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Finance and
Performance Committee
21 August 2014
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Monthly Budget
Update
File No.: CP2014/16825
Purpose
1. This report is provided on a
monthly basis 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
Alternative Transport Funding
Project Budget
2. On 24 July 2014, the Finance and
Performance Committee requested an update on the budget for the Alternative
Transport Funding project.
3. The project was established to
provide advice on the options to address the $10 billion to $15 billion funding
gap identified to deliver Auckland’s transport priorities. The work is complex
and working towards tight timeframes. Without the work, there will be no
options to address the significant funding shortfall for transport projects in
the Long-term Plan (LTP) 2015-2025.
4. The following table identifies
the budget for Phase Two of the project.
|
|
Actual
FY 2013-14
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Budget
FY 2014-15
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Total
FY 2013-15
|
|
Core Project Team & Project Office
|
$230,000
|
$988,600
|
$1,218,600
|
|
Independent Advisory Body
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|
$99,000
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$99,000
|
|
Design and Evaluation of Funding Pathways
|
|
|
|
|
Modeling the funding pathways
|
|
$22,000
|
$22,000
|
|
Design and costing of schemes
|
|
$248,800
|
$248,800
|
|
Research on Impacts and Mitigation
Strategies
|
|
$375,060
|
$375,060
|
|
Economic Evaluation of Alternatives
|
|
$27,000
|
$27,000
|
|
Communications, Public Engagement and Market
Research
|
|
$105,000
|
$105,000
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|
Alternative Funding Research Projects
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$140,220
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$140,220
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Contingency
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$164,320
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$164,320
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Total
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$230,000
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$2,170,000
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$2,400,000
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5. The project will provide
preliminary advice to councillors by December 2014 to inform the LTP 2015-2025.
The project will complete the analysis, evaluation, reporting and engagement
necessary to enable the Governing Body to make an informed and robust decision
with respect to transport funding by 30 June 2015
6. Any further work beyond Phase
Two will be subject to the Governing Body deliberations when councillors
receive advice by 30 June 2015.
2014/2015 capital programme
deferral
7. Operating
budgets for 2015/2016 (the first year of LTP 2015-2025) would need to be
reduced by about $90 million to achieve a 2.5 per cent average rates increase. The
lagged impact of changes in the capital programme on operating budgets means
that deferring capital expenditure (capex) in 2014/2015 is desirable in order
to address 2015/2016 operating budget pressures.
8. Auckland
Transport have reviewed their 2014/2015 capex programme and identified an
opportunity to reduce their council rates funded capex in 2014/2015 by $100
million. Regional Facilities Auckland and Waterfront Auckland have identified
$5.3 million and $2.8 million of potential deferrals respectively.
9. Within the council parent, a
high level of existing contractual commitments combined with the need to
complete a large renewals programme means that just achieving the $207 million
assumed capital delivery deferral assumption in the 2014/2015 Annual Plan will
be challenging.
10. In order to
develop a realistic capex programme for 2014/2015 and contain pressure on rates
in 2015/2016, staff recommend that the capex projects included in Attachment A
for the council parent be explicitly deferred from 2014/2015 to 2015/2016, and
be included as part of the LTP prioritisation process. Council staff will then
carefully manage actual capital spend over the course of the year with the aim
of finding sufficient capex efficiencies and further deferrals of regional
programmes to stay within the annual plan funding parameters.
11. At the start of
engagement with local boards and finalising our 2013/2014 year end deferral
process, the estimated total for projects to be deferred was $116 million.
Regional projects amounted to $74 million and local projects amounted to $42
million. Attachment A reflects the updated proposed deferral list taking into
account the feedback from local boards and our 2013/2014 year end deferral
process.
12. The proposed
deferral lists have been workshopped with local boards. In some cases the
proposed list has been updated as further information about specific projects
has come to light that precludes them from being able to be deferred (for
example, projects which have recently been committed or identified as health
and safety issues).
13. Local boards
have also identified projects that are discretionary and could be deferred, but
which are very important to their local community. Rather than making decisions
about removing any high-priority discretionary projects from the deferral list
at this point, staff recommend deferring the full list now and then allowing
local boards to report back to this committee via this monthly budget report
over the course of this year seeking exceptions on a case-by-case basis. This
approach would allow more time to assess the priority of these projects and to
identify further offsetting deferrals, and would enable items to be considered
closer to the time when financial commitments are required.
14. Staff recommend
that the committee only agree to budget adjustments that represent timing
changes. Any decisions to drop or reprioritise projects should be made as part
of developing the LTP 2015-2025, which will involve full local board and public
consultation.
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Recommendation/s
That the Finance and
Performance Committee:
a) note the
status of the Alternative Transport Funding project budget.
b) agree that
Auckland Transport reduce or defer $100 million of council funded capex from
2014/2015, noting that the gross reduction (including NZTA funded capex) will
be approximately $150 million. Auckland Transport are required to provide a
modified Statement of Intent to the CCO Governance and Monitoring Committee
in November.
c) agree that Auckland Transport
ensure that in determining which projects to defer, specifically exclude
ring-fenced projects and take into account the council’s priority towards
maintaining public transport and active mode outcomes.
d) agree
that Regional Facilities Auckland defer $5.3 million of capex from 2014/2015.
Regional Facilities Auckland are required to provide a modified Statement of
Intent to the CCO Governance and Monitoring Committee in November.
e) agree that
Waterfront Auckland defer $2.8 million public capex from 2014/2015.
Waterfront Auckland are required to provide a modified Statement of Intent to
the CCO Governance and Monitoring Committee in November.
f) with
respect to the council parent capex projects in Attachment A,
i) agree
to defer the capex budget amounts listed to 2015/2016. These projects will be
included in prioritisation discussion in forming the draft LTP 2015-2025 in
September / October 2014, and
ii) note
that any projects where timing has been deferred, but project planning is
underway should be given high priority in the 2015/2016 capital programme.
g) require
management to exercise financial constraint and put controls in place around
procurement to minimise further commitments of outer year capital expenditure
prior to decisions being made with regards to the LTP 2015-2025.
h) require
management to find efficiencies and work through the regional capex programme
to identify further deferrals with a target of achieving the remaining
2014/2015 Annual Plan deferral assumption, and
i) agree that
the council’s budgets be updated to reflect the financial implications of the
above decisions.
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Comments
Background
15. The Finance and Performance
Committee has delegated authority to approve changes to budgets during a
financial year. Occasionally, it may be necessary for this committee of the
whole to make urgent decisions on the budgets for future years, which would
ordinarily be made by the Budget Committee as part of the annual/long-term
planning processes.
16. Rates for 2013/2014 and 2014/2015
have been set with no provision made for accommodating new or additional
expenditure items. Any new expenditure committed to will either require
reprioritisation of existing budgets or increased borrowing. When considering
requests, the impact on 2014/2015 and 2015/2016 operating expenditure also
needs to be considered.
Alternative Transport Funding
Project Budget
17. On 24 July 2014, this committee
requested an update on the budget for the Alternative Transport Funding
project.
18. The project was established to
provide advice on the options to address the $10 billion to $15 billion funding
gap identified to deliver Auckland’s transport priorities. The work is complex
and working towards tight timeframes. Without the work, there will be no
options to address the significant funding shortfall for transport projects in
the next LTP.
19. The following table identifies
the budget for Phase Two of the project.
|
|
Actual
FY 2013-14
|
Budget
FY 2014-15
|
Total
FY 2013-15
|
|
Core Project Team & Project Office
|
$230,000
|
$988,600
|
$1,218,600
|
|
Independent Advisory Body
|
|
$99,000
|
$99,000
|
|
Design and Evaluation of Funding Pathways
|
|
|
|
|
Modeling the funding pathways
|
|
$22,000
|
$22,000
|
|
Design and costing of schemes
|
|
$248,800
|
$248,800
|
|
Research on Impacts and Mitigation
Strategies
|
|
$375,060
|
$375,060
|
|
Economic Evaluation of Alternatives
|
|
$27,000
|
$27,000
|
|
Communications, Public Engagement and Market
Research
|
|
$105,000
|
$105,000
|
|
Alternative Funding Research Projects
|
|
$140,220
|
$140,220
|
|
Contingency
|
|
$164,320
|
$164,320
|
|
Total
|
$230,000
|
$2,170,000
|
$2,400,000
|
20. The project will provide
preliminary advice to councillors by December 2014 to inform the LTP 2015-2025.
The project will complete the analysis, evaluation, reporting and engagement
necessary to enable the Governing Body to make an informed and robust decision
with respect to transport funding by 30 June 2015.
21. Any further work beyond Phase Two
will be subject to the Governing Body deliberations when councillors receive
advice by 30 June 2015.
2014/2015 capital programme
deferral
22. As reported on 7
July 2014, operating budgets for 2015/2016 (the first year of the LTP
2015-2025) would need to be reduced by about $90 million to achieve a 2.5 per
cent average rates increase. The key drivers of the 2015/2016 rates requirement
are:
· interest and
depreciation costs from the capex programme
· first step
towards fully funding depreciation by 2025
· introduction of
electric trains
· other Auckland Transport cost and revenue
pressures.
23. On 26 March, staff provided the results of
financial modelling in response to the mayoral direction for the LTP 2015-2025.
One conclusion from this analysis was that it is not possible to reduce the
average rates increase for 2015/2016 down to 2.5 per cent solely by reducing
or deferring capex in that particular year.
24. The lagged impact of changes in
the capital programme on operating budgets means that reducing or deferring
capex in 2014/2015 will have a greater impact on rates for 2015/2016. The
Budget Committee therefore agreed on 8 May 2014 to request the Chief Executive
undertake an immediate review of 2014/2015 capex programme with a target of
reducing or deferring $300 million of capex.
Auckland Transport
25. Auckland Transport have reviewed
their 2014/2015 capex programme as part of their work for the LTP. By applying
their prioritisation criteria, Auckland Transport have determined the impact of
reducing council funded capex in 2014/2015 by $100 million. Factoring in the
resulting reduction in NZTA subsidy, their gross capex spend would need to
reduce by about $150 million.
26. The targeted reduction can be
achieved via the reduction of budget across all transport activities. Projects
such as Parnell Station, the Pukekohe Station upgrade and bus and transit lane
improvements may have to be deferred to the LTP period. The Auckland Transport
Board will consider the current capital programme to confirm which projects may
be stopped, reduced or deferred to the LTP in order to minimise negative
impacts on Auckland Plan outcomes. An updated 2014/2015 capital programme will
be provided to the CCO Governance and Monitoring Committee in November.
Regional Facilities Auckland
27. Regional Facilities Auckland have identified $5.3 million of capex
that could be deferred for 2014/2015 to the next LTP period. This is from a
2014/2015 capex budget of $27.5 million, including prior year deferrals. The impacted projects are Aotea Centre weathertightness, Auckland
Town Hall acoustics improvements, upgrades to Auckland Art Gallery CCTV, Mt
Smart Stadium Arena 2 works and smaller facility renewal projects.
Waterfront Auckland
28. Waterfront
Auckland’s planned public capex programme for 2014/2015 of $21.7 million is
significantly lower than in recent years. Nevertheless, Waterfront Auckland
have identified a further $2.8 million of lower priority capex that could be
deferred to the next LTP period.
29. The projects
identified are in early stages of design such as the construction of Madden and
Jellicoe Street, Waitemata Plaza, Tram extensions and Headland Park.
Council Parent
30. Since amalgamation the quantum of
planned projects each year has exceeded the council parent’s capacity to
deliver. While delivery capacity is now increasing, a significant bow wave has
built up. Including unspent capex from 2013/2014, $670 million of projects are
planned for 2014/2015 within the council parent. In contrast, the council
parent delivered about $395 million last year[1].
31. This historical underspend is
acknowledged in the Annual Plan and factored into council’s rates and debt
projections by way of a $207 million assumed underspend. However, the
individual projects that will not be delivered are not explicitly identified in
the Annual Plan as they have not yet been identified.
32. Council staff have reviewed
2014/2015 capex budgets to identify work that must be completed this year as a
matter of practical necessity, or where not doing the project in this timeframe
would negatively impact existing service levels, external revenue or the
realisation of efficiency savings.
33. A high level of existing
contractual commitments combined with the need to complete a large renewals
programme means that just achieving the $207 million assumed capital delivery
deferral assumption will be challenging.
34. The specific categories used to
assess the 2014/2015 council parent capex programme were:
a) Legally committed –
Legislative or contractual commitment for delivery in 2014/2015
b) Growth related – Development contribution
funded capex but not committed
c) Urgent health and safety
renewal – A significant health and safety risk that must be
addressed in 2014/2015
d) In
tender process – Signed procurement plan, currently under tender or about to go
to tender
e) Cost savings – Capital works
that support cost savings
f) Revenue
generating – The investment will be offset by associated revenue
g) Renewals – To maintain
existing levels of service
h) Discretionary
– Projects have flexibility to be deferred and reconsidered through the LTP
process
For some projects the total cost may have been allocated
across more than one category. For example, phase 1 may be committed, but phase
2 remains discretionary.
35. The capex in
categories a) to g) above, at the start of local board engagement, amounted to
about $554 million, with the remaining $116 million falling into the
discretionary category.
36. In order to
develop a realistic capex programme for 2014/2015 and contain pressure on rates
in 2015/2016, staff recommend that the capex projects included in Attachment A
for the council parent be explicitly deferred from 2014/2015 to 2015/2016, and
be included as part of the LTP prioritisation process. Council staff will then
carefully manage actual capital spend over the course of the year with the aim
of finding sufficient capex efficiencies and further deferrals of regional
programmes to stay within the annual plan funding parameters.
37. At the start of
engagement with local boards and finalising the 2013/2014 year-end deferral
process, the estimated total for projects to be deferred was $116 million.
Regional projects amounted to $74 million and local projects amounted to $42
million. Attachment A reflects the updated proposed deferral list taking into
account the feedback from local boards and the 2013/2014 year-end deferral
process.
38. The proposed
deferral lists have been workshopped with local boards. In some cases the
proposed list has been updated as further information about specific projects
has come to light that precludes them from being able to be deferred (for
example, projects which have recently been committed or identified as health
and safety issues).
39. Local boards
have also identified projects that are discretionary and could be deferred, but
which are very important to their local community. Rather than making decisions
about removing any high-priority discretionary projects from the deferral list
at this point, staff recommend deferring the full list now and then allowing
local boards to report back to this committee via this monthly budget report
over the course of this year seeking exceptions on a case-by-case basis. This
approach would allow more time to assess the priority of these projects and to
identify further offsetting deferrals, and would enable items to be considered
closer to the time when financial commitments are required.
40. Staff recommend
that the committee only agree to budget adjustments that represent timing
changes. Any decisions to drop or reprioritise projects should be made as part
of the LTP process following full public consultation.
Consideration
Local
board views and implications
41. Between 12 and 19 August, staff
attended workshops for all 21 local boards to obtain feedback on the proposed
capital deferral schedules for 2014/2015. This engagement provided opportunity
for local boards to ask questions, reinforce the reason for deferring capital
funds and provide feedback on the status of projects in alignment to criteria
used to assess proposed deferrals.
42. Although there
was significant concern from local boards on proposed deferral schedules, local
boards understood the reasoning behind this review and accepted the majority of
proposed changes. A key issue raised was the deferral of projects where
significant public commitment has been made and poses a major reputational risk
for council (e.g. construction due to start based on verbal agreements with
suppliers awaiting a contract, major announcements and events held with the
local community about the initiative).
43. In light of
feedback from local boards and updated project status information from
departments, deferral schedules have been revised. A number of projects
have been identified as highly sensitive publicly and require further
investigation. Staff recommend that these projects, if identified as
priority, be brought back to this committee through the year for decision on a
case-by-case basis.
44. Individual feedback from Local
Boards is set out in Attachment A.
45. Some key feedback themes, along
with our comments are set out in the following table:
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Local
Board feedback theme
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Council
staff comments
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It is the role of local boards
not council staff to prioritise projects
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Local boards will prioritise
projects based on their Local Board Plan priorities as part of the upcoming
LTP process. The current exercise is a simple pragmatic process to address a
2014/2015 issue. The advice provided here by staff relates only to objective
project-specific factors, not strategic priorities.
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Deferrals should be equitable
across region
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It is not clear that the
starting points (in terms of asset values, historic spend or current capex
budgets) are equitable. The LTP process is the appropriate place to address
equity concerns; this exercise is based on short-term practical
considerations such as existing contracts and renewal requirements.
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Prioritisation process does
not take into account commitments to the community. Some of the proposed
deferrals relate to very high priority projects
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Acknowledged, there may be
some projects on the list of proposed deferrals that are of high priority to
local communities. These are to be considered by the committee on a
case-by-case basis during the year if considered priority for 2014/2015.
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Shouldn’t be changing the
capex set out in Local Board Agreements 2014/2015
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There are always capital
project timing differences that are not reflected in Local Board Agreements.
In aggregate, about $35
million of local board capex was unspent in 2013/2014 and is now planned for
2014/2015. The proposed deferral for all local boards amounted to $42
million at the start of engagement with them, so that the overall variance to
Local Board Agreements 2014/2015 is only about $7 million across all boards.
The $207 million deferral assumption is also explicitly acknowledged in the
local board volume of the annual plan as it applies to all capex projects,
regional and local.
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46. It is acknowledged that this
exercise is a pragmatic approach, rather than a strategic prioritisation
exercise. However, the high level of existing contractual commitments combined
with the need to complete a large renewals programme means that there is now
limited flexibility to reprioritise the programme for this year.
47. The LTP process will provide the
opportunity to discuss with the community the relative importance of projects
and programmes, based on the priorities identified in Local Board Plans
currently being consulted on.
48. Through September and October
Local Boards, the Governing Body, CCOs and council staff will all contribute to
the development of draft LTP 2015-2025 budgets in response to the Mayoral
Proposal. Decisions on discretionary local budgets will be made by Local Boards
in October and decisions on regional activities and local asset based services
will be made by the Budget Committee on 5-7 November.
49. Local Board Plans, along with the
Auckland Plan and the agreed spatial priorities will help inform this
prioritisation. Final decisions on which projects are included in the LTP
2015-2025 will be made by 30 June 2015, following full public consultation.
Maori
impact statement
50. From discussion
with Te Waka Angamua, no individual project proposed for deferral has been
noted as significant for delivering the intended Maori outcomes.
Implementation
51. Budgets
will be amended in core financial systems and used for internal management
reporting, regular reporting to councillors and financial control for the
2014/2015 financial year.
Attachments
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No.
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Title
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Page
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aView
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Auckland Council Parent - List of 2014/2015 projects
proposed for deferral until 2015/2016 including Local Board feedback (to be
tabled at the meeting)
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13
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Signatories
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Authors
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Ross Tucker - Team Leader Capital Planning
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Authorisers
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Matthew Walker - Manager Financial Plan Policy and
Budgeting
Andrew McKenzie - Chief Finance Officer
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