information available for the Council when proposals are considered and decisions are made

·        Maintains the responsiveness of the fund, subject to available funds

·        Increases transparency of decision making through clarity and use of assessment criteria

·        Enables the purposes of the fund to be maintained and the fund to be accounted for

·        Continues the Council’s flexibility to fund a wider range of projects some of which might not otherwise be available

·        Enables the Council to have an ongoing understanding of the financial position of the fund, the projects that have been funded and anticipated future demands on the fund. 

·        Provides staff and councillors with greater clarity and certainty about the use of the fund, timing of decision making, and decision rights.

4.3.2   The disadvantages of this option include:

·     There are no identified disadvantages with this option.

 

5.   Context/Background

Background

5.1       A $75 million Capital Endowment Fund was established in 2001, using a share of the proceeds from Orion’s sale of its investment in a gas company. The stated intention of the Fund was to “be used for the benefit of current and future generations” and that the Fund was to be “ring-fenced from the Council’s other funds in order to protect the capital and provide an ongoing income stream to be used for economic development and civic and community projects.”

5.2       The fund currently stands at $100.8m and generates $3.7m interest p.a.  Of this around $1.8m is reinvested in the fund to maintain its real value.

5.3       Since its inception revenue from the fund has been used by the Council to fund projects that are consistent with the purpose of the fund, but are not able to be funded from other sources available to the Council, including rates revenue.

5.4       The list of initiatives that have been funded in the past four years is attached as Attachment A.

5.5       Total revenue generated from the fund has been allocated to projects through until 2021. This is set out in Attachment B.

5.6       In 2015 the Council directed staff to convene a working group to review “all possible options for this fund and the income it generates.”[1]

5.7       There was agreement among elected members on the Capital Endowment Fund Working Group that retaining the fund would be advantageous in allowing the Council to continue to respond to unforeseen opportunities which it would otherwise be unable to fund (Capital Endowment Fund Working Group - Meeting Notes 27 November 2015).   

5.8       On 28 January 2016 the Council resolved that the Capital Endowment Fund be retained (CNCL/2016/00044) and on 22 September 2016 the Council requested a report on the process for distribution of funds from the Capital Endowment Fund CNCL/2016/00429.

5.9       Currently a high proportion of the available funds are allocated to ChristchurchNZ for ongoing events including Cup and Show Week, and to their base funding (formally CCT special projects). Changing these allocations to rates funded would require a rates increase. The innovation and sustainability fund is also supported from this fund for the next three years.

5.10    The fund is fully committed for the next three years. This limits the Council’s options to respond to projects that fall beyond what Council usually funds from rates revenue such as social housing.

6.   Current Distribution Policy and Process

6.1       The current Council policy (last reviewed in early 2016) is that:

6.1.1   The purpose of the fund be for: Civic and community, and innovation, economic development and environment.

6.1.2   The earnings from the fund be split 40% civic and community and 60% innovation, economic development and environment, although this split is not published.

6.1.3   That if desired, funding be carried forward to another year for allocation.

6.1.4   That no single project be funded for more than three years, except in exceptional circumstances.

6.1.5   That the capital of the fund will not be used unless 80% of councillors vote in favour.

6.1.6   Funds are managed in accordance with the Council’s Investment Policy.

6.2       There are no definitions or criteria for what is intended to be covered by Innovation, Economic development and environment, or Civic and community projects.


 

6.3       The current process for the consideration of proposals seeking financial support from the fund is:

6.3.1   The Council receives proposals from staff on an ad hoc basis throughout each financial year.

6.3.2   The Council considers each proposal on its merits, and in the priority order it was received and makes a decision on a case by case basis.

6.3.3   The Council does not have a forward view of proposals that might be presented for consideration for the remainder of the financial year or other years.

6.3.4   The Council does not receive regular or detailed reports about the fund.

Summary of Issues

6.4       The key issues that need to be addressed include:

6.4.1   The process for consideration of proposals and the distribution of funds

6.4.2   Clarification of the fund’s purpose

6.4.3   Assessment criteria for potential projects

6.4.4   Decision rights for committing income for potential projects

6.4.5   Transparency of allocations to specific projects

6.4.6   Reporting about projects that are being supported

6.4.7   Reporting about unallocated revenue.

6.5       The process for the Council’s consideration of proposals and the decision to distribute funds: The current processes are ad hoc. The timing for the receipt and consideration of proposals by the Council is driven by the demand for funding. It is not based on pre-determined or agreed dates or processes, or forward planning such as Annual or Long Term Planning processes. As such the Council has no forward view of likely future demands on the fund.

6.6       Purpose of the fund: When it was established, the stated purpose of the fund was to “be used for the benefit of current and future generations… to provide ongoing income stream to be used for economic development and civic and community projects.” The purpose has remained unchanged apart from the addition of innovation and environment to the economic development category in 2016.

6.7       The proportion of the annual revenue to be used for Economic Development, Environment and Innovation, and Civic and Community has been revised by the Council, most recently in 2016.  Originally 70% was allocated to Economic Development, Environment and Innovation, and 30% was allocated to Civic and Community projects. In 2016 this changed to a 60%:40% split. 

6.8       The current split is not referred to in reports or applied in decision making.

6.9       There is no definition of either category: Economic development, or Civic and Community, which is reflected in the wide range of projects and activities that have been funded, as set out in Attachment A.

6.10    Assessment criteria: Currently there are no assessment criteria for each category to assess proposals or support decision making.

6.11    Decision rights: Decisions about use of the fund have always been made by the Council. The only aspect of decision making which would benefit from greater clarity is in regard to the majority of Councillors required to make a decision about the use of the capital.  The current policy states that “the capital of the fund will not be used unless 80% of councillors vote in favour”.

6.12    It is unclear whether the 80% is all Councillors or 80% of the Councillors present at the meeting when the vote is taken.

6.13    Transparency of allocations to specific projects:  The allocation of funds to specific projects is included in Council minutes.

6.14    Reporting about projects that are being supported: The Council does not current receive reports about projects that are being supported.

6.15    Reporting about unallocated revenue: Reporting about unallocated revenue is not currently reported to Council during the year, but it is usually referred to in reports to Council proposing support from the Fund.

Discussion

6.16    The key issues raised about the distribution of funds from the Capital Endowment Fund are the apparent lack of transparency about the purpose of the fund, the financial state of the fund and the processes for considering proposals and decision making about the distribution of funds.

6.17    These issues could be addressed through greater clarity about distribution processes coupled with more detailed and frequent reporting about the state of the fund, and clearer definitions for the categories with the fund and accompanying assessment criteria to support each proposal.

6.18    Greater clarity of decision rights would be addressed by a Council decision clarifying whether the requirement for 80% of Councillors to vote in favour to use the capital is 80% of all Councillors, or 80% of Councillors present at the meeting when the vote is taken.

Distribution Processes

6.19    The ad hoc processes for the Council receiving, considering and making decisions about proposals for financial support from the fund appears to be driven by the practice of responding to demands for funding in a flexible and responsive way.

6.20    The current practice of considering a proposal at any time throughout the year does not enable the Council to compare the relative merits of proposals or understand the impact of their decision on the amount of funding available for future proposals.

6.21    The competing issues of being responsive and having the opportunity to consider proposals on their relative and absolute merits, while also understanding the impact of decisions on the ability to fund future projects, could be addressed by proposals being considered at agreed times each year. The options for this include: as part of the Long Term Plan, Annual Plan or more frequently.

6.22    Consideration of proposals only once each year, or less frequently removes the flexibility of Council to respond to the need to provide funding for projects or activities that arise at relatively short notice if there are unallocated funds available.  However, a balance could be achieved between the need to be responsive and achieving greater decision making transparency if the proposals were presented for consideration as part of the Annual Plan process and again after six months if there are unallocated funds available in the current financial year.  

6.23    The Council’s decision making would also be assisted if detailed reports on the current balance of the fund and expended and unallocated funds for the financial year were available when proposals were being considered. This could be further enhanced if the financial reports included proposals that were likely to be requested in the next six months.


 

Category Definitions and Assessment Criteria

6.24    The definition of each category needs to be framed within the context of the overall purpose of the fund which is to “be used for the benefit of current and future generations.

6.25    Innovation, Economic Development and Environment, for the benefit of current and future generations, is a benefit which has both an immediate and future benefit for the citizens of Christchurch. This suggests a dual requirement for economic development projects to qualify namely contributing to the current and future economic prosperity of the people of Christchurch.

6.26    This suggests that the assessment criteria ought to include the following elements:

6.26.1    Demonstration of the economic or environment benefits that will be provided;

6.26.2    The benefits will be for the people of Christchurch;

6.26.3    The benefits will be experienced now and in the future; and

6.26.4    All three elements are required for the application to be eligible and approved.

6.27    Civic and community projects, for the benefit of current and future generations, are projects for or in the community or of a civic nature that have both an immediate and future benefit for the citizens of Christchurch. Again this suggests a dual requirement for Civic and community projects to qualify namely contributing to the current and future economic prosperity of the people of Christchurch.

6.28    What may be defined as civic and community projects is, however, less tangible to define than Economic development.  The term civic is defined as of or relating to a city, citizens, or citizenship” whereas community is defined as “a group of people living in the same place or having a particular characteristic in common.

6.29    This suggests that the assessment criteria ought to include the following elements:

6.29.1    The proposal is for a specific project or projects

6.29.2    The project demonstrates a benefit for the City of Christchurch, or its citizens, or for a community of people living in Christchurch

6.29.3    The benefits will be experienced now and in the future; and

6.29.4    All three elements are required for the application to be eligible and approved.

Decision Rights Regarding Use of Capital

6.30    As noted it is currently not clear whether the decision to use the fund’s capital requires 80% of all Councillors voting in favour or 80% of the Councillors present at the meeting when it is put to the vote, voting in favour.

6.31    The allocation of capital from the fund which was set up to be “ring-fenced from the Council’s other funds in order to protect the capital and provide an ongoing income stream to be used for economic development and civic and community projects.” is a matter sufficiently important to require the consideration and decision by a high proportion of Councillors.

6.32    It is therefore considered that the appropriate interpretation of the policy regarding the use of capital is to require 80% of all councillors voting in support of using the capital, not just the councillors present at the meeting when the vote is put.


 

7.   Option 1 - Continue to manage the Capital Endowment Fund as a separate ring fenced fund (preferred)

Option Description

7.1       The preferred option is to continue to manage the Capital Endowment Fund as a separate ‘ring fenced’ fund for projects that are consistent with its purpose and defined categories but cannot be funded from other sources available to Council and to address issues identified about the distribution of funds through a range of relatively small changes including:

7.1.1   The Council considering reports proposing financial support from the fund as part of the Annual Plan process and again after 6 months if there are unallocated funds available in the current financial year

7.1.2   Annual and six monthly reports to the Council detailing projects funded, funds expended, and unallocated funds and anticipated proposals for the following 6 months provided at the same time proposals are considered.

7.1.3   Adopting expanded definitions of each category within the fund’ to improve clarity and assist with assessment of proposals

7.1.4   Requiring reports proposing funding for projects to articulate the rationale for expenditure against the assessment criteria for the relevant category, the funding available and impact on the balance remaining

7.1.5   Requiring the agreed split of funding for each category to be followed and reported

7.1.6   Clarifying that the policy regarding the use of capital require 80% of all councillors voting in support of using the capital.

Significance

7.2       The level of significance of this option is low consistent with section 2 of this report.

Impact on Mana Whenua

7.3       This option does not involve a significant decision in relation to ancestral land or a body of water or other elements of intrinsic value, therefore this decision does not specifically impact Ngāi Tahu, their culture and traditions.

Alignment with Council Plans and Policies

7.4       This option is consistent with Council’s Plans and Policies.

Financial Implications

7.5       There are no financial implications to this option.

Legal Implications

7.6       There is not a legal context, issue or implication relevant to this decision.

7.7       This report has not been reviewed and approved by the Legal Services Unit.

Risks and Mitigations

7.8       Staff have not identified any risks associated with this option.


 

Option Summary - Advantages and Disadvantages

7.9       The advantages of this option include:

·   Improves the relevance and timeliness of information available for Council when proposals are considered and decisions are made

·   Maintains the responsiveness of the fund, subject to available funds

·   Increases transparency of decision making through clarity and use of assessment criteria

·   Enables the purposes of the fund to be maintained and fund to be accounted for

·   Continues the Council’s flexibility to fund a wider range of projects some of which might not otherwise be available

·   Enables Council to have an ongoing understanding of the financial position of the fund, the projects that have been funded and anticipated future demands on the fund. 

·   Provides staff and councillors with greater clarity and certainty about the use of the fund, timing of decision making, and decision rights.

7.10    The disadvantages of this option include:

·   There are no identified disadvantages with this option.


 

8.   Option 2 - Integrate as part of the Strengthening Communities Metropolitan Discretionary Response Fund (DRF)

Option Description

8.1       The DRF is an established mechanism for assessing and distributing funds to organisations. Projects or activities funded by the Metropolitan DRF are required to be of city-wide benefit. Decisions involving funding over $15,000 are decided by the Council.

8.2       Integrating the Capital Endowment Fund with the DRF would:

8.2.1   Open the fund for applications from the public

8.2.2   Require a clear assessment criteria for each category within the fund

8.2.3   Require reports proposing grants to articulate the rationale for expenditure against the assessment criteria for the category from which the funding is sought, the funding available and impact on the balance remaining

8.2.4   Require Council or a delegated Committee to make the final decision

8.2.5   Include reports to Council quarterly about projects funded, funds expended, and unallocated funds.

Significance

8.3       The level of significance of this option is low consistent with section 2 of this

Impact on Mana Whenua

8.4       This option does not involve a significant decision in relation to ancestral land or a body of water or other elements of intrinsic value, therefore this decision does not specifically impact Ngāi Tahu, their culture and traditions.

Alignment with Council Plans and Policies

8.5       This option is consistent with Council’s Plans and Policies.

Financial Implications

8.6       There are no financial implications to this decision.

Legal Implications

8.7       There is not a legal context, issue or implication relevant to this decision.

8.8       This report has not been reviewed and approved by the Legal Services Unit.

Risks and Mitigations

8.9       Staff have not identified any risks associated with this option.


 

Option Summary - Advantages and Disadvantages

8.10    The advantages of this option include:

·   Provides access to the fund by the community

·   Increases the total funding available to community organisations

·   Reduces the number of funds to be administered

·   Increases visibility and transparency of the fund and its use

·   Leverages existing systems and processes

8.11    The disadvantages of this option include:

·   Does not retain the capital endowment fund as a separate ring fenced fund in the way it was intended when it was established

·   Reduces options for Council to fund projects or activities that cannot be funded through other sources

·   Risks unintentionally misinforming the community about the actual amount of funds available 

·   Likely to lead to over subscription from community groups and criticism of Council

·   Increases workload for staff administering additional applications for funding

·   The DRF criteria is guided by a strategy the (Strengthening Communities Strategy) and does not specifically include innovation and economic development.


 

9.   Conclusion

9.1       The Capital Endowment Fund was set up to “be used for the benefit of current and future generations” and that the Fund was to be “ring-fenced from the Council’s other funds in order to protect the capital and provide an ongoing income stream to be used for economic development and civic and community projects.” 

9.2       Consistent with its intention it has been a very useful mechanism for Council to fund and support events and projects such as Cup and Show Week and provide base funding for CDC which could not be funded by Council without a rates increase.  It has also been used to support other specific purpose funds such as the Innovation and Sustainability and the Community Resilience and Partnership Fund.

9.3       The issues identified by the working party in regard to the ‘distribution of funds’ can be addressed through the measures outlined in option 1.

9.4       Integrating the fund with another fund such as the Metropolitan Grants fund (which is part of the wider Strengthening Communities Fund), would depart from the original intention of the fund, how it was intended to be managed and the way it has been used to date.  It would also: reduce funding options available to Council; result in increased demand, and not necessarily address the issues raised by the working group about the process for ‘distributing funds’.

 

 

Attachments

No.

Title

Page

a

CEF Allocation Schedule 2012-2017

16

b

CEF Summary

19

 

 

Confirmation of Statutory Compliance

Compliance with Statutory Decision-making Requirements (ss 76 - 81 Local Government Act 2002).

(a) This report contains:

(i)  sufficient information about all reasonably practicable options identified and assessed in terms of their advantages and disadvantages; and

(ii) adequate consideration of the views and preferences of affected and interested persons bearing in mind any proposed or previous community engagement.

(b) The information reflects the level of significance of the matters covered by the report, as determined in accordance with the Council's significance and engagement policy.

 

Signatories

Author

Lester Wolfreys - Head of Community Support, Governance and Partnerships

Approved By

Carol Bellette - General Manager Finance and Commercial (CFO)

Mary Richardson - General Manager Citizen and Community

  


Finance and Performance Committee

04 April 2018

 

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04 April 2018

 

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[1] CNCL Clause 4.1 24/09/2015