I hereby give notice that an ordinary meeting of the Finance and Performance Committee will be held on:

 

Date:††††††††††††††††††††††

Time:

Meeting Room:

Venue:

 

Thursday, 17 September 2015

9.30am

Reception Lounge
Auckland Town Hall
301-305 Queen Street
Auckland

 

Finance and Performance Committee

 

OPEN ADDENDUM AGENDA

 

 

MEMBERSHIP

 

Chairperson

Cr Penny Webster

 

Deputy Chairperson

Cr Ross Clow

 

Members

Cr Anae Arthur Anae

Cr Calum Penrose

 

Cr Cameron Brewer

Cr Dick Quax

 

Mayor Len Brown, JP

Cr Sharon Stewart, QSM

 

Cr Dr Cathy Casey

Member David Taipari

 

Cr Bill Cashmore

Member John Tamihere

 

Cr Linda Cooper, JP

Cr Sir John Walker, KNZM, CBE

 

Cr Chris Darby

Cr Wayne Walker

 

Cr Alf Filipaina

Cr John Watson

 

Cr Hon Christine Fletcher, QSO

Cr George Wood, CNZM

 

Deputy Mayor Penny Hulse

 

 

Cr Denise Krum

 

 

Cr Mike Lee

 

 

(Quorum 11 members)

 

 

 

Mike Giddey

Democracy Advisor

 

11 September 2015

 

Contact Telephone: (09) 890 8143

Email: mike.giddey@aucklandcouncil.govt.nz

Website: www.aucklandcouncil.govt.nz

 

 


Finance and Performance Committee

17 September 2015

 

ITEM†† TABLE OF CONTENTS††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† PAGE

12††††††† Budget Update†††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† 5 ††

††


Finance and Performance Committee

17 September 2015

 

Budget Update

 

File No.: CP2015/16328

 

††

 

 

Purpose

1.†††††† This report is provided as required. It collates decisions required of the Finance and Performance Committee on changes to the budgets, and provides a financial context within which the decisions can be made.

Executive Summary

2014/2015 capital projects carry-forward

Council parent

2.†††††† Council departments delivered in excess of $450 million capital expenditure (capex) in 2014/2015, which is an increase of $50 million from 2013/2014 and reflects the ongoing improvement in delivery of capital projects. The 2015/2016 capital budget in the Long-term Plan (LTP) 2015-2025 is slightly over $500 million, which is considered a good stretch target for the organisation.

3.†††††† As part of the councilís normal year-end process, staff and management have reviewed the 2014/2015 results and assessed the need for unspent 2014/2015 capex budgets over the next three years.

4.†††††† Staff have identified underspent capital projects totalling $65 million for council parent, which are largely in progress. $47 million of these relate to local board projects. These budgets are required to be added to the 10-year capital project list (Attachment A) in order for council to honour these commitments. The LTP allowed for $60m funding to deal with timing changes moving from the 2014/2015 Annual Plan into the LTP. Therefore, the debt impact is minimal.

5.†††††† Staff have examined the most recent project status information and carefully considered when individual projects can realistically be delivered. Given the existing stretch target for delivery in 2015/2016, accommodating the additional $65 million of capital projects into the 10-year budgets has necessarily resulted in changes to the projected timing of individual projects across the next three years. In many cases these timing changes simply reflect the latest project status information. The overall revised capex for 2015/2016 would be $508 million.

CCOs

6.†††††† The proposed capex carry-forwards from 2014/2015 total $59.2 million for CCOs, including:

∑††† Auckland Transport - $29.5 million

∑††† Development Auckland - $26.1 million

o† Property development - $20.4 million

o† Waterfront development - $5.7 million

∑††† Regional Facilities Auckland (RFA) - $2.4 million

∑††† Auckland Tourism, Events and Economic Development (ATEED) - $1.1 million.

 

7.†††††† These carry-forwards relate to underspends in 2014/2015 by CCOs. As such, the impact on debt is timing. All carry-forward requests from CCOs are incorporated in the revised 10-year capital project list in Attachment A.

8.†††††† In addition, ATEED is requesting re-categorisation of $300,000 from operational expenditure to capital expenditure (i.e. a change in accounting treatment). The expenditure relates to the platform for the digital development plan. Improving the digital channels will allow ATEED to engage more effectively across all its target markets. Digital is a key engagement channel for ATEED and will continue to increase in importance over the coming years.

9.†††††† Staff recommend the committee agree to amend the group capital expenditure budgets to reflect Attachment A.

2014/2015 operational expenditure budget carry-forward

10.†††† Auckland Councilís financial policies do not allow the general deferral of operational expenditure (opex) budgets from year to year.

11.†††† For specific projects or events where the timing has changed unexpectedly, council departments have requested that $10.6 million budgets which were funded in 2014/2015 and remain unspent, be approved for spend in 2015/2016 where there is no existing budget to cover them. Staff have assessed the requests against the councilís internal financial policies, and recommend approval of the timing changes that meet the criteria (Attachment B). The recommendations do not have any funding impact on 2015/2016 budgets.

12.†††† In addition, opex carry-forward requests from CCOs totalling $3.3 million have been approved by the councilís Chief Finance Officer in accordance with the CCO Governance Manual.

Auckland Transport 2015-2018 budget adjustments

13.†††† In May 2015, the council agreed to additional $523 million transport capital expenditure as part of the LTP. Auckland Transport has subsequently reviewed its budgets at year-end, and is proposing the following adjustments for approval:

Increase(Decrease) million

2015/16

2016/17

2017/18

Revenue

$5

$7

$3

Operating expenses

$5

$7

$3

Depreciation

($2)

$1

$6

NZTA capital funding

$14

($3)

($11)

 

14.†††† The adjustments reflect:

∑††† matching increase in revenue and expenditure in each of the three years for public transport, due to previously planned and recently added capex as well as growth in boarding,

∑††† bringing forward $14 million capital funding from the New Zealand Transport Agency, and

∑††† additional $5 million depreciation cost over three years, due to the extra transport investment approved as part of the LTP.

 

15.†††† The budget adjustments do not have a material impact on debt or general rates. They are reflected in the 2015-2018 Statement of Intent (SOI) of Auckland Transport.

City Centre Integration projects

16.†††† The revised 10-year capital project list in Attachment A incorporates a number of changes to the City Centre Integration programme, which the Auckland City Centre Advisory Board (ACCAB) has endorsed following an iterative process in the past few months. The total capex is proposed to be reduced slightly by $8.7 million over 10 years from $242 million currently. However, more City Centre Targeted Rates (CCTR) funding is proposed to be allocated to existing projects. Overall, the proposed changes do not significantly affect debt or general rates.

17.†††† In addition to the capex changes, the ACCAB has also recommended budgeting for a number of operational expenditure items that are fully funded by the CCTR. These items are outlined in Attachment D. They would result in a $2.6 million impact on the current year group result, which would be met from the CCTR reserve.

18.†††† Staff recommend the committee agree to budgeting for the CCTR funded operational expenditure as recommended by the ACCAB.

 

Recommendation/s

That the Finance and Performance Committee:

a)††††† agree to amend the group capital expenditure budgets to reflect Attachment A.

b)††††† agree that the operational underspends for Auckland Council parent in 2014/2015 , as per Attachment B, be spent in the 2015/2016 financial year.

c)††††† note that the operational underspends for council-controlled organisations (CCOs) in 2014/2015 have been approved by the Chief Financial Officer of Auckland Council in accordance with the CCO Governance Manual.

d)††††† agree to the conversion of $300,000 from operational to capital funding in 2015/2016 for Auckland Tourism, Events and Economic Development.

e)††††† agree to the budget adjustments for Auckland Transport over the period 2015-2018 as per Attachment C.

f)†††††† agree to the additional operational expenditure for the city centre as per Attachment D, noting that it is endorsed by the Auckland City Centre Advisory Board and will be fully funded from the City Centre Targeted Rates.

g)††††† agree that the councilís budgets be updated to reflect the financial implications of the above decisions.

 

Comments

Background

2014/2015 capital projects carry-forward

Council parent

19.†††† In the previous LTP and Annual Plans, there were capital projects listed each year, which were not fully funded and/or were unlikely to be fully delivered. This meant that each year there was a large number of automatic deferrals of unspent capital budgets that were merely rolled forward with little assessment or review.

20.†††† The LTP now includes a capital project list that is fully funded and at a level that departments can deliver. Therefore, there will no longer be an automatic deferral of all unfinished capital projects (or unspent capital budgets) at year-end, but a review of the capital program for the following financial year, taking into account timing changes required to complete works underway at year-end.

21.†††† Council departments delivered in excess of $450 million capex in 2014/2015, which is an increase of $50 million from 2013/2014 and reflects the ongoing improvement in delivery of capital programs. The 2015/2016 capital budget in the LTP is a little over $500 million, which is considered a good stretch target for the organisation.

22.†††† As part of the councilís normal year-end process, staff and management have reviewed the 2014/2015 results and assessed the need for unspent end of year budgets over the next three years. Staff have applied the internal guidelines to year-end capex process, the criteria are listed below:

a)†† The unspent project budget being added to the following yearís capital budget must relate to a specific project and not a generic programme of works.

b)†† The specific project must be fully scoped, planned and has the Planning Gateway approval to enter into the Execution and Delivery Phase.

c)†† One-off renewal projects that are physically underway at year-end with the aim to be completed shortly after year end can be added to the following yearís capital budget.

d)†† Ongoing development and renewal programme budgets cannot be carried forward unless they meet the requirement of (b) above.

e)†† Savings and unused contingencies of completed projects cannot be carried forward and cannot be used to offset other projects.

f)††† The total whole of life project cost cannot be changed unless there is an approved variation. The revised capital budget represents a timing change only.

23.†††† Staff have identified underspent capital projects totalling $65 million, which are largely in progress. $47 million of these relate to local board projects. These budgets are required to be added to the 10-year capital project list in order for council to honour these commitments. The LTP allowed for $60m funding to deal with timing changes moving from the 2014/2015 Annual Plan into the LTP. Therefore, the debt impact is minimal.

24.†††† Staff have examined the most recent project status information and carefully considered when individual projects can realistically be delivered. Given the existing stretch target for delivery in 2015/2016, accommodating the additional $65 million of capital projects into the 10-year budgets has necessarily resulted in changes to the projected timing of individual projects across the next three years. In many cases these timing changes simply reflect the latest project status information. The overall revised capex for 2015/2016 would be $508 million.

CCOs

25.†††† The following carry-forwards are proposed for CCOs:

CCO

Amount (million)

Description

Auckland Transport

$29.5

Ring-fenced capital expenditure such as the electric trains, the Local Board Transport fund, and Rodney seal extensions

RFA

$2.4

Primarily delayed zoo renewals and the Aotea Precinct project†

Development Auckland

$26.1

See below

††††††††††††††† Property development

$20.4

Primarily in-flight Hobsonville development ($12m), the Strategic Development Fund, and the town centre developments that are underway such as Ormiston and Papatoetoe

††††††††††††††† Waterfront development

$5.7

Mainly Central Precinct currently underway in Wynyard Quarter

ATEED

$1.1

Deferred capital expenditure budget for GridAKL which is underway in Wynyard Quarter

Total

$59.2

 

 

26.†††† The carry-forwards relate to underspends in 2014/2015 by CCOs. As such, the impact on debt is timing. All carry-forward requests from CCOs are incorporated in the revised 10-year capital project list in Attachment A.

27.†††† In addition, ATEED is requesting re-categorisation of $300,000 from operational expenditure to capital expenditure (i.e. a change in accounting treatment). The expenditure relates to the platform for the digital development plan. Improving the digital channels will allow ATEED to engage more effectively across all its target markets. Digital is a key engagement channel for ATEED and will continue to increase in importance over the coming years.

28.†††† Staff recommend the committee agree to amend the group capital expenditure budgets to reflect Attachment A.

2014/2015 operational expenditure budget carry-forward

29.†††† Auckland Councilís financial policies do not allow the general deferral of opex budgets from year to year.

30.†††† For specific projects or events where the timing has changed unexpectedly, departments and CCOs have requested that budgets which were funded in 2014/2015 and remain unspent, be approved for spend in 2015/2016 where there is no existing budget to cover them. Staff have assessed the requests against the councilís internal financial policies, and recommend approval of the items that meet the criteria.

31.†††† The timing changes recommended do not have any funding impact on the 2015/2016 budgets, as the items either have already been funded through rates and/or external revenue sources, or relate to a capital grant which is debt funded at the time it is paid.

32.†††† With regard to the council parent, projects that were underspent in 2014/2015 total $10.6 million. They are recommended to be re-phased and spent in 2015/2016. More details of these projects can be found in Attachment B.

33.†††† In relation to CCOs, the following project underspends, totalling $3.3 million, have been approved to be carried forward to 2015/2016 by the councilís Chief Financial Officer in accordance with the CCO Governance Manual.

∑††† Development Auckland, consisting of:

o† Property development: 700,000 underspend in the systems enhancements budget

o† Waterfront development: $2,600,000 underspend relating to repairs and maintenance to Hobson Wharf and the Viaduct cabling tunnels

 

Auckland Transport 2015-2018 budget adjustments

34.†††† In May 2015, the council agreed to additional $523 million transport capex as part of the LTP. Auckland Transport has subsequently reviewed its budgets at year-end, and is proposing the following adjustments (Attachment C) for approval:

Increase(Decrease) million

2015/16

2016/17

2017/18

Revenue

$5

$7

$3

Operating expenses

$5

$7

$3

Depreciation

($2)

$1

$6

NZTA capital funding

$14

($3)

($11)

 

35.†††† The adjustments reflect:

∑††† matching increase in revenue and expenditure in each of the three years for public transport, due to previously planned and recently added capex as well as growth in boarding,

∑††† bringing forward $14 million capital funding from the New Zealand Transport Agency, and

∑††† additional $5 million depreciation cost over three years, due to the extra transport investment approved as part of the LTP.

 

36.†††† The budget adjustments do not have a material impact on debt or general rates. They are reflected in the 2015-2018 SOI of Auckland Transport.

City Centre Integration projects

Capex

37.†††† The LTP 2015-2025 contains budgets for capital projects that transform the city centre. The outlays of these projects are funded fully or partially by the City Centre Targeted Rates (CCTR). The consequential operational expenditure and depreciation has been funded by CCTR in the past, but will be transitioned to be fully funded by the general rates from 2019/20. Operational projects (e.g. grants to third parties) will continue to be funded by the CCTR.

38.†††† The Auckland City Centre Advisory Board (ACCAB) is a key advisory body, with no decision-making or autonomous budgetary authority. It assists the Auckland Council, specifically the governing body and the Waitemata Local Board and CCOs to oversee and be a key advisor to the Auckland Council on achieving the vision and strategic outcomes of the Auckland Plan, the City Centre Masterplan, the expenditure of the City Centre Targeted Rates, and city centre issues.

39.†††† In the past few months, the ACCAB has gone through an iterative process to review the mix of the current City Centre Integration projects and to reaffirm relative priorities in the changing environment. As a result, the ACCAB has recommended a revised capital programme, which would see $8.7 million reduction in capex over 10 years from $242 million in total currently. Key changes include reprioritisation of a number of street upgrades (e.g. Fort, Parliament, Upper Queen Streets) and at the same time increases in CCTR funding to projects such as Freyberg Square, Myers Park Stage II and K Road cycling. Overall, the changes do not significantly affect debt or general rates.

Opex

40.†††† A considerable proportion of each yearís targeted rate is available for the ACCAB to respond by continuing to recommend operational or capital project opportunities that are not specifically identified in the LTP budgets. Staff have collated a number of operational projects that ACCAB has recommended to the council, as outlined in Attachment D.

41.†††† Key initiatives include $4 million over five years for city centre activation activities that stimulate, motivate, invite and encourage site specific vitality and public participation, such as events, installations, recreational programmes and other activations that attract people to spaces and enhance place experience. $900,000 is proposed to be contributed to the implementation of the Wayfinding Strategy in the city centre, which focuses on providing cross-modal wayfinding solutions for Aucklanders and visitors.

42.†††† The recommended projects are fully funded by the CCTR. However, they would reduce forecasted surplus of the current year by approximately $2.6 million, which would be met from the CCTR reserve. Staff recommend that the committee approve these projects.

Overall budget impact

43.†††† The table below shows the financial impacts of all budget changes considered in this report. The impacts include:

∑††† $14 million reduction in net borrowing for 2015/2016

∑††† $160,000 impact on the group result for 2015/2016, met from reserves

∑††† No impact on general rates requirement for 2016/2017. The projected average general rates increase would remain at 3.2 per cent.

 

Estimated financial impacts on Auckland Council Group

$000

Closing Group Net Borrowing

Group Net Surplus/(Deficit) After Tax

General Rates

Cumulative % rates increase

 

2015/2016

2015/2016

2016/2017

% increase

Long-term Plan 2015-2025 budget (2015/2016)

7,806,305

226,448

1,488,482

 

3.203%

Cumulative impact from decisions since 1 July 2015

362

-362

0

0.0000%

 

Current position

7,806,667

226,086

1,488,482

 

3.203%

September proposals

 

 

 

 

2014/2015 capex carry-forward

0

0

0

0.0000%

 

Unspent 2014/2015 opex carry-forward

0

-13,854

0

0.0000%

 

Auckland Transport depreciation adjustment

0

2,000

0

0.0000%

 

Auckland Transport NZTA subsidy timing

-14,000

14,000

0

0.0000%

 

ATEED opex-capex conversion

0

300

0

0.0000%

 

New CCI opex

0

-2,606

0

0.0000%

 

Potential Position

7,792,667

225,926

1,488,482

 

3.203%

Transfers from reserves

 

 

 

 

 

CCTR reserve

 

2,606

 

 

 

Retained earnings

 

13,854

 

 

 

 

Consideration

Local Board views and implications

2014/2015 operational expenditure budget carry-forward

44.†††† A number of opex underspend in 2014/2015 is of local nature, such as Colin Maiden Park master planning (Ōrākei Local Board), Mangrove Management Project (Māngere-Ōtāhuhu Local Board), Grant to Sandspit Road School (Franklin Local Board) and Grant to Korean Garden Trust (Devonport-Takapuna Local Board). The local boards concerned are supportive of the recommended carry-forwards.

2014/2015 capital projects carry-forward

45.†††† A memo was sent to all local board members on 19 August. The memo presented the impacts of the proposed carry-forwards for individual local board on their 2015/2016 capital programme and a summarised view of outer year budgets.

46.†††† Local board chairs were subsequently briefed on the changes at the Chairsí Forum and were provided an opportunity to raise any questions.

47.†††† There are no outstanding issues on timing changes relating to local projects.

48.†††† Of the $65 million 2014/2015 projects that are unfinished and being proposed to be carried forward, $47 million relate to local projects.

49.†††† As a result of the proposed timing changes, three local boards would have large decreases in the revised 2015/2016 capital expenditure compared to the LTP, two local boards would have minor decreases due to some projects being ahead of schedule in 2014/2015, and all other local boards would have increases.

50.†††† The three local boards with large decreases are Henderson-Massey, Upper-Harbour and Waitemata Local Boards. It is because high-value projects in those areas have been delayed and their completion timing will be impacted slightly. These projects are the Westgate multi-purpose facility and stormwater ponds, the Albany Stadium Pool and the Pioneer Womenís and Ellen Melville Hall. The local boards via project updates are aware of the delays. Planning and works are underway nonetheless.

City Centre Integration projects

51.†††† The Waitemata Local Board is represented by its Chair on the Auckland City Centre Advisory Board. The local boardís view is incorporated in ACCABís recommendation.

Māori impact statement

52.†††† Staff have considered projects included in the recommended budget adjustments, which are of specific relevance to Māori. The revised 10-year capital project list includes proposed carry-forwards for Tūpuna Maunga o Tāmaki Makaurau Authority and Ngāti Whātua Ōrākei Reserves Board totalling $311,956. The proposed opex carry-forwards include $60,233 for Pukekohe Hill Ngāti Tamaoho Cultural Infrastructure.

53.†††† Staff have further considered the results presented in the Māori Transformational Activity and Expenditure report (quarter four) to this committee in August. No carry-forwards were identified, because either the reported project underspends were resulted from actual savings achieved or there are existing budgets in the LTP to continue supporting the activities, which means the deliverables and outcomes will be achieved.

Implementation

54.†††† Budgets would be amended in core financial systems and used for internal management reporting, regular reporting to councillors and financial control for the 2015/2016 financial year.

 

Attachments

No.

Title

Page

aView

Revised capital project list (10-year budget)

13

bView

2014/2015 opex carry-forward (parent)

25

cView

Auckland Transport 2015-2018 budget adjustments

29

dView

City Centre Integration opex

31

† ††††

Signatories

Author

Neil Huang - Senior Analyst

Authorisers

Taryn Crewe - Financial Planning Manager - Council Parent

Ross Tucker - Acting General Manager Financial Planning, Policy and Budget

Matthew Walker - Acting Chief Financial Officer


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