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Howick Local
Board
10 August 2015
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Allocation of
discretionary capital budget to local boards
File No.: CP2015/15845
Purpose
1. This report
seeks direction from Local Boards on the proposed discretionary fund for local
board capital expenditure (Capex fund) regarding the:
· model
for allocating the fund
· criteria
for the fund.
Executive
Summary
2. The Governing Body has created a
discretionary fund for capital expenditure for local boards. Local boards are
to work with staff to develop a formula for allocation and criteria for
qualifying projects.
3. The Capex fund enables local
boards to deliver small local asset based projects, either directly, in
partnership with the community, or through joint agreements between boards.
4. The Capex fund will be managed
over three years. Local boards can use their entire three year allocation for
one project or spread it over the three years for smaller projects.
5. Local boards provided views on
how funding should be allocated during the review of the Local Boards Funding
Policy (LBFP) in 2014. The resulting funding formula for Locally Driven
Initiatives (LDI) allocates 90 per cent based on population, 5 per cent on
deprivation and 5 per cent on land area. The same allocation formula can be
used for the Capex fund to maintain consistency in the policy. Staff note
however that the link between costs and land area is weak and leads to major
shifts in the allocation of funding.
6. A formula based approach provides
limited funding for the Great Barrier Island and Waiheke boards. Local boards
should consider what level of funding over three years is appropriate for these
boards. Staff recommend setting funding at one per cent of the fund for Great
Barrier and two per cent for Waiheke.
7. Using the Capex fund is
preferable to LDI funding as the Governing Body funds the consequential opex.
Boards should consider whether they need to continue to use LDI funding for
minor (less than $1 million) capital projects. Boards should also consider whether
they need to be able to bring forward regionally funded projects using the
Capex fund.
8. The proposal to allocate a Capex
fund to local boards will require an amendment to the LBFP. This will amend the
Long-term Plan and requires the use of the special consultative procedure.
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Recommendation/s
That the Howick Local Board:
a) Provide feedback on the
allocation of Capital expenditure (Capex) funding to local boards.
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Comments
Background
9. The Governing Body has created a
discretionary fund for capital expenditure for local boards. On May 7 the
Budget Committee passed the following resolution:
a) Provide a new Local Board
discretionary capex fund of $10 million per annum noting that this will
incorporate the existing Facilities Partnership Fund.
b) Approve the following parameters
for this fund:
i. The fund
may be managed as a three year amount
ii. Local Boards may
use the fund to build council owned assets, add to an existing council funded
renewal or new capital project, work in partnership with an external provider
or seed fund a community project.
10. The Budget Committee requested
that staff and local boards develop a formula for allocation and criteria for
qualifying projects to report to the Finance and Performance Committee.
Purpose of
the Capex fund
11. The purpose of the fund is to
ensure locally important projects are given appropriate priority. It is
envisaged that the fund will be used for projects similar to those historically
funded by the local improvement projects (LIP’s) or small local improvement
projects (SLIP’s).
Funding
Allocation Model
Principles
for funding allocations
12. The core
principles for allocating funding to local boards are an:
· equitable
capacity for each local board to enhance well-being
· administrative
effectiveness
· transparency.
Attributes for
funding allocation
13. The Local boards
funding policy (LBFP) makes allocations on the following basis:
· 90
per cent based on local board population size
· 5
per cent based on the relative level of deprivation of the board
· 5
per cent based on the land area of the board
· Waiheke
and Great Barrier Island are funded for a fixed amount set by the Governing
Body.
14. The following table shows the
level of local board support for the use of the above factors for allocating LDI
recorded during the review of the LBFP.
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Local Board Attribute
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Local Boards that supported use during last
review of LBFP
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Relationship to need for funding
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Staff Comments
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Population
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21
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Strong
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Strongly relates to demand for services
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Deprivation
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17
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Weak
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Little objective evidence for
relationship to demand for services
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Geography
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16
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Weak
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High distortion effect on allocation that
does not relate to need for services
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15. A key decision
for the allocation of the Capex fund will be to determine the appropriate level
of capital funding for Great Barrier Island and Waiheke. The discussion
document considers the two current allocation models used to fund these boards:
· LDI
allocation: Great Barrier Island and Waiheke receive the same proportion of the
Capex fund as they currently receive of the total funding pool for Locally
Driven Initiatives. (This is 2.3% of the total pool for Great Barrier Island
and 2.7% for Waiheke)
· Transport
Model: Great Barrier Island receives 1 per cent and Waiheke 2 per cent of the
total funding pool.
16. Five models have
been considered for allocating the Capex fund between all boards based on the
population, deprivation and land area attributes of the boards:
· Model
A: All boards funded based on 100% population
· Model
B: All boards funded based on 95% population and 5% deprivation
· Model
C: All boards funded based on 90% population, 5% deprivation and 5% land area
· Model
D: Great Barriers receives 2.3% and Waiheke receives 2.7% of total funds,
remaining funds allocated to all other boards based on 90% population, 5%
deprivation and 5% land area
· Model
E: Great Barriers receives 1% and Waiheke receives 2% of total funds,
remaining funds allocated to all other boards based on 90% population, 5%
deprivation and 5% land area.
17. The following
pages present these five models in table and chart form.
18. Other potential
funding attributes that have not been included in the modelling are:
· rates
paid: there is no relationship with need for services, and support was low for
this attribute during the last review, with six boards in favour.
· current
levels of capital expenditure: data on regional activities is unavailable at
local level. Levels of expenditure on local assets are not relevant to the
purpose of the Capex fund. Gaps in the provision of assets will be met through
the relevant network facilities plan.
· population
growth: growth will be addressed every three years through the proposed
allocation formula.
19. The charts show
the following:
· Using
land area as an allocation factor significantly increases funding to Rodney and
Franklin local boards.
· Great
Barrier Island receives less than $7,000 under a population based allocation.
This rises to $77,000 under the allocation formula that includes deprivation
and land area.
· Providing
Great Barrier Island and Waiheke with fixed allocations under the LDI
allocation and Transport models only has a small impact on the other 19 boards.
20. In determining
the appropriate funding levels for Great Barrier Island and Waiheke
consideration should be given both to the total value of the funding over three
years, and the typical costs of activities likely to undertaken by these
boards. The following table shows the level of funding these boards would
receive over three years in comparison to the next smallest board, Papakura:
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Allocation formula
model
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Three year capex funding allocation for
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Great Barrier
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Waiheke
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Papakura
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Board Population size
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900
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8,400
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45,000
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A: 100% population
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$20,000
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$180,000
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$970,000
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B: 95% population + 5% deprivation
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$130,000
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$260,000
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$1,000,000
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C: 90% population + 5% deprivation + 5%
land area
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$230,000
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$290,000
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$970,000
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D: GBI: 2.3% Waiheke 2.7% (Current LDI
allocation)
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$690,000
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$820,000
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$940,000
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E: GBI: 1% Waiheke 2% of total fund
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$300,000
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$600,000
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$960,000
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21. The average cost
for SLIPs projects in the last financial year was $31,000 for Great Barrier
Island and $27,000 for Waiheke. Under Model E Waiheke would receive two per
cent of the fund, and be able to deliver 20 average cost projects over three
years. Great Barrier would receive one per cent of the fund and be able to
deliver 10 average cost projects over the same period. They can of course
accumulate funds over the three year period to undertake larger projects.
22. Staff consider
there is a strong case for using the same formula for LDI and the capex fund to
maintain consistency in the allocation. However, there is also a case for
excluding land area given its impact on the distribution of funding.
23. Staff consider
that allocating Great Barrier and Waiheke the same proportion of funding as
they receive from the LDI opex fund would over fund these boards compared to
other board areas. Staff recommend an allocation of one per cent of the total
fund to Great Barrier, and two per cent to Waiheke would be appropriate.
Decision
making process for capex projects
24. The chart on the
following page provides an overview of decision making pathways for each type
of project.
25. Staff will work with boards to
develop guidelines for facilities partnerships (including feasibility studies)
and community-led projects.
Bringing
future capex allocation forward
26. The governing body has proposed
that the fund be managed over a three year period, aligned with the Long-term
Plan planning cycle. Local boards can use their entire three year allocation
for one project or spread it over the three years for smaller projects. This
provides boards with greater choice in the size and timing of projects they
undertake.
27. As a practical consideration, it
is unlikely that all 21 local boards would be in a position to bring forward
their three years of funding to 2015/16. However, in the event that this was
to happen, the projects would need to be assessed against the modified
“gateway” process to ensure they were able to be delivered.
28. Budget for the Capex funding is
included in the ten year plan. Local boards’ can only bring three years budgets
forward however so future decision making is unencumbered.
Role of LDI
funding
29. The table below
sets out how the Capex Fund and LDI Opex Fund could be used for different types
of projects.
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Funding Type
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Project Type
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Capex Fund
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LDI Opex fund
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Capex
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Minor Asset based
projects (less than $1M)
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ü
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GB funds consequential opex
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?
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LBs fund
consequential opex (feedback sought)
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Top-up of regional
projects and renewals
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ü
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?
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Major Asset based
projects (greater than $1M)
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ü
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GB approval required. GB funds consequential opex.
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û
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Must use Capex fund for large projects
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Opex
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Capital grants to
community groups
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ü
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Debt funded opex. Must be included in annual plan
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ü
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Standard opex expenditure
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Feasibility Studies
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ü
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ü
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30. Local boards are
currently able to fund capital projects using their LDI budget by funding the
consequential opex. The capex fund largely does away with the need for this and
the Mayor’s report proposed the removal of the ability to fund major new
facilities with opex funded by their LDI. This raises the question of whether
local boards still need the ability to use LDI to fund minor capital projects.
The table sets out the key differences between the Capex fund and the LDI opex
fund for capital projects.
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Capex fund
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LDI opex fund
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GB funds consequential
opex
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LB funds consequential
opex
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Easier for GB to control
and plan for debt (set amount available for three years)
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Creates variable unknown
capex requirements on an annual basis
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Simplified reporting
processes
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Complex financial
reporting required to track LB funding vs regional funding
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31. Staff recommend
that local boards’ do not fund minor (less than $1 million) capital projects
with LDI opex from 1 July 2016. This will not impact projects that boards have
already committed to funding.
32. Local boards
should provide feedback on whether they see a need to use:
· LDI
to fund minor capital projects
· Capex
funding to bring regionally funded projects forward.
Transferring LDI to
Capex
33. Local boards may
transfer their currently approved capex projects paid for by LDI (as outlined
in their LB Agreement 2015/16), to the new discretionary fund. This will
free up their LDI opex again and remove the need to fund consequential opex.
Deferral of
Capex
34. Normal deferral
conditions apply to the Capex fund. Projects cannot be planned outside of the
three years but funds may be deferred if projects are unable to be completed
within this period.
Transition
for current Capex allocations
35. There will be no transition
mechanism for any existing Capex budgets held by some local boards. The
Governing Body has decided that this fund will replace the current Facilities
Partnership fund.
36. Projects that have already been
committed to through the Facilities Partnership fund will need to be funded
from the relevant boards’ Capex fund allocation.
Local Boards
Funding Policy
37. The current Local Boards Funding
Policy must be amended to provide for the allocation of capex funding. This is
an amendment to the Long-term Plan requiring use of the Special Consultative
Procedure with a public consultation period of one month.
38. Staff propose to amend the LBFP to
provide a general formula for allocating any non LDI funding. This will avoid
the need to amend the LBFP every time the Governing Body decides to give local
boards funding that is not for Locally Driven Initiatives.
Consideration
Local
Board views and implications
39. The proposal does not impact the
allocation of decision making.
Significance and Engagement
40. The proposed Capex fund is a minor
change in the scale of the Council’s budget and funding for Local Activities.
As such it is not a significant change. However, creating a new funding
allocation for local boards requires an amendment to the Local Board Funding
Policy, and consequently the Long-term Plan.
41. The Council is required to
undertake a special consultative process for any amendment to the Long-term
Plan.
Implementation
42. The proposed amendment to the
Local Board Funding Policy is not significant. As such, the amendment to the
Long-term Plan will not need to be audited.
Attachments
There are no attachments for
this report.
Signatories
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Authors
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Beth Sullivan - Principal Advisor Policy
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Authorisers
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Matthew Walker - General Manager Financial Plan Policy
& Budgeting
Karen Lyons – Manager Local Board Services
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