I hereby give notice that an extraordinary meeting of the Governing Body will be held on:

 

Date:                      

Time:

Meeting Room:

Venue:

 

Thursday, 1 May 2014

09.30am

Reception Lounge
Auckland Town Hall
301-305 Queen Street
Auckland

 

Governing Body

 

OPEN AGENDA

 to consider items from the lapsed 17 April 2014 Governing Body meeting.

 

 

 

MEMBERSHIP

 

Mayor

Len Brown, JP

 

Deputy Mayor

Penny Hulse

 

Councillors

Cr Anae Arthur Anae

Cr Dick Quax

 

Cr Cameron Brewer

Cr Sharon Stewart, QSM

 

Cr Dr Cathy Casey

Cr Sir John Walker, KNZM, CBE

 

Cr Bill Cashmore

Cr Wayne Walker

 

Cr Ross Clow

Cr John Watson

 

Cr Linda Cooper, JP

Cr Penny Webster

 

Cr Chris Darby

Cr George Wood, CNZM

 

Cr Alf Filipaina

 

 

Cr Hon Chris Fletcher, QSO

 

 

Cr Denise Krum

 

 

Cr Mike Lee

 

 

Cr Calum Penrose

 

(Quorum 11 members)

 

 

Elaine Stephenson

Democracy Advisor

 

24 April 2014

 

Contact Telephone: (09) 373 6328

Email: elaine.stephenson@aucklandcouncil.govt.nz

Website: www.aucklandcouncil.govt.nz

 

 


 

TERMS OF REFERENCE

 

 

Those powers which cannot legally be delegated:

 

(a)        the power to make a rate; or

(b)        the power to make a bylaw; or

(c)     the power to borrow money, or purchase or dispose of assets, other than in accordance with the long term council community plan; or

(d)        the power to adopt a long term plan, annual plan, or annual report; or

(e)        the power to appoint a Chief Executive; or

(f)      the power to adopt policies required to be adopted and consulted on under the Local Government Act 2002 in association with the long term plan or developed for the purpose of the local governance statement; or

(g)        the power to adopt a remuneration and employment policy.

 

Additional responsibilities retained by the Governing Body:

 

(a)     Approval of a draft long term plan or draft annual plan prior to community consultation

(b)     Approval of a draft bylaw prior to community consultation     

(c)     Resolutions required to be made by a local authority under the Local Electoral Act 2001, including the appointment of electoral officer

(d)     Adoption of, and amendment to, the Committee Terms of Reference, Standing Orders and Code of Conduct

(e)     Relationships with the Independent Maori Statutory Board, including the funding agreement and appointments to committees.

(f)      Approval of the Unitary Plan

(g)     Overview of the implementation of the Auckland Plan through setting direction on key strategic projects (e.g. the City Rail Link and the alternative funding mechanisms for transport) and receiving regular reporting on the overall achievement of Auckland Plan priorities and performance measures.

 

 


Governing Body

01 May 2014

 

 

ITEM   TABLE OF CONTENTS                                                                                        PAGE

1          Affirmation                                                                                                                      5

2          Apologies                                                                                                                        5

3          Declaration of Interest                                                                                                   5

4          Acknowledgements                                                                                                       5

5          Petitions                                                                                                                          5  

6          Public Input                                                                                                                    5

7          Local Board Input                                                                                                          5

8          Extraordinary Business                                                                                                5

9          Notices of Motion                                                                                                          6

10        Auckland Airport Capital Return                                                                                 7

11        Council Controlled Organisation Review - Proposed Criteria                               11

12        Civic Assurance - Director Nomination                                                                    45  

13        Consideration of Extraordinary Items 

PUBLIC EXCLUDED

14        Procedural Motion to Exclude the Public                                                                 49

C1       Recommendation for appointments to the Ethnic Peoples, Pacific Peoples and Seniors Advisory Panels                                                                                                           49

C2       Approval of Special Housing Areas - Third Tranche                                              49  

 


1          Affirmation

 

His Worship the Mayor will read the affirmation.

 

2          Apologies

 

At the close of the agenda no apologies had been received.

 

3          Declaration of Interest

 

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.

 

4          Acknowledgements

 

Dame Dorothy Winstone and Sir Owen Woodhouse.

 

5          Petitions

 

At the close of the agenda no requests to present petitions had been received.

 

6          Public Input

 

Standing Order 3.21 provides for Public Input.  Applications to speak must be made to the Committee Secretary, in writing, no later than two (2) working days prior to the meeting and must include the subject matter.  The meeting Chairperson has the discretion to decline any application that does not meet the requirements of Standing Orders.  A maximum of thirty (30) minutes is allocated to the period for public input with five (5) minutes speaking time for each speaker.

 

At the close of the agenda no requests for public input had been received.

 

7          Local Board Input

 

Standing Order 3.22 provides for Local Board Input.  The Chairperson (or nominee of that Chairperson) is entitled to speak for up to five (5) minutes during this time.  The Chairperson of the Local Board (or nominee of that Chairperson) shall wherever practical, give two (2) days notice of their wish to speak.  The meeting Chairperson has the discretion to decline any application that does not meet the requirements of Standing Orders.

 

This right is in addition to the right under Standing Order 3.9.14 to speak to matters on the agenda.

 

At the close of the agenda no requests for local board input had been received.

 

8          Extraordinary Business

 

Section 46A(7) of the Local Government Official Information and Meetings Act 1987 (as amended) states:

 

“An item that is not on the agenda for a meeting may be dealt with at that meeting if-

 

(a)        The local  authority by resolution so decides; and

 

(b)        The presiding member explains at the meeting, at a time when it is open to the public,-

 

(i)         The reason why the item is not on the agenda; and

 

(ii)        The reason why the discussion of the item cannot be delayed until a subsequent meeting.”

 

Section 46A(7A) of the Local Government Official Information and Meetings Act 1987 (as amended) states:

 

“Where an item is not on the agenda for a meeting,-

 

(a)        That item may be discussed at that meeting if-

 

(i)         That item is a minor matter relating to the general business of the local authority; and

 

(ii)        the presiding member explains at the beginning of the meeting, at a time when it is open to the public, that the item will be discussed at the meeting; but

 

(b)        no resolution, decision or recommendation may be made in respect of that item except to refer that item to a subsequent meeting of the local authority for further discussion.”

 

9          Notices of Motion

 

At the close of the agenda no requests for notices of motion had been received.

 


Governing Body

01 May 2014

 

 

Auckland Airport Capital Return

 

File No.: CP2014/08265

 

  

 

Purpose

1.       To agree the use of the additional funds from the Auckland International Airport Limited (AIAL) capital return.

Executive Summary

2.       On 27 November 2013, AIAL announced a 1 in 10 share cancellation at $3.43 per share subject to at least 75% of the votes cast on the resolution at the special shareholders meeting and receiving approval from the High Court.

3.       It was resolved at the 30 January 2014 Governing Body Committee that Auckland Council Investments Limited (ACIL) should vote in favour of the AIAL proposal.

4.       On 12 February 2014, 99.34% of eligible shareholders voted in support of the proposal.

5.       This was followed by High Court approval on 7 March 2014.

6.       Four options were considered for the use of the unbudgeted $83.9 million capital return:

a.  reduce debt within Auckland Council parent

b.  reduce debt within ACIL

c.  utilise the funds to increase the council’s investment portfolio

d.  utilise the funds to offset future rates requirement.

7.       As a one off unbudgeted transaction, Auckland Council staff recommend the option to reduce net debt within the Auckland Council parent as it is the option that is consistent with our financial strategy and supports an efficient capital structure for the council group.

 

Recommendation/s

That the Governing Body:

a)      agree the additional $83.9 million received in April 2014 from the AIAL capital return is used to reduce net debt within Auckland Council parent before the end of the 2013/2014 financial year.

 

 

Discussion

8.       On 27 November 2013, AIAL announced a 1 in 10 share cancellation at $3.43 per share subject to at least 75% of the votes cast on the resolution at the special shareholders meeting and receiving approval from the High Court.

9.       The intention of the $454 million capital return is to improve AIAL’s balance sheet structure. AIAL’s recent strong performance has resulted in a less than optimal capital structure with a lower level of debt to enterprise value than desired.


10.     The capital return will be funded by AIAL issuing long-term debt as the AIAL Board believes their balance sheet can accommodate the extra debt. AIAL remains conservatively geared as shown below.

 

$m

June 2009

June 2010

June 2011

June 2012

June 2013

Pre capital return

Post capital return

Market capitalisation

$1,972

$2,450

$2,935

$3,240

$3,927

$5,113

$4,659

Debt

$1,077

$1,092

$1,085

$1,109

$1,142

$1,142

$1,596

Enterprise value

$3,049

$3,542

$4,020

$4,349

$5,069

$6,255

$6,255

Debt to enterprise value

35.7%

31.1%

27.2%

25.8%

22.8%

18.3%

25.5%

 

11.     The additional long-term debt will lead to an increase in AIAL’s interest expense. This may have a future impact on dividends but could be offset with improved business performance. With a more efficient capital structure, this may lead to an increase in the value of the council’s shareholding.

12.     As a 22.4% shareholder, which will not change as a result of the capital return, Auckland Council would receive $101.5 million. However, AIAL announced that the capital return would replace the $17.6 million budgeted interim dividend, leaving an unbudgeted cash surplus of $83.9 million for the 2013/2014 financial year.

13.     At the 30 January 2014 Governing Body Committee, it was resolved that ACIL should vote in favour of the capital return.

14.     On 12 February 2014, 99.34% of eligible shareholders voted in support of the proposal.

15.     This was followed by High Court approval on 7 March 2014.

16.     Auckland Council staff have considered four options for the use of the additional $83.9 million unbudgeted capital return. These are summarised in the table:

Option

Pro

Con

a.   Reduce debt within Auckland Council parent

·    Improves the council’s debt position by 1.2%

·    Ongoing reduction in rates requirement at the level of cost of borrowing ($4.5 million per annum)

·    Supports an efficient capital structure at a group level

·    Promotes financial prudence

·    Potential returns greater than the cost of borrowing are forgone

b.   Reduce debt within ACIL

·    Improves the council’s debt position by 1.2%

·    Ongoing reduction in rates requirement at the level of cost of borrowing ($4.5 million per annum)

·    Promotes financial prudence

·    Potential returns greater than the cost of borrowing are forgone

·    Reducing debt in ACIL, does not support the most capital efficient structure at a group level

c.   Utilise the funds to increase the council’s investment portfolio

·    Potential returns greater than the cost of borrowing could be achieved which would support a reduction in rates requirement

·    By increasing our investment portfolio, the council would increase its market risk exposure

·    This transaction would not have any impact on debt levels

d.   Utilise the funds to offset future rates requirement

·    Funds could be provisioned for offsetting future rates requirement

·    Under the revenue and financing policy, unbudgeted operating cash receipts can be used to reduce rates requirement in future years only where we make an underlying operating surplus. That is not the case here for two reasons. Firstly, the capital return portion of the increased payment does not contribute to council's underlying operating performance. Secondly the council is still not forecasting an underlying operating surplus due to significant underfunding of depreciation. Therefore, this is not a prudent option

·    As the capital return is a one off, the rates offset would be temporary

·    The current AIAL holding is effectively debt funded so using the proceeds of a capital return without reducing debt is financially imprudent and will lead to deterioration in financial ratios

 

17.     Auckland Council staff recommend that the additional funds from the capital return is used to reduce debt in Auckland Council parent in order to:

a.  improve council debt levels

b.  have a reduction in rates requirement at the level of cost of borrowing via reduced interest expense on an ongoing basis

c.  support an efficient capital structure for the group

d.  promote financial prudence and sustainability.

Consideration

Local Board Views

18.     Local Boards have not been consulted on the capital return.

Māori Impact Statement

19.     This report does not raise any issues of significance with Māori.

General

20.     This report does not involve decisions that will trigger the council’s significance policy.

Implementation Issues

21.     There are no implementation issues.

 

Attachments

There are no attachments for this report.      

Signatories

Author

Robert Irvine - Financial Planning Manager CCOs

Authorisers

Matthew Walker - Manager Financial Plan Policy and Budgeting

Andrew McKenzie - Chief Finance Officer

Stephen Town - Chief Executive

 


Governing Body

01 May 2014

 

 

Council Controlled Organisation Review - Proposed Criteria

 

File No.: CP2014/08264

 

  

 

Purpose

1.       To enable the Governing Body to agree the criteria that will be used to assess delivery options for services currently undertaken by council controlled organisations (CCOs).

Executive Summary

2.       The first step in phase two of the CCO review is to test the rationale for delivering services through a CCO. This will involve assessing services currently being delivered by CCOs against a set of criteria. This process will also help satisfy likely future legislative requirements to periodically consider the most cost-effective way of delivering council services[1].

3.       The report proposes a set of criteria that reflect the likely advantages and disadvantages of the delivery of services through an arm’s-length entity such as a CCO. The proposed criteria also reflect considerations of cost-effectiveness, consistent with the proposed legislative changes.

4.       Services most suited to delivery through a CCO are likely to be those that will benefit from commercial focus, flexibility in decision-making, and specialist skills; and where there are opportunities to achieve efficiencies through focus on a discrete activity, or through grouping related activities.

5.       Services that are largely funded by ratepayers; that involve decisions requiring high levels of input from the governing body, public, local board, iwi and/or IMSB may be less suited to delivery through CCOs. Similarly services that need to be highly integrated with other council services can be more challenging to deliver through CCOs.

6.       The report notes that most services will have some characteristics making them more suited to CCO delivery, and other characteristics making them more suited to council delivery.

7.       The next step is for the council to undertake the analysis of services against the criteria. This will be discussed at the 14 May workshop, and agreed at the Governing Body meeting of 29 May. The analysis will help the council to weigh up the pros and cons of each delivery method. It is a guide to decision-making and does not commit the council to any specific delivery mechanism.

8.       Other considerations will include the costs of implementing any changes to methods of delivery, and the optimal mix of services within an entity. Also the terms of reference for the CCO review includes considering the relative roles of the Council and CCOs with respect to developing strategy relating to the services delivered by CCOs.


 

 

Recommendation/s

That the Governing Body:

a)      approve the following proposed criteria:

·    commercial focus

·    efficiency

·    flexibility

·    specialist skills

·    accountability for ratepayer funding

·    stakeholder and political interest in decision-making

·    integration;

and the related considerations outlined in Table One of the agenda report, to help assess the rationale for the delivery of specific services through a council controlled organisation.

 

Discussion

Introduction

9.       The first step in phase two of the CCO review is to test the rationale for delivering services through a CCO. This will involve assessing services currently being delivered by CCOs against a set of criteria. The criteria are a guide to decision-making.

10.     Furthermore, amendments proposed in the Local Government Act 2002 Amendment Bill (No 3), would require the council to review the most cost effective way of delivering all of its services every three years. It is intended that the CCO review uses a methodology that will help satisfy this legal requirement when it comes into effect.  While cost-effective has not been defined in legislation, the Auditor-General has defined the term to be “the relationship between the level of resources used (costs) and progress toward a predetermined outcome (effect).”  This can be broader than just value for money – to assess cost effectiveness, the council should consider whether (over time) the costs of services are justified by the impact and outcome results produced.

11.     The council is already required to exercise prudent financial management and to act in accordance with the general principles that “a local authority should ensure prudent stewardship and the efficient and effective use of its resources in the interests of its district or region.” The proposed legislative changes introduce a new process that is consistent with these existing principles.

12.     Note that the proposed amendment to the LGA 2002 does not limit consideration of alternative delivery arrangements to CCOs.  For this reason, the terms of reference for the review include “developing criteria to determine those activities/functions to be delivered by a CCO, council or other mechanism” (this could include another person, agency or even local authority).  As the council is undertaking a CCO review, the main consideration in this report is criteria that will help the council decide which services are best delivered via an arm’s-length entity such as a CCO, however the range of delivery mechanisms that will need to be considered to satisfy future legislative requirements are discussed in paragraphs 21-24.


 

13.     Assessing services against criteria is a step in the process, but does not commit the council to any specific delivery mechanism. There are a range of other matters that the council will need to consider including:

·    The transaction costs of any changes, for example if services are brought in-house or transferred to another CCO, there may be significant costs associated with implementing such changes

·    Legal, tax, and accounting implications of any proposed changes

·    The optimal grouping of services within a single entity

·    The relative roles of the council and CCOs with respect to developing strategy relating to services delivered by CCOs.

Advantages and Disadvantages of CCO delivery

14.     By delivering services through a CCO the council effectively transfers governance decisions over defined matters to a board of directors. Arm’s-length entities of various types are used by central and local governments around the world[2]. A report was undertaken by Plimmer Consulting for the Wellington City Council in 2012, entitled “What Works?  - Getting the best from Council Controlled Organisations.” The report provides an overview of the perceived benefits and disadvantages of delivering services through arm’s-length arrangements following an international literature review. Effective council-CCO relationships have, at their core, a common understanding of why a CCO is being used and what its role is.

15.     An excerpt from the Wellington report has been included as Attachment A. Based on this work, and on interviews with councillors during the current state assessment, some of the perceived benefits from council delivering services through CCOs are:

·    Commercial focus on growing external revenue or profitability and running a successful business

·    Focus on driving results for a discrete service in an area of council priority

·    Flexibility of decision-making enabling rapid response to opportunities

·    Gaining access to specialist expertise, particularly commercial expertise

·    Independence from political influence can be beneficial in some circumstances.

16.     The benefits from delivering services through a CCO, need to be considered alongside the drawbacks or disadvantages which may include:

·  Operational efficiencies can be eroded by the cost of duplicating governance and corporate structures

·  There is a tendency for arm’s-length entities to consistently advocate for more funding to achieve more

·  Directors with specialist expertise may place insufficient emphasis on politically sensitive issues

·  By focusing on core objectives, CCOs may be less responsive to wider council objectives which they can also contribute to

·  Council delivery becomes more fragmented

·  Governance by independent boards means that there is reduced democratic oversight of decisions, which in turn can create the perception that there is reduced accountability.

17.     Some of these disadvantages can be reduced or minimised. For example, by operating shared service arrangements, by ensuring that board members have a level of political acumen and understand when it is necessary to engage with their shareholder, or by effectively using statutory accountability / reporting mechanisms. The CCO review will be strongly focused on the way that the council works with its CCOs to get the most out of the CCO model – i.e. maximising the net benefits. 

18.     The benefits and disadvantages should also guide the selection of assessment criteria. For example, the types of services which may be most suited to being delivered through a CCO are those where flexible decision-making and commercial acumen are most important, while services which play a key role in achieving multiple council objectives may be better suited to in-house delivery.

Proposed Criteria

19.     This report proposes some criteria to enable the council to test the rationale for delivering services through CCOs. The proposed criteria are outlined in Table one. They reflect the benefits and disadvantages of CCO delivery outlined in paragraphs 14-17. Several of the proposed criteria include considerations of cost-effectiveness or getting maximum value out of resources applied, consistent with new legislative requirements. These are “commercial focus”, “efficiency”, “flexibility”, “specialist skills”, and “integration.” 

20.     It is unlikely that any services being delivered by CCOs will meet the tests associated with every criteria. Analysis against the criteria will help clarify the advantages and disadvantages of delivery a service through a CCO, identifying the trade-offs that the council needs to consider. It will help clarify why roles and responsibilities the council and its CCOs need to be very clearly defined in order for relationships to be effective.

 

Table One – Proposed criteria for assessing the rationale for delivering services through an arm’s length entity such as a CCO. 

Criteria

Considerations

Explanation

Commercial Focus

•     Opportunities to grow external revenue, generate profits, or leverage private investment.

•     Need for commercial acumen to run a successful business.

Arms’-length entities have the ability to act commercially, and therefore may be more effective at growing external revenue streams, leveraging private investment, or driving lower operating costs. 

Efficiency

•     Ability to exploit economies of scope and achieve efficient end-to-end service provision.

•     Ability to achieve operational efficiencies by focusing on a discrete service area.

Arms’-length delivery can be more efficient where there are benefits from grouping related activities. Operational efficiencies may also be achieved by enabling a CCO to focus on delivering a discrete service (such as water).

Flexibility

•     Ability to be flexible and respond quickly to opportunities.

Arm’s-length delivery can be helpful for services that benefit from the ability to respond quickly. CCOs operate outside of council processes and so can make decisions more rapidly where there is an opportunity or a need for a quick response.

Specialist skills

•     Opportunities to benefit from specialist governance expertise.

•     Opportunity to add significant value and innovate by bringing in and attracting specialist/ professional skills and perspectives. 

For some services, there are advantages from oversight by a board of directors who have specialist skills and knowledge. CCOs may also be in a stronger position to attract staff with particular skills, than a local authority.

Accountability for ratepayer funding

•     Ratio and quantum of external funding to ratepayer funding and degree to which greater accountability for funding is required.

When CCOs deliver services that require high levels of ratepayer funding, particularly where this is the primary source of funding, the relationship with the council is more complex, due to council’s accountability to the public for rating revenue. 

Stakeholder, iwi, and political interest in decision-making

•     Amount of public engagement and/or consultation and level of governing body, local board, iwi and IMSB input required in determining what will be done, when, where and who will pay (e.g. setting levels of fees and charges).

Boards are accountable to the Governing Body, not to the public or to other stakeholders. Services where the majority of decisions require a high level of engagement with public, with iwi, with local boards, and/or with the IMSB can be more difficult to deliver through CCOs because it is difficult for the council to monitor how effectively CCOs are engaging before making decisions.

Integration

•     The degree of connectedness with or dependency on other council services.

•     The degree to which the service contributes to multiple Auckland Plan outcomes and/or transformational shifts.

Services that are highly connected to other council activities or contribute to multiple strategic outcomes can be less suited to delivering through a CCO due to the challenges of achieving effective integration.

 

Alternative delivery mechanisms

21.     As noted above, the proposed amendment to the LGA would require the council to assess some additional delivery mechanisms including, but not limited to:

·        Delivery by a CCO in which the local authority is one of several shareholders

·        Delivery by another local authority

·        Delivery by another person or agency

·        Delegating governance and funding to a joint committee or other shared governance
         arrangement and delivery by a CCO, another local authority or another person or
         agency.

22.     Most of these options are aimed at small local authorities with the potential to save money through joint delivery with neighbouring local authorities. For most services, delivery by jointly owned CCOs, by another local authority, or by a joint committee are not realistic short-term options for the Auckland Council and could be excluded, at this stage, by a simple statement rather than detailed analysis.

23.     “Delivery by another person or agency” covers various types of contracting out arrangements. For example, the council could contract with private sector providers to operate some of its regional facilities or to deliver economic development programmes. Where there is a realistic option to contract out this will be identified and evaluated at a later stage of the review. Note that in a contracting out model, the governance function remains with council.

24.     Similarly another option that may need to be considered is delivery by an in-house business unit, particularly if the review identifies any services currently being delivered by a CCO that it wishes to bring in-house.

Next Steps

25.     A CCO review workshop is scheduled for 14 May 2014. The main purpose of this workshop will be to discuss the assessment of services being delivered by CCOs against the agreed criteria. The list of these services is attached as Attachment B. The services exclude Auckland Transport services because the terms of reference for the review exclude major structural change for Auckland Transport. The assessment is due to be approved by the Governing Body at its meeting of 29 May. As noted, this is a guide to decision-making and does not commit the council to any specific delivery mechanism.

26.     The 14 May workshop will also include discussion of the respective roles and responsibilities of council and its CCOs in the development of strategy.

27.     Two council workshops are scheduled for 2 July and 6 August 2014 to consider options for the optimal configuration of the council’s CCOs. Staff are currently undertaking research that will help inform options. The research covers:

·  Urban development delivery models

·  Economic development delivery models

·  Models for delivery of regional facilities and associated services

·  Shared services opportunities

·  Synergy and linkages between stormwater, water supply and wastewater. 

28.     Work has also started on a range of projects that will assist the council and its CCOs to work better together, while strengthening accountability and strategic alignment. The 1 April 2014 CCO Governance and Monitoring Committee discussed the difficulties of considering statements of intent outside of the LTP process.  Given that most of the CCOs rely heavily on council funding, LTP decisions strongly influence what the CCOs can deliver.

Consideration

Local Board Views

29.     Local boards have a high level of interest in many of the decisions being made by CCOs. The criteria proposed in this report recognise that services attracting high levels of public interest, local board interest and/or IMSB interest may be less suited to delivery through a CCO.  Where there are other good reasons for CCO delivery, it is important that the council has effective mechanisms to ensure that CCOs take into account the views of local boards.  It is noted that all CCOs are currently expected to take account of Local Board plans and priorities.

30.     Local boards have not been consulted on the criteria. The terms of reference for the review allow for local board input on the current state assessment and on options for structural change. Further consultation on matters of specific interest to local boards will be undertaken as necessary.

Māori Impact Statement

31.     The Council has statutory obligations to Māori arising from a range of legislation.  The Council has also adopted a Māori Responsiveness Framework which makes further commitments to enable Māori outcomes and value Te Ao Māori. The council has an expectation that CCOs will act consistently with the council’s statutory obligations and will apply the Māori Responsiveness Framework.  There is no inherent reason why different delivery mechanisms should impact outcomes for Māori.

32.     That said, the criteria recognise that services attracting high levels of stakeholder, iwi, or public interest, may be less suited to delivery through a CCO. The criteria also recognise that services that contribute to multiple Auckland Plan outcomes and/or transformational shifts may also be less suited to delivery through a CCO.  As “Significantly lift Māori and economic wellbeing” is one of the transformational shifts, services which contribute to this transformational shift as well as to a number of others, may be less suited to CCO delivery.

33.     The Independent Māori Statutory Board (IMSB) has not been consulted in the criteria. The terms of reference for the review allow for IMSB input on the current state assessment and on any proposed option for structural change. Further consultation on matters of specific interest to the IMSB will be undertaken as necessary.

General

34.     The decision to adopt assessment criteria does not trigger the council’s significance policy.

Implementation Issues

35.     There are no implementation issues associated with this report.

 

Attachments

No.

Title

Page

aView

What Works? Extract from report prepared for Wellington City Council

19

bView

List of services provided by CCOs

41

     

Signatories

Author

Catherine Syme - Principal Advisor, CCO Governance and External Partnerships

Authorisers

Mark Butcher - Treasurer

Andrew McKenzie - Chief Finance Officer

Stephen Town - Chief Executive

 


Governing Body

01 May 2014

 

 






















Governing Body

01 May 2014

 

 




Governing Body

01 May 2014

 

 

Civic Assurance - Director Nomination

 

File No.: CP2014/08266

 

  

 

Purpose

1.       To recommend the appointment of Mark Butcher as a director to New Zealand Local Government Insurance Corporation Limited (trading as Civic Assurance).

Executive Summary

2.       The New Zealand Local Government Insurance Corporation trading as Civic Assurance (“Civic”) was established in April 1961 as a local-government owned insurance and financial services company and with 67 out of 78 councils in New Zealand as shareholders. Auckland Council is the largest shareholder with a 19.9 per cent shareholding (2,195,042 shares), valued at $2,921,690 as at 31 December 2013.

3.       Civic has played an important role in improving both the terms and pricing of insurance for the local government sector. However, Civic is currently not in a position to offer coverage to the sector until the company’s credit rating is restored to at least A- (AM Best). 

4.       The company’s level of reserves and credit rating has fallen following the 2010-11 Canterbury earthquakes and subsequent dispute with a number of its reinsurers. Civic has operated at a financial loss for the past four years (after almost 40 years of profitability) and did not receive full shareholder support for a capital raising that was undertaken during 2012 and 2013.

5.       Civic has approached Auckland Council to nominate a staff member to fill a vacancy (by way of co-option) on its board following the resignation of a former Auckland Council staff member in 2013. Any person co-opted will be required to receive shareholder approval at the next Annual General meeting in June 2014. This report recommends the appointment of Mark Butcher, Manager Treasury and CCO Governance and External Partnerships, to this position, which will be subject to approval at the Annual General Meeting of Civic Assurance. 

 

Recommendation/s

That the Governing Body:

a)         nominate Mark Butcher as a director to New Zealand Local Government Insurance Corporation Limited (trading as Civic Assurance).

b)         delegate to the Mayor, after taking advice from the Chief Executive, the power to vote or direct a proxy to vote at future Annual General meetings with regard to director appointments and other business.

 

 

Discussion

6.       Civic was established as a local-government owned insurance and financial services company and commenced on 1 April 1961. It has delivered over $200 million of premium rebates and dividends to local authorities over this period and was profitable in every year until 2010. Civic shareholders comprise 67 out of 78 councils and the company has played an important role in improving terms and pricing of insurance for the local government sector.


 

7.       Because of above ground claims following the Canterbury earthquakes, Civic has outstanding claims relating to the Canterbury earthquakes totalling $590 million as at 31 December 2013. While reinsurers are expected to fund most of the outstanding claims (all except for $5 million), the cost to Civic to date has been $10.8 million ($3.6 million capped per each of the September 2010, February 2011 and June 2011 earthquakes).

8.       Civic is currently in arbitration with two reinsurers (AIG and R+V) over two reinsurance claims. The outcome of the first arbitration is due by June 2014 and Civic is confident of a positive outcome. The second arbitration has been delayed until September 2014.

9.       The impact on the financial position of Civic following the Canterbury earthquakes is as follows

 

Capital ($million)

Comprehensive Profit

($ million)

Credit rating

Year ending 2009

$19.5

$0.74

A (Excellent) – stable

Year ending 2010

$15.5

($4.01)

A (Excellent) – negative

Year ending 2011

$10.1

($5.41)

B++ (Good) - negative

Year ending 2012

$13.0

($1.28)

B++ (Good) - negative

Year ending 2013

$12.4

($0.62)

B+ (Good) - negative

 

10.     Civic is currently not operating in the property insurance market because it requires a credit rating of at least “A-“. However, its ability to rebuild reserves since the Canterbury earthquakes has been hampered by the lack of reinsurance, meaning it has not been able to offer above ground insurance cover in recent years.

11.     In order to rebuild its reserves in late 2011, Civic proposed a capital raising of $6.475 million through the issuance of 7,206,790 shares, by a rights issue, placement and shortfall offer to shareholders at $0.90 per share. The intention was to return Civic to a credit rating of “A-“and enable it to be active again in the local government insurance market.

12.     Forty-eight shareholders, including Auckland Council, supported the capital raising. While Auckland Council does not use Civic for our insurance coverage, it is beneficial for Auckland Council to have Civic Assurance active in the insurance market to increase the competitiveness of pricing and terms.

13.     The rights issue was not fully taken up by shareholders with $4.17 million raised and Civic currently has 11,030,364 shares on issue. The capital raising has been extended pending the results of the arbitrations regarding the reinsurance disputes with AIG and R+V.

14.     Auckland Council currently holds 19.9 per cent (2,195,042 shares) of Civic, valued at $2,921,690 ($1.33 per share) as at 31 December 2013. There are 67 shareholders in Civic, with the top eight shareholders holding 57.6 per cent of the total capital.

Decision Making

15.     Civic has a six person board and currently has positions filled by five directors, including Michael Hannan, Tony Marryatt (Chair), John Melville, Basil Morrison and Bryan Taylor. A vacancy has arisen following the resignation in 2013 of Darryl Griffin, a former Auckland Council staff member.

16.     Civic has approached Auckland Council proposing Auckland Council appoint a staff member to the Civic Board to replace Darryl Griffin.  The appointment would be until the Civic Annual General Meeting in June 2014 where the appointment would have to be supported by shareholders.

17.     The benefit to Auckland Council of nominating a director to the board includes the opportunity to support the future direction of Civic given Council’s position as the single largest shareholder and also being the largest participant in the local government insurance market.

18.     The main disadvantage in appointing a director is a perceived conflict of interest but this can be mitigated by ensuring that Council’s nominated director is not involved in the procurement of insurance on behalf of Council.

19.     The skill set required for the vacant director position is governance, commercial and financial expertise as Civic looks to rebuild its position following the Canterbury earthquakes and re-enter the reinsurance market.

20.     It is proposed that Mark Butcher, Treasurer and Manager CCO Governance and External Partnerships, be appointed to the Civic Board. Mark is a CFA charterholder, a member of the Institute of Directors, a director of the Local Government Funding Agency (LGFA) and a board member of the Institute of Finance Professionals NZ Inc. (INFINZ).

Consideration

Local Board Views

21.     Local Boards were not consulted on this report as the matters are of a regional wide issue and not specific to a particular Local Board.

Māori Impact Statement

22.     The decision to appoint an Auckland Council staff member to the board of Civic Assurance has no specific implications for Māori wellbeing. 

General

23.     As per Auckland Council policy, any director fees are paid to Auckland Council.

Implementation Issues

24.     The Civic Assurance Annual General Meeting will be held in Wellington on 20 June 2014. A proxy to vote in favour of the director appointment and any other matters will need to be signed by the Mayor prior to the meeting.

 

Attachments

There are no attachments for this report.     

Signatories

Author

Andrew McKenzie - Chief Finance Officer

Authoriser

Stephen Town - Chief Executive

      

 


Governing Body

01 May 2014

 

 

Exclusion of the Public: Local Government Official Information and Meetings Act 1987

 

That the Governing Body:

a)      exclude the public from the following part(s) of the proceedings of this meeting.

The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter, and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution follows.

This resolution is made in reliance on section 48(1)(a) of the Local Government Official Information and Meetings Act 1987 and the particular interest or interests protected by section 6 or section 7 of that Act which would be prejudiced by the holding of the whole or relevant part of the proceedings of the meeting in public, as follows:

 

C1       Recommendation for appointments to the Ethnic Peoples, Pacific Peoples and Seniors Advisory Panels

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

s7(2)(a) - The withholding of the information is necessary to protect the privacy of natural persons, including that of a deceased person.

In particular, the report contains the names of people recommended for the Panels. This information should not be made public until the Governing Body has adopted the recommendations and the successful applicants confirmed their acceptance of the appointment.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

 

C2       Approval of Special Housing Areas - Third Tranche

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

s7(2)(h) - The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities.

In particular, the report contains commercially sensitive information and information that could potentially give certain parties a commercial advantage if released.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

 

   



[1] The Local Government Act 2002 Amendment Bill (No 3) includes a proposed new section which would require the council to review the most cost-effective way of delivering all of its services every three years. The Amendment Bill has had its first reading and the Select Committee report back is due in May 2014. Note that cost- effective service delivery is not a new requirement in that the LGA 2002 already requires the council to exercise prudent financial management. The amendment proposes a specific process regarding consideration of service delivery options which is consistent with broader existing statutory obligations.

 

[2] Note that the reasons that governments choose to deliver services through subsidiaries are quite different to the reasons that commercial entities establish subsidiaries. Commercial considerations may include matters such as financial transparency, accounting and tax, and preparing a business for sale.