|
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 council’s 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 Council’s 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 council’s 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 council’s
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 council’s
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 council’s 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 year’s 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 year’s 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 Council’s 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 council’s 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 council’s 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
year’s 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 Chairs’ 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 Women’s 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
board’s view is incorporated in ACCAB’s 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
|
