Agenda of Council Annual Plan

Council Annual Plan

12 February 2019

3. Draft Annual Plan 2019/20
Reference:	18/1330062
Presenter(s):	Peter Ryan, Head of Performance Management

1. Purpose of Report

1.1 To present to the Council for consideration and adoption:

1.1.1 The draft Annual Plan for 2019/20, including the documents attached as Attachments A-I;

1.1.2 The consultation document attached as Attachment J;

1.1.3 The consultation and engagement process to be undertaken by the Council.

2. Staff Recommendations

That the Council:

1. Approves and adopts the information contained or referred to in the staff report which provides the basis for the draft 2019/20 Annual Plan, together with any amendments made by resolution at the meeting, and which includes:

a. Financial Overview, including changes to the Financial Statements and Funding Impact Statement contained in the Long Term Plan 2018/28 (Attachment A);

b. Proposed Budget and Funding Impact Statement, including Rating Policy (Attachment B);

c. Financial Prudence Benchmarks (Attachment C);

d. Proposed Capital Programme, including changes (Attachment D);

e. Proposed Changes to Levels of Service (Attachment E);

f. Prospective Financial Statements (Attachment F);

g. Proposed Fees and Charges, including changes (Attachment G);

h. Reserves and Trust Funds (Attachment H);

i. Capital Endowment Fund (Attachment I);

2. Approves the rate requirement of $517.9 million (net of GST) for the 2019/20 financial year;

3. Notes the recommendations of the Council’s Audit and Risk Management Committee at its meeting on 1 February 2019, referred to in the staff report;

4. Authorises the General Manager Finance and Commercial to make any non-material changes to the documents and/or information attached to or referred to in the staff report;

5. Approves and adopts for public consultation the Consultation Document for the draft 2019/20 Annual Plan (Attachment J);

6. Approves the following process for consultation:

a. Public Notices in The Star, The Press, and on the Council’s website on 1 March 2019;

b. All relevant information and documents, including the Consultation Document, made available at Council offices, libraries, service centres, and on the Council’s website on 1 March 2019;

c. The period for making submissions will run from 1 March 2019 to 5.00pm on 1 April 2019;

d. For people who indicate they wish to, opportunities will be provided for them to present oral submissions;

e. Oral submissions will be heard between 15 April and 24 May 2019;

f. All submissions will then be considered by the Council before it meets on 26 June 2019 to adopt the Annual Plan 2019/20.

3. Key Points

3.1 Procedural matters

3.1.1 The Council is required to prepare and adopt an Annual Plan for each financial year (s.95(1)) Local Government Act 2002).

3.1.2 The purpose of the plan is to:

a) contain the proposed annual budget and funding impact statement for 2019/20;

b) identify any variation from the financial statements and funding impact statement in the Council’s Long Term Plan for 2019/20;

c) provide integrated decision-making and co-ordination of the Council’s resources; and

d) contribute to the accountability of the Council to the community.

3.2 Consultation

The Council is not required to consult the community before adopting an Annual Plan, unless it includes significant or material differences from the content of the Long Term Plan for the financial year to which the Annual Plan relates.

The Council’s draft Annual Plan for 2019/20 varies to some degree the information contained in the 2018/28 Long Term Plan for that year. Individually, these changes may not be regarded as being significant or material, but collectively they could be.

For this reason it is proposed that consultation be undertaken, for the purpose of highlighting the key changes and also to involve the community in the Council’s decision-making process. A Consultation Document has been prepared that will present the required information in a concise and simple manner, consistent with the provisions for such documents contained in the Local Government Act 2002.

The Consultation Document is also an opportunity for the Council to update the community on matters such as the residential red zone, the global settlement with the Crown, and the ongoing work on remediating well-heads and reducing chlorination.

The process to date has included a series of briefings for the Mayor and Councillors and Community Board members, all of whom have had the opportunity to contribute to the preparation of the draft 2019/20 Annual Plan.

Note that Annual Plans are not subject to formal audit by Audit New Zealand.

3.3 The information prepared for the draft 2019/20 Annual Plan

3.3.1 The information for the Draft 2019/20 Annual Plan has been prepared in accordance with the requirements of the LGA 2002. The information includes:

(a) the proposed annual budget and funding impact statement for 2019/20;

(b) any variation from the financial statements and funding impact statement included in the Council's 2018/28 Long Term Plan for 2019/20;

(c) proposed changes to the Council's capital programme for 2019/20 and any significant changes to the level of service provision for activities undertaken by the Council;

(d) proposed schedule of fees and charges for 2019/20;

(e) revised schedule of significant assumptions.

3.3.2 The information has been prepared in accordance with the principles and procedures that apply to the preparation of the financial statements and funding impact statement included in the 2018/28 Long Term Plan. It contains appropriate references to the provisions in the LTP which set out the Council's activities for the 2019/20 year.

3.3.3 The information also complies with the requirements set out in Part 2 of Schedule 10 of the LGA 2002 in respect of the information to be included in an Annual Plan.

3.3.4 The Consultation Document will state where members of the public may obtain the underlying information, including links to all supporting documentation, on the Council’s website.

3.4 Financial Overview

3.4.1 The proposed average rates increase to existing ratepayers at 5.02% is 0.48% lower than the 5.5% forecast in the LTP. Full details of rates, including the total rating requirement for general and targeted rates, and indicative rates for individual properties, are provided in the Funding Impact Statement attachment.

Operating Expenditure:

3.4.2 Operational expenditure of $598.9 million is $8.3 million above the level forecast in the LTP. While most costs have been held to the LTP level, the significant changes are:

- EcoCentral Recycling Processing fee ($3.2 million) has been added for a further year as we await a long term solution for dealing with those recyclable materials that can no longer be shipped to offshore markets.

- Additional Vbase operational grant of $2.25 million, with $2.5 million provided for in the following two years to cover the proposed 2019/20 restructuring costs and increase in contribution to fund social and cultural activities in the refurbished Town Hall.

- Inclusion of planning costs for the Otakaro Avon River Corridor (OARC) ($1.06 million) and the Canterbury Multi Use Arena ($0.85 million). The detail had not been resolved when the LTP was adopted but both are now expected to be funded from the Crown’s Capital Acceleration Fund.

- Delay in incurring Port Hills residential red zone maintenance costs until 2020/21 ($1.5 million reduction), due to the delayed handover of land from the Crown.

3.4.3 Net interest cost is $0.6 million lower than projected in the LTP largely due to the delayed Crown settlement above.

Revenue:

3.4.4 Total revenue excluding rates of $389.1 million is $76 million higher than that projected in the LTP. The main revenue changes from the LTP to this 2019/20 Draft Annual Plan are:

- Crown funding for Avon river corridor (OARC) planning and Canterbury Multi Use Arena planning and construction costs ($61.4 million)

- Additional NZTA revenue of $20.6 million, largely due to capital programme timing changes, to take advantage of higher subsidy rates.

- Development Contribution revenue $8 million lower due to a provision for Central City rebates carried forward from the 2017/18 year.

- Retiming from 2018/19 of $3.2 million of CCHL dividend to help offset additional costs.

- Lower volumes of resource and building consents ($2.5 million) reflecting the drop in demand. These are largely offset by cost reductions.

Surplus, operating deficits, and sustainability:

3.4.5 The Annual Plan for 2019/20 shows an accounting surplus of $80.9 million before revaluations. Under accounting standards Council is required to show all revenue, including earthquake-related recoveries from central Government and NZ Transport Agency, as income for the year. However, some of these recoveries reimburse Council for capital expenditure. After adjusting for these capital revenues, Council is budgeting for a balanced budget in the 2019/20 year.

Capital programme expenditure:

3.4.6 Council plans to invest $538.1 million in the capital programme in 2019/20, an increase of $82.9 million over the LTP.

3.4.7 Significant increased spend planned in 2019/20 compared to the LTP relates to:

- Canterbury Multi Use Arena ($59.4 million) – due to inclusion of the Crown funded share of the arena over a three year period.

- Transport Projects brought forward to take advantage of the NZTA Targeted Enchanced Funding Assistance Rates (TEFAR) ($26.8 million). Specific projects can be seen in the Capital programme attachment.

- Performing Arts Precinct ($7.9 million) – 2017/18 budget reprogrammed to 2019/20.

- Strategic land purchases offset ($5.9 million) – 2017/18 budget retimed to 2019/20.

- South West Leisure Centre ($3.8 million) – 2017/18 budget retimed to 2019/20.

- Hot Salt Water Pools ($3.4 million) – 2017/18 budget retimed to 2019/20 to complete project.

- Community Parks Development Programme ($1.5 million) – due to increasing demand growth for new reserves and funded through development contributions.

3.4.8 There has been no significant decreased spend in 2019/20 compared to the LTP other than $2.8 million of Stormwater and Flood Protection works which were delivered early in 2017/18 and the Marshlands Road bridge renewal which has been retimed to 2021/22.

Capital programme funding:

3.4.9 The capital programme is funded by earthquake recoveries, subsidies and grants for capital expenditure, development contributions, proceeds from asset sales, rates and debt. In 2019/20 we will rate for $131.1 million of renewals which is consistent with our Financial Strategy. The capital release programme was completed in 2018/19.

Borrowing:

3.4.10 The Annual Plan includes new borrowing in 2019/20 of $172.8 million, a decrease of $77.3 million on the LTP due to funds on hand. Gross debt at 30 June 2020 is expected to be $2.06 billion, $67 million higher than planned in the LTP. This is largely due to a $50 million increase in onlending to CCHL.

3.4.11 In accordance with our financial strategy we will continue to ensure prudent and sustainable financial management of our operations and will not borrow beyond our ability to service and repay that borrowing.

Significant Assumptions:

3.4.12 Significant assumptions were reviewed and there is no significant change from the LTP. The level of uncertainty on a number of assumptions was reduced due to the one year focus of the Annual Plan.

Financial Risk Management Strategy:

3.4.13 Council’s policies to assist in managing its financial risk, including liquidity and funding risk management, interest rate exposure and counterparty credit risk are unchanged in this Draft Annual Plan. An important element in assessing the value of Council’s risk management strategy is its five key financial ratios. These are included within the Financial Prudence Benchmarks section of attachment A. The Council anticipates staying well within its financial ratio limits for 2019/20.

Council exceeds the debt servicing benchmark as forecast in the LTP due to the amount of borrowing required to fund the rebuild. There is no concern around Council’s ability to service the debt. At 11.1%, it is an improvement on the 12.2% forecast in the LTP.

Changes to Levels of Service:

Levels of Service were reviewed as part of the 2018 Long Term Plan process. At the request for the Mayor and Councillors the Office of the Chief Executive ran a further review of Levels of Service in November 2018. This review did not result in any changes to measures or targets and this was confirmed to Councillors at the briefing of 11 December. However some staff have since proposed changes and these are attached in Appendix E, which highlights the changes requested and their rationale.

Attachments

No.	Title	Page
a ⇩	Financial Overview	11
b ⇩	Funding Impact Statement, including Rating Policy	20
c ⇩	Financial Prudence Benchmarks	35
d ⇩	Proposed Capital Programme	38
e ⇩	Proposed Changes to Levels of Service	71
f ⇩	Prospective Financial Statements	78
g ⇩	Proposed Fees and Charges	113
h ⇩	Reserves and Trust Funds	169
i ⇩	Capital Endowment Fund	171
j ⇩	Draft Consultation Document	172