Agenda of Finance and Performance Committee

TERMS OF REFERENCE

Responsibilities

The purpose of the Committee is to:

(a) control and review expenditure across the Auckland Council Group to improve value for money

(b) monitor the overall financial management and performance of the council parent organisation and Auckland Council Group

Key responsibilities include:

· Advising and supporting the mayor on the development of the Long Term Plan (LTP) and Annual Plan (AP) for consideration by the Governing Body including:

o Local Board agreements

o Financial policy related to the LTP and AP

o Setting of rates

o Preparation of the consultation documentation and supporting information, and the consultation process, for the LTP and AP

· Monitoring the operational and capital expenditure of the council parent organisation and Auckland Council Group, and inquiring into any material discrepancies from planned expenditure

· Monitoring the financial and non-financial performance targets, key performance indicators, and other measures of the council parent organisation and each Council Controlled Organisation (CCO) to inform the Committee’s judgement about the performance of each organisation

· Advising the mayor on the content of the annual Letters of Expectations (LoE) to CCOs

· Exercising relevant powers under Schedule 8 of the Local Government Act 2002, which relate to the Statements of Intent of CCOs

· Exercising Auckland Council’s powers as a shareholder or given under a trust deed, including but not limited to modification of constitutions and/or trust deeds, granting shareholder approval of major transactions where required, exempting CCOs, and approving policies relating to CCO and CO governance

· Approving the financial policy of the Council parent organisation

· Overseeing and making decisions relating to an ongoing programme of service delivery reviews, as required under section17A of the Local Government Act 2002

· Establishing and managing a structured approach to the approval of non-budgeted expenditure (including grants, loans or guarantees) that reinforces value for money and an expectation of tight expenditure control

· Write-offs

· Acquisition and disposal of property, in accordance with the long term plan

· Recommending the Annual Report to the Governing Body

· Te Toa Takatini

Powers

(a) All powers necessary to perform the committee’s responsibilities, including:

a. approval of a submission to an external body

b. establishment of working parties or steering groups.

(b) The committee has the powers to perform the responsibilities of another committee, where it is necessary to make a decision prior to the next meeting of that other committee.

a. the power to establish subcommittees

b. powers that the Governing Body cannot delegate or has retained to itself (section 2).

Exclusion of the public – who needs to leave the meeting

Members of the public

All members of the public must leave the meeting when the public are excluded unless a resolution is passed permitting a person to remain because their knowledge will assist the meeting.

Those who are not members of the public

General principles

· Access to confidential information is managed on a “need to know” basis where access to the information is required in order for a person to perform their role.

· Those who are not members of the meeting (see list below) must leave unless it is necessary for them to remain and hear the debate in order to perform their role.

· Those who need to be present for one confidential item can remain only for that item and must leave the room for any other confidential items.

· In any case of doubt, the ruling of the chairperson is final.

Members of the meeting

· The members of the meeting remain (all Governing Body members if the meeting is a Governing Body meeting; all members of the committee if the meeting is a committee meeting).

· However, standing orders require that a councillor who has a pecuniary conflict of interest leave the room.

· All councillors have the right to attend any meeting of a committee and councillors who are not members of a committee may remain, subject to any limitations in standing orders.

Independent Māori Statutory Board

· Members of the Independent Māori Statutory Board who are appointed members of the committee remain.

· Independent Māori Statutory Board members and staff remain if this is necessary in order for them to perform their role.

Staff

· All staff supporting the meeting (administrative, senior management) remain.

· Other staff who need to because of their role may remain.

Local Board members

· Local Board members who need to hear the matter being discussed in order to perform their role may remain. This will usually be if the matter affects, or is relevant to, a particular Local Board area.

Council Controlled Organisations

· Representatives of a Council Controlled Organisation can remain only if required to for discussion of a matter relevant to the Council Controlled Organisation.

1 Apologies

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

2 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.

3 Confirmation of Minutes

That the Finance and Performance Committee:

a) confirm the ordinary minutes of its meeting, held on Thursday, 30 November 2017 as a true and correct record.

4 Petitions

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

5 Public Input

Standing Order 7.7 provides for Public Input. Applications to speak must be made to the Governance Advisor, in writing, no later than one (1) clear working day 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.

6 Local Board Input

Standing Order 6.2 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 one (1) day’s 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 6.1 to speak to matters on the agenda.

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

7 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.”

8 Notices of Motion

There were no notices of motion.

Finance and Performance Committee

11 December 2017

10-year Budget 2018-2028 - Process overview

File No.: CP2017/26089

Purpose

1. To recap on the 10-year Budget (LTP) process to date, provides an overview of the decisions now required and sets out the next steps that will be undertaken to consult with Aucklanders and finalise the 10-year Budget.

Executive summary

2. All councils are required by legislation to adopt a long-term plan (LTP) and review it every three years. The process to develop council’s third LTP (2018-2028) began in July 2017. The Mayor in his leadership role has identified the budget priority areas as transport, housing and the environment.

3. Today the Finance and Performance Committee will consider proposed budget and policy changes, and other potential consultation issues, and decide which items to include in the consultation on the 10-year budget with Aucklanders.

4. Following the decisions that will be made today:

· Staff will update draft budgets and finalise a consultation document and supporting information for consultation with Aucklanders. The primary focus of the consultation document will be to clearly set out the key issues of importance for Auckland, along with options for addressing each issue and the implications for rates, debt and levels of service. Key issues for local boards will also be included.

· Local boards will finalise and adopt local material for consultation in December 2017.

· An audit process will be completed and the consultation document will include an audit opinion.

5. The Governing Body will then meet to adopt the consultation document and supporting material on 7 February 2018.

6. The consultation process will run from 28 February to 28 March 2018. Following feedback from the community, local boards and the Governing Body will reconsider budgets and make final decisions in May 2018 before adopting the final 10-year budget in June 2018.

Recommendation/s

That the Finance and Performance Committee:

a) note the contents of this report, which sets the context for the other reports and decisions on today’s agenda.

Comments

Background

7. All councils are required by legislation to adopt a long-term plan (LTP) and review it every three years. The LTP sets out Council’s activities, plans, budgets and policies and must be adopted before the commencement of the first year it relates to, having used a special consultative procedure to consult with the community.

Developing the 10-year budget 2018-2028

8. The process to develop council’s third 10-year budget (2018-2028) began in July 2017. The Mayor in his leadership role has identified the budget priority areas as transport, housing and the environment. Attachment A sets out the key phases and the political engagement process throughout the 12-month process. Key elements of the process to date have been:

· Mayoral Intent

· workshops between September and November 2017 on various key topics following the Mayoral Intent.

· Mayoral Proposal

· workshops on the Mayor’s Proposal.

9. Today the Finance and Performance Committee will consider proposed budget and policy changes, and other potential consultation issues, and decide which items to include in consultation with Aucklanders. The reports prepared for today are:

· A report on the Mayoral Proposal on substantive consultation issues

· Officer reports on other consultation issues and matters needing approval for the purposes of preparing the Consultation Document and supporting information.

Finalising the 10-year Budget 2018-2028

10. Consultation for the 10-year budget will take place between 28 February and 28 March 2018.

11. The table below sets out the remaining steps in the process (at a high level) to finalise the 10-year Budget.

Table One: Finalising the 10-year budget following decisions made today

Phase	Timing
Local boards hold workshops and meetings to finalise local content for consultation	December 2017
Finalise consultation document and supporting material ready for audit purposes	11 Dec – 22 Dec 2017
Consultation Document and Supporting Information is audited by Audit NZ	Nov – Jan 2018
Governing body meets to adopt consultation document and supporting material and approve the consultation and engagement approach	7 February 2018
Public consultation (special consultative procedure)	28 Feb – 28 March
Finance and Performance Committee budget update with local boards	2 May
Finance and Performance Committee regional briefing on consultation feedback	9 May
Finance and Performance Committee hold discussions with local boards	17 & 18 May
Finance and Performance Committee workshop decision making for the LTP	16, 21, 22, 23 May
Finance and Performance Committee workshop on final decisions for the LTP	29 May
Finance and Performance Committee/Governing body make final decisions for the 10-year Budget	31 May
Local boards workshop the local board agreements	29 May – 7 June
Local boards meet to adopt the Local board agreements	5-7 June
Governing Body meet to adopt the final 10-Year budget	27 June
Final 10-year budget documentation and information relating to the decisions made (e.g. reports) will be made available to the public	July

Consideration

Local board views and implications

12. Local boards have been engaged throughout the development of the 10-year budget. Local board representatives were invited to attend Finance and Performance workshops held between August and November 2017. Feedback on regional issues was presented by local boards to the Governing Body on 22 November 2017.

13. Local boards presented their key advocacy initiative on 2 November 2017 to the Finance and Performance Committee.

14. Local boards will adopt their content for consultation in December 2017. This will include the key priorities for each local board for 2018/2019 and in most cases the key advocacy initiative for each local board.

Māori impact statement

15. On 2 October 2017 the Mayor presented his priorities to the members of the Mana Whenua Kaitiaki Forum ahead of the Mayor’s Proposal. At the same hui, the Forum Co-Chairs presented the strategic priorities of the Forum and discussed shared priorities and aspirations. On 15 November 2017 the Forum Co-Chairs presented the same information and messages to the Finance and Performance Committee.

Implementation

16. Decisions made today will inform the preparation of Consultation Document and Supporting Information preparation for the 10-year budget 2018-2028.

17. The consultation document must include an opinion from the Auditor-General on whether the document gives effect to its purpose and on the quality of the information and underlying assumptions. The audit process is underway and will be completed by the end of January 2018.

18. The supporting information will include more detailed information relied on to prepare the consultation document and will made readily available to the public in February 2018.

19. Staff will also prepare material to support the communication and engagement campaign for consultation, including an information pack for elected members.

Attachments

No.	Title	Page
a ⇩	10-year Budget 2018-2028 - Roadmap	15

Signatories

Author

Kylie Evans - Programme Manager

Authorisers

Ross Tucker - Acting General Manager, Financial Strategy and Planning

Matthew Walker - Acting Group Chief Financial Officer

Finance and Performance Committee

11 December 2017

10-year Budget 2018-2028 – Mayoral Proposal items for consultation

File No.: CP2017/26223

Purpose

1. To consider the Mayoral Proposal for the 10-year Budget 2018-28 and determine the key issues for consultation from the proposal.

Executive summary

2. The Mayoral Proposal for the 10-year Budget 2018-2028 was presented to the Finance and Performance Committee on 30 November 2017. The proposal covered a number of substantive issues which need to be considered for inclusion in the Consultation Document and supporting information.

3. Issues that are not covered in the Mayoral Proposal and need to be considered for consultation are the subject of separate reports on this agenda.

4. The Mayoral recommendations are set out below.

Recommendation/s

That the Finance and Performance Committee agree to recommend to the Governing Body that the 10-year Budget 2018-2028 consultation document include the following items from the Mayoral Proposal:

a) introduction of a regional fuel tax to fund transport infrastructure and activities;

b) average general rates rises of 2.5% for the first two years and 3.5% for each year after that;

c) the Uniform Annual General Charge increases in line with the general rates increase;

d) resumption of the Long-term Differential Strategy relating to business and residential rates;

e) introduction of a water quality targeted rate to raise $400 million to fund the Water Quality Improvement Programme;

f) introduction of a natural environment targeted rate to raise either:

i) an additional $123 million (total $220 million) to fund additional projects to protect our natural environment and tackle Kauri dieback disease; or

ii) an additional $356 million (total $453 million) for an enhanced protection and restoration programme;

g) changes to the rating of the online accommodation sector, including the introduction of an additional rating differential for properties with a medium level of occupancy.

h) disestablishment of the Council-controlled organisation Auckland Council Investments Limited with the investments in Auckland International Airport Limited and Ports of Auckland Limited to be transferred to Council parent.

Comments

Regional fuel tax

5. A regional fuel tax of 10 cents per litre on petrol and diesel is estimated to raise between $130 to $150 million each year, enabling an additional investment in transport of $1.3 to $1.5 billion over 10 years. It is expected that a regional fuel tax is applied to road users and that there will be a system in place so that non-road fuel and diesel is not subject to the tax.

6. The government has informed Auckland Council that it will legislate with a view to enabling the implementation of a regional fuel tax in the next 12 months. I would only consider re-instating the Interim Transport Levy on a temporary basis if we were advised that, because of the timing of the legislative process, the introduction of the regional fuel tax could not be achieved by the end of 2018.

7. The regional fuel tax would be hypothecated to spending on Auckland Council’s transport infrastructure and activities.

General rates

8. My proposal is that Council’s average general rates increase be kept low at 2.5% for the first two years of the 10-year Budget and then 3.5% after that. This level of increase puts a strong expectation of cost savings on Council, while ensuring that core service delivery is not compromised. The increases of 3.5% from 2020/21 are necessary to ensure prudent fiscal management, to meet Auckland Council’s substantial infrastructure investment.

9. The Uniform Annual General Charge (UAGC) is the fixed component of rates and was extensively debated during the last 10-year budget round. As the rating system has now stabilised following the post-amalgamation standardisation process, I am not in favour of reconsidering the level of the UAGC. The UAGC should increase by the same amount as general rates in order to maintain the relativity of fixed and variable charges.

10. The Long-term Differential Strategy previously agreed by Council will resume from 2018/19. The Long-term Differential Strategy transitions the current higher proportion of rates paid by business to an amount that reflects the business tax advantage of recouping GST and tax deductibility.

Water quality targeted rate

11. I am proposing a regional Water Quality targeted rate to fund Healthy Waters’ part of the Water Quality Improvement Programme to help achieve at least an 80% reduction in waste water overflows within 10 years. This will deliver water quality outcomes twenty years earlier than what is currently proposed in existing plans and budgets. The programme includes a range of projects throughout the region including contaminant and sediment reduction, urban stream restoration and on-site waste water system monitoring.

12. The rate would be relatively modest at less than $1.30 per week or $66 per year for the average residential ratepayer (property value of $1,080,000). My preference is for a variable charge for both residential and business ratepayers based on a property’s capital value, with no differentiation between urban and rural ratepayers. I consider a charge based on capital value fairly apportions the rate based on a ratepayer’s ability to afford it, rather than a fixed rate which is regressive in nature. I support sharing the burden between residential and business ratepayers at the planned 25.8% differentiated rate in accordance with the Council’s Long-term Differential Strategy noted above. This represents an even apportionment between business and non-business based on the tax advantages that businesses receive.

13. The annual amount would vary by ratepayer with examples set out below:

		Non-business pays:	Business pays:
	Rate (per $ of CV):	$0.00006145	$0.00010690
Property Value:	$300,000	$18.43	$32.07
	$500,000	$30.72	$53.45
	$890,000	$54.69	$95.14
	$1,080,000	$66.36	$115.46
	$5,000,000	$307.23	$534.52
	$10,000,000	$614.46	$1,069.04

Natural environment targeted rate

14. A “targeted protection” natural environment package would raise an additional $123 million and require an environmental levy of around $21 a year, or 40 cents per week, for the average residential ratepayer. An “enhanced protection and restoration” package would raise an additional $356 million and require an environmental levy of around $60 a year, or $1.15 per week, for the average residential ratepayer.

15. Consistent with the water quality targeted rate, I consider a charge based on capital value fairly apportions the rate based on a ratepayer’s ability to afford it, rather than a fixed rate which is regressive in nature. I support sharing the burden between residential and business ratepayers at the planned 25.8% in accordance with the Council’s Long-term Differential Strategy noted above.

16. The annual amount would vary by ratepayer with examples set out below:

		Enhanced Protection and Restoration: $356m		Targeted Protection: $123m
		Non-business pays:	Business pays:	Non-business pays:	Business pays:
	Rate (per $ of CV):	$0.00005559	$0.00009672	$0.00001945	$0.00003385
Property Value:	$300,000	$16.68	$29.02	$5.84	$10.15
	$500,000	$27.80	$48.36	$9.73	$16.92
	$890,000	$49.48	$86.08	$17.31	$30.12
	$1,080,000	$60.04	$104.46	$21.01	$36.55
	$5,000,000	$277.97	$483.62	$97.27	$169.23
	$10,000,000	$555.95	$967.24	$194.54	$338.46

Rating of the online accommodation sector

17. Growth of the online accommodation sector has been significant, with Airbnb properties alone exceeding 10% market share in the last year. There is an equity issue in terms of the rating classification of these properties, many of which are operating as a business but paying lower residential rates. I propose that this be addressed through the update of the Revenue and Financing Policy to determine parameters of what is a commercial accommodation operation.

18. The proposal is that, depending on the number of days booked, properties where the entire residence is let will be rated as either:

a) residential (up to 28 days booked);

b) medium-occupancy online accommodation provider (between 29 and 135 days, being rated 75% residential and 25% business); or

c) business (over 135 days).

19. Those properties rated as business will be considered to be commercial accommodation providers and therefore, if they are within the geographical zones A and B, will also be subject to the accommodation provider targeted rate as per the current policy. Those properties rated as medium-occupancy online accommodation provider, if they are within the geographical zones A and B, will pay 25% of the accommodation provider targeted rate, consistent with the way in which the general rate will be levied.

20. While this may mean rates increases for some ratepayers, it is important that all businesses pay business rates – there should not be different treatment for those who run a business using an online marketplace.

Disestablishment of Auckland Council Investments Limited (ACIL)

21. I propose transferring the Auckland International Airport Limited shares and Ports of Auckland Limited shares to Council parent to directly own. ACIL should then be disestablished, with an estimated cost saving of around $10 million over the 10-year period.

22. Ports of Auckland has a commercial mandate under legislation and this should be protected from undue political interference through an agreed Memorandum of Understanding setting out communication protocols, the board appointment process, clear role delineation and a dispute resolution protocol.

Implementation

23. Items adopted for consultation will be included in the consultation document. Public consultation will take place in March 2018.

24. Other matters in the Mayoral Proposal will be considered throughout the 10-year Budget process as appropriate.

Attachments

No.	Title	Page
a ⇩	Mayoral Proposal – 20-year Budget 2018-28	23
b ⇩	Transport Funding	43
c ⇨	Transition Policy (Under Separate Cover)
d ⇩	Water Quality Improvements Programme	53
e ⇩	Natural Environment initiatives and funding	65
f ⇩	Rating of online accommodation providers	79
g ⇩	Auckland Council Investments Limited Review	95

Signatories

Authors

Phil Goff, Mayor of Auckland

Finance and Performance Committee

11 December 2017

10-year Budget 2018-2028 - Other matters for consideration

File No.: CP2017/26497

Purpose

1. To consider potential items for consultation for the 10-year Budget 2018-2028, not covered by the Mayoral Proposal and other matters that need approval for the purposes of preparing the Consultation Document and supporting material for public consultation.

Executive summary

2. The Mayoral Proposal for the 10-year Budget 2018-2028 was presented to the Finance and Performance Committee on 30 November 2017. The proposal covered the substantive issues for consultation and is the subject of a separate item on this agenda.

3. This report covers other matters that need to be considered by the Committee to enable the preparation of the Consultation Document and Supporting Information for public consultation.

4. The issues for consideration in this report include:

· Waste Management service charges

· Regulatory Fees and Charges

· Land Advisory Services Fees and Charges

· Business Improvement Districts (BID) changes

· Rodney Local Board transport targeted rate

5. The Supporting Information for the Consultation Document for the 10-year Budget 2018-2028 will include a budget forecast based on the Mayoral Proposal, updated for decisions of this committee and any changes from the audit finalisation process.

6. A number of other items will need to be included for public consultation and these are presented in other reports on this agenda or alongside adoption of the Consultation Document on 7 February 2018.

Recommendation/s

That the Finance and Performance Committee recommend to the Governing Body that the Consultation Document and Supporting Information include the following items for consultation:

Waste Management

a) A $67 increase to the waste management targeted rate to fund a kerbside food waste collection service as it is introduced in Papakura in 2018/2019 and in the remainder of urban Auckland (excluding the Hauraki Gulf Islands) in 2019/2020.

b) User pays charges for refuse collection in the former Auckland City and Manukau City areas of $3.80 per 120 litre bin to replace the existing refuse targeted rates in those areas.

Regulatory Fees and Charges

c) A new fee for “Deemed Permitted Boundary Activities” based on a deposit of $400 and standard hourly rates for work completed.

d) A new fee for “Permitted Plantation Forestry Activities” based on a deposit of $400 and standard hourly rates for work completed.

Land Advisory Services Fees and Charges

e) Introduction of a new charge for land advisory services based on deposits between $570 and $1410 and hourly rates between $85 and $180.

Business Improvement District targeted rate

f) Expansion of the Papakura Business Improvement District (BID)

Rodney Local Board targeted rate

g) A targeted rate of $150 per separately used or inhabited part of a rating unit within the Rodney Local Board area, to fund $41 million of transport improvements in the Rodney Local Board area over the next ten years

Budgets

h) Indicative budgets to support consultation based on the Mayoral Proposal and amended by decisions of this committee and the audit finalisation process.

10-year Budget policies

i) Local Board Funding, Revenue and Financing, and CCO Accountability Policies.

Comments

Budget issues for consultation

7. A separate item on the agenda for this meeting, covers the issues for public consultation raised in the Mayoral Proposal for the 10-year Budget 2018-2028. However, there are a number of other issues that need to be considered by the Committee so that these items may be included in the Consultation Document and Supporting Information for the 10-year Budget 2018-2028.

8. Attached to this report are individual papers covering each of the following issues:

· Waste Management Service Charges – this proposal covers changes to waste management targeted rates for both the introduction of the food waste collection service and moving the former Auckland City and Manukau City areas to user pays refuse collection.

· Regulatory Fees and Charges – this proposal introduces new fees relating to Deemed Permitted Boundary Activity Notices (issued under the Resource Management Act 1991) and Plantation Forestry Permitted Activity monitoring and assessment under the Resource Management (National Environmental Standards for Plantation Forestry) Regulations 2017.

· Land Advisory Services Fees and Charges – this proposal introduces a new charging regime for services associated with council owned land such as applications for physical works and activities, acquisition or disposal and strategic development.

· Business Improvement Districts (BID) changes – the Papakura BID is proposed to be extended.

· Rodney Local Board Transport Targeted Rate – the Rodney Local Board are proposing a targeted rate to enable additional investment in local transport projects. The local board agreed on 5 December 2017 to recommend to the Governing Body that this be included in consultation for the 10-year Budget.

Budgets to support consultation

9. To appropriately support consultation on the 10-year Budget 2018-2028 the council has prepared a financial forecast based on the Mayoral Proposal that will be presented in the Supporting Information for the Consultation Document. This forecast provides an indication of how proposals will impact the council’s overall financial position.

Capital expenditure
	Long-term Plan 2015-2025	Budget for consultation 2018-2028	Notes
Transport	$7.9bn	$11-12bn	· Includes additional investment anticipated to be enabled by the Regional Fuel Tax
Water	$5.6bn	$7.0bn	· Includes Water Quality Improvement Programme
Parks and Community	$2.4bn	$3.2bn	· Additional budget for renewals · Provision of $200m for “One Local Initiative” items
Centres Development	$1.0bn	$0.9bn	· Reflects existing base case budgets for Panuku projects or City Centre improvement
Other	$1.8bn	$1.8bn
Total	$18.7bn	$24-25bn

Key operating expenditure change
Natural environment	$97m	$220m	· Targeted protection package (an alternative option increasing total investment to $453 million will also be consulted on)

10. The budget for consultation currently incorporates the recommendations in the Mayoral Proposal such as the level of general rates increase, the anticipated Regional Fuel Tax enabling additional transport investment and activities, and targeted rates funding improvements to water quality and the natural environment. We have also forecast the financial impacts of the other recommendations in this report.

11. The transport and housing priorities of the new government differ from the last and it intends to review its policy and funding decisions in these key areas over the coming few months. This review work and funding uncertainty mean that is not possible to develop definitive 10-year budgets in time for public consultation. Consultation materials will make this uncertainty clear.

12. The Mayoral Proposal, and advice from staff, also discussed the desire for additional investment in Panuku’s transform and unlock programmes, and in improvements to the city centre. Also discussed was the potential for additional investment capacity created through the disposal of non-strategic assets. There are no specific budget recommendations for these issues at this stage and therefore no change has been included in the budget forecasts. Options papers on these issues are attached to this report.

13. Many of our community facilities are aging or no longer fit for purpose. Our coastal management assets are in relatively poor condition and the impacts of climate change will exacerbate this problem (options paper attached to this report).

14. While the capital budget has been increased for renewals of community infrastructure to deal with these issues, this is still insufficient to fully meet the costs of renewing all of our community assets to the standards we would like. Our response to this issue involves evaluating and prioritising renewals of existing community infrastructure in light of the changing needs of the community.

15. Also included in the indicative budget is a provision of $200 million to cover additional expenditure on the Local Board “One Local Initiative” advocacy items. Staff advice on these items indicate a total cost of $260 million. The final decisions on Local Board projects and the total amount of expenditure will be made in May 2018 as part of the full 10-year budget decision making following consultation with local communities.

16. The budget forecast is aligned to key policy parameters set out in Auckland Council’s Financial Strategy including general rate increases at 2.5 per cent per annum in years one and two of the 10-year Budget and at 3.5 per cent thereafter. Sustainable borrowing is ensured by maintaining the debt to revenue ratio at a maximum of 265 per cent. The forecast also reflects the use of new mechanisms to fund and finance infrastructure required for growth without the council having to borrow (options paper attached to this report). The council will also move to fully funding depreciation by 2024/2025 which may result in council operating revenues not fully covering operating expenditure in every year of the budget.

17. The budget for consultation will be amended as necessary, to reflect the decisions of the committee at this meeting and any changes from the audit finalisation process, and will form the basis of the supporting financial information provided for public consultation.

18. The final budget included in the 10-year Budget will be prepared in advance of final adoption in June 2018. This budget will be informed by the detailed organisational budget review process (“budget refresh”), continued discussions with central government around issues of funding transport and the potential for new financing models, and by the decisions of this committee made in May 2018 following public consultation.

Other matters for consultation

19. Other items that will need to be consulted on are:

· Local Board Funding Policy – there are no proposed changes to the Local Board Funding Policy, but it is required to be consulted on as part of the 10-year Budget 2018-2028 process. The policy will be included as part of the consultation material presented to the Governing Body for approval on 7 February 2018.

· Revenue and Financing Policy – the Revenue and Financing Policy is being amended to provide for the proposals that council will be consulting on, and the amended policy will be consulted on separately from but concurrently with the 10-year Budget 2018-2028. The proposed policy will be updated following the decisions on consultation items, and will be brought to the Governing Body meeting on 7 February 2018 for approval for consultation.

· Council-Controlled Organisations Accountability Policy – work is currently underway on revising this policy and the draft policy will be reported back to the Governing Body for approval for consultation on 7 February 2018.

· Draft Tūpuna Maunga o Tāmaki Makaurau Authority Operational Plan 2018/2019– will be presented directly to the Governing Body meeting on 11 December 2017.

· Local rates – presented in another report on this agenda

Consideration

Local board views and implications

20. Local Board representatives have participated in the workshops leading up to the Mayoral Proposal and expressed their views through this process including a specific opportunity to feedback on regional issues. The views of Local Boards on local issues such as the Rodney Local Board targeted transport rate and the Papakura BID proposal will be specifically considered in those decisions. Local Boards will have further opportunities to express their views on the impacts of regional decisions on their local community before final decisions are made in May 2018.

Māori impact statement

21. Most of the proposals in this report do not impact the Māori community significantly differently to the community at large. However, the changes to the waste management targeted rates are likely to have more impact on Māori communities because of the geographic location of those changes. Introduction of the food waste collection targeted rate in Papakura (initially) and user pays for refuse collection in the former Manukau City area in particular will impact on the Māori community. Both of these geographic areas have a higher proportion of Māori than the average across Auckland.

Implementation

22. Implementation issues are covered within the attached option papers, as relevant.

Attachments

No.	Title	Page
a ⇩	Waste management service changes	105
b ⇩	Regulatory fees and charges	115
c ⇩	Land advisory fees and charges	117
d ⇩	Business Improvement Districts (BIDs)	121
e ⇩	Rodney Local Board transport targeted rate	123
f ⇩	Panuku programme options	151
g ⇩	City centre timing and 2021 events	157
h ⇩	Non-strategic asset sales	173
i ⇩	Coastal management	179
j ⇩	Financing growth infrastructure	183

Signatories

Author

Michael Burns – Acting Manager Financial Strategy

Authorisers

Ross Tucker - Acting General Manager, Financial Strategy and Planning

Matthew Walker - Acting Group Chief Financial Officer

Finance and Performance Committee

11 December 2017

Local rates pilot

File No.: CP2017/25157

Purpose

1. To provide advice on running an optional pilot for local rates through the Long-term plan 2018-2028 process.

Executive summary

2. At its meeting on 28 September 2017 the Governing Body requested further advice on the merits and implications of running an optional local rates pilot for consideration as part of the Long-term Plan (LTP) 2018-2028 process.

3. The Local Boards Funding Policy (LBFP), included in the LTP, sets out how the Governing Body provides funding to local boards. An optional pilot would require amending the LBFP and this could be consulted on as part of the LTP 2018-2028 process.

4. Moving to local rates will involve a redistribution of rates burden. Local activities are predominately funded from general rates. For those local boards that requested a local rates pilot, the share of general rates raised from each local board is less than the share of local activity funding that they receive. A move to local rates for those local boards would result in an increase in rates for local boards in the pilot and a decrease in rates for all other local boards.

5. The two options for a local rates pilot are set out in the table below:

Option A: local rates solely for local boards in the pilot	Under this option operating costs for only those local boards in the pilot would be removed from general rates. Each local board in the pilot would have a local rate that funded the operating costs in their local board area. Operating costs for all other local boards would continue to be funded from general rates.
Option B: local rates for all local boards	Under this option operating costs for all local boards would be removed from general rates. Local boards in the pilot would have a local rate that funded operating costs in their local board. Local boards not in the pilot would have a local rate that shared the operating costs across all other local boards not in the pilot.

6. Both options result in large changes in rates for those local boards wishing to be in a pilot. Option A requires ratepayers in the pilot local board areas to pay for their services along with a share of the cost of services in other local board areas. Option B poses communication challenges as every ratepayer would see a targeted rate for local services on their rates invoice, however only those ratepayers in the pilot would have the level of the targeted rate reflect the costs of the services in their local board area.

7. Supporting increased decision making at local board level, as envisaged under local rates, would also require additional management and governance support for those local boards in the pilot. The costs of which have not yet been determined.

8. Timing for decision making on the LTP 2018-2028 does not allow for local boards to be given an opportunity to consider the issues and impacts of a local rates pilot.

Recommendation/s

That the Finance and Performance Committee:

a) agree not to include a local rates pilot as part of the Long-term Plan 2018-2028

b) note that further work on local rates will be undertaken:

i) in light of changes to rates brought about by the 2017 revaluation, and

ii) to further discussions with local boards explaining the opportunities and impacts of the local rates model.

Comments

Background

9. In early 2016, an independent consultant was commissioned to carry out a review of the policies, processes, protocols and organisational support structures of the Auckland Council governance structure. In December 2016, the Governing Body received the report and established a political working party to consider the recommendations from the report.

10. As part of the review several funding models for local boards were considered by the political working party and narrowed down to two major options:

· Option 1: enhanced status quo (general rates funded): decision-making on overall budget envelopes for local activities, and the distribution of funding between local boards, remains with the Governing Body. Rate increases, efficiency targets and levels of service would be Governing Body decisions. Some additional flexibility is envisaged for local decision making, primarily in the renewals area with the option of a bulk funding approach

· Option 2: local decision-making within parameters (local rates funded): more decision-making for local boards, although some control parameters were outlined. Local activities were envisaged to be funded (in full or in part) by a local targeted rate which would in turn reflect the level of local decision making over services provided.

11. Following workshops and formal feedback from local boards a third option emerged, i.e. local decision-making within a funding envelope. This sought to have similar levels of decision-making as Option 2 but based on general rates funding and allocated funding envelopes as in Option 1.

12. After considering the feedback from local boards the political working party recommended:

· continue funding local activities through the general rate, and that further work on local rates be completed

· noting that while local rates were generally not supported or recommended by the majority of local boards, four local boards requested that they participate in a pilot of local rates

· requesting officers report back to the Governing Body with further advice on the merits and implications of running an optional pilot for local rates through the LTP 2018-2028 process

Discussion

Local boards funding policy

13. The Local Boards Funding Policy (LBFP), included in the LTP, sets out how the Governing Body provides funding to local boards. An optional local rates pilot would require amending the LBFP and this could be consulted on as part of the LTP 2018-2028 process.

Local rates pilot options and rates impacts

14. Currently all local activities are funded from general rates, with the exception of Business Improvement Districts and free adult entry to swimming pools. Local activities budgets include fixed costs, such as corporate overheads, interest, and depreciation, as well as operating costs, such as staff salaries and maintenance. Under all options considered by the political working party fixed costs were to continue to be funded from general rates. This recognised that the governing body retained decision making on investment in local assets and that local board decisions would only have an impact on direct operating costs. The local rate would only apply to operating costs used to determine service levels.

15. The two options available to amend the LBFP to allow for a local rates pilot are laid out in the table below:

Option A: local rates solely for local boards in the pilot	Under this option operating costs for only those local boards in the pilot would be removed from general rates. Each local board in the pilot would have a local rate that funded the operating costs in their local board area. Operating costs for all other local boards would continue to be funded from general rates.
Option B: local rates for all local boards	Under this option operating costs for all local boards would be removed from general rates. Local boards in the pilot would have a local rate that funded operating costs in their local board. Local boards not in the pilot would have a local rate that shared the operating costs across all other local boards not in the pilot.

16. The rates impact for each local board under each option is shown in the tables below. This analysis has been undertaken using property values from the 2017 revaluation and includes a 2.5 per cent increase in the general rate. The options are based on having a local rates pilot for the four local boards that requested participation in a pilot.

17. Table 1: Option A – Rates impact for local rates solely for local boards in the pilot

Local Board	Estimated Percent Rates Change 2018/2019
Local Board	Revaluation impact only	Revaluation impact plus local rates pilot	% change due to pilot
Albert - Eden	0.4%	-2.3%	-2.7%
Devonport-Takapuna	0.6%	-2.1%	-2.7%
Franklin	2.2%	19.5%	17.3%
Great Barrier	-10.9%	-13.3%	-2.4%
Henderson-Massey	2.2%	-0.5%	-2.7%
Hibiscus and Bays	0.7%	-2.0%	-2.7%
Howick	2.0%	-0.8%	-2.7%
Kaipatiki	0.6%	-2.1%	-2.7%
Mangere - Otahuhu	3.4%	0.7%	-2.8%
Manurewa	4.7%	24.2%	19.5%
Maungakiekie - Tamaki	3.2%	0.4%	-2.8%
Orakei	3.1%	0.3%	-2.8%
Otara - Papatoetoe	4.0%	1.2%	-2.8%
Papakura	7.8%	5.0%	-2.9%
Puketapapa	2.4%	-0.4%	-2.7%
Rodney	4.5%	23.1%	18.6%
Upper Harbour	2.4%	-0.4%	-2.7%
Waiheke	10.9%	45.5%	34.6%
Waitakere Ranges	0.7%	-2.0%	-2.7%
Waitemata	6.7%	3.9%	-2.9%
Whau	1.0%	-1.7%	-2.7%
Utilities	-18.5%	-20.7%	-2.2%
Total	2.5%

18. Under option A (local rates solely for local boards in the pilot), ratepayers in the pilot local boards would see significant rates increases. In these areas local rates would be set on top of the general rates which also include the operating costs for local activities for the local boards not in the pilot. Ratepayers in local boards not in the pilot would see small rates reductions from what they otherwise would have been.

19. Table 2: Option B – Rates impact for local rates for all local boards

Local Board	Estimated Percent Rates Change 2018/2019
Local Board	Revaluation impact only	Revaluation impact plus local rates pilot	% change due to pilot
Albert - Eden	0.4%	-0.4%	-0.8%
Devonport-Takapuna	0.6%	-0.1%	-0.8%
Franklin	2.2%	5.7%	3.6%
Great Barrier	-10.9%	-11.6%	-0.7%
Henderson-Massey	2.2%	1.4%	-0.8%
Hibiscus and Bays	0.7%	-0.1%	-0.8%
Howick	2.0%	1.2%	-0.8%
Kaipatiki	0.6%	-0.2%	-0.8%
Mangere - Otahuhu	3.4%	2.6%	-0.8%
Manurewa	4.7%	10.1%	5.5%
Maungakiekie - Tamaki	3.2%	2.4%	-0.8%
Orakei	3.1%	2.3%	-0.8%
Otara - Papatoetoe	4.0%	3.2%	-0.8%
Papakura	7.8%	7.0%	-0.8%
Puketapapa	2.4%	1.6%	-0.8%
Rodney	4.5%	9.0%	4.5%
Upper Harbour	2.4%	1.6%	-0.8%
Waiheke	10.9%	30.6%	19.7%
Waitakere Ranges	0.7%	-0.1%	-0.8%
Waitemata	6.7%	5.9%	-0.8%
Whau	1.0%	0.2%	-0.8%
Utilities	-18.5%	-19.1%	-0.6%
Total	2.5%

20. Under option B (local rates for all local boards), ratepayers in the pilot local boards would largely see moderate increases in rates with the exception of Waiheke. Ratepayers in the other local boards would see slight reduction in rates from what they would otherwise have seen. This is due to the operating costs for local boards in the pilot area exceeding the net general rates revenue generated from those local boards. This option would pose communication challenges as every ratepayer would see a targeted rate for local services on their rates invoice but only those ratepayers in the pilot would have the level of the targeted rate reflect the costs of the services in their local board area.

21. Supporting increased decision making at local board level, as envisaged under local rates, would also require additional management and governance support for those local boards in the pilot. The costs of which have not yet been determined.

22. Staff do not support either of the options - option A has unresolvable equity implications and option B poses significant communication challenges. However, staff recommend that if the Governing Body wishes to see further work undertaken on a local rates pilot then it should be on option B.

Other issues

Mitigation of rates impact

23. Options are available to mitigate the impact on ratepayers of moving to local rates. One option is to phase in the targeted rate over three years. This would reduce the rates impact to one third of the change for each year. After three years ratepayers in the pilot local boards would be fully funding the operating costs for local services.

24. A second option would be to continue to provide some level of general rates funding in recognition that local services are part of a greater region wide network. This option dilutes the link between local rates and local decision making. It would require the Governing Body to establish minimum service levels to ensure the continued operation of local services as part of the greater region wide network. This would in turn reduce the scope of local decision making.

Local board engagement

25. Timing for decision making on the LTP 2018-2028 does not allow for local boards to be given an opportunity to consider the issues and impacts of a local rates pilot. Engagement with local boards on funding options was on the basis that either all local boards would be funded from local rates, or all local boards would continue to be funded from general rates. The option for a local rates pilot was raised by four local boards after it was clear the majority of local boards did not support a change to local rates. These four local boards were not aware of the potential impacts at the time they requested to be part of a pilot.

26. Should the Governing Body wish to progress with further work on a local rates pilot then local boards should be given the opportunity to have their views considered by the Governing Body. There is insufficient time for staff to undertake the necessary engagement with local boards before decisions need to be made on the consultation material for the LTP.

Implications for local boards not in the pilot

27. The LBFP was amended in 2014 to provide for fully discretionary funding of locally driven initiates to be allocated to local boards on a formulaic basis (90% population, 5% land area, 5% deprivation). At that time the budgets for services identified as locally driven initiatives were uneven and did not match the allocation under the formula. To ensure that no local board received less funding the LBFP included a transition mechanism that slowly aligned funding for locally driven initiatives through time.

28. A local rates pilot would remove some local boards from the allocation formula and require a reconsideration of the transition mechanism for locally driven initiatives funding for those local boards not taking part in the pilot.

Duration of pilot and what happens when it finishes

29. In establishing a local rates pilot the Governing Body will need to consider how long it wished to run the pilot and what would happen once the pilot finishes. One of the key considerations would be what happens to local boards who no longer wished to be part of the pilot and how this would interact with the funding of services and service levels in that area.

30. The Governing Body would also need to consider how funding for locally driven initiatives would be re-established in relation to the transition mechanism mentioned above. One option may be to have a one way door for local boards taking part in the pilot. If this were to be considered then clearly this would have implications for local boards wishing to be in the pilot which they have not had an opportunity to consider.

Consideration

Local board views and implications

31. Timing for decision making on the LTP 2018-2028 does not allow for local boards to be given an opportunity to consider the issues and impacts of a local rates pilot. Should the Governing Body wish to progress with further work on a local rates pilot then local boards should be given the opportunity to have their views considered by the Governing Body.

Māori impact statement

32. The council does not hold information on the ethnicity of ratepayers so is not able to identify the exact impact of policy changes on Māori. The impact of the policy options on Māori will be similar to that on other residents in Auckland.

Implementation

33. There are no implementation issues associated with the recommendations in this report.

Attachments

There are no attachments for this report.

Signatories

Authors

Aaron Matich – Principal Advisory – Financial Policy

Andrew Duncan - Manager Financial Policy

Authorisers

Ross Tucker – General Manager Financial Planning and Strategy

Matthew Walker - Acting Group Chief Financial Officer

Chairperson	Cr Ross Clow
Deputy Chairperson	Cr Desley Simpson, JP
Members	Cr Dr Cathy Casey	Cr Daniel Newman, JP
	Deputy Mayor Bill Cashmore	Cr Dick Quax
	Cr Fa’anana Efeso Collins	Cr Greg Sayers
	Cr Linda Cooper, JP	Cr Sharon Stewart, QSM
	Cr Chris Darby	IMSB Chair David Taipari
	Cr Alf Filipaina	Cr Sir John Walker, KNZM, CBE
	Cr Hon Christine Fletcher, QSO	Cr Wayne Walker
	Mayor Hon Phil Goff, CNZM, JP	Cr John Watson
	Cr Richard Hills
	IMSB Member Terrence Hohneck
	Cr Penny Hulse
	Cr Mike Lee