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Revenue, Expenditure
and Value Committee
22 August 2023
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Progress
update on $5 million savings target
File No.: CP2023/10665
Te take mō te
pūrongo
Purpose of the report
1. To
provide a progress update on the status of the $5 million savings target
included in the Annual Budget 2023/2024 which was to be identified from a
review of revenue, capital and operating budgets as part of Expenditure Control
and Procurement Committee’s (now named Revenue, Expenditure and Value
Committee) work programme.
Whakarāpopototanga matua
Executive summary
2. The
Expenditure Control and Procurement Committee was set a $5 million savings
target in the overall mix of levers to mitigate the $325 million operating gap
when the Annual Budget 2023/2024 was adopted.
3. Staff
have been investigating expenditure trends highlighted by the committee chair
and following up on other queries raised by elected members which has resulted
in savings of $1.4 million for the current year. The $1.4 million has been
achieved through lower consequential opex costs ($1 million) and lower
depreciation costs ($400k).
4. Other
savings have also been confirmed in relation to:
· Interest
costs savings from the consolidation and refinancing of some debt related to
Auckland Transport investments. Slightly favourable final interest rates
compared with what was planned has resulted in savings of $2.4 million.
· Lower
insurance premium costs compared with was provisioned in the budget resulting
in a saving of $1.2 million. Because there were high levels of uncertainty on
what the actual cost of premiums would be when the budget was set, significant
increases were projected and highlighted during the annual budget process. Work
done by staff through exploring options to reduce premiums assisted in
achievement of this saving relative to budget.
5. The
Expenditure Control and Procurement Committee (now named Revenue, Expenditure
and Value Committee) has achieved it’s $5 million target for this year
from these items.
6. Staff
will continue to work with the committee to investigate further enduring
savings opportunities.
Ngā tūtohunga
Recommendation/s
That the Revenue, Expenditure
and Value Committee:
a) whiwhi / receive the update on the
committee’s $5 million savings target included in the Annual Budget
2023/2024
b) tuhi ā-taipitopito / note
that the $5 million target has been achieved for the 2023/2024 financial year.
Horopaki
Context
7. The
Expenditure Control and Procurement Committee (the committee) was established
to assist the council to be cost effective and make financial savings.
The committee was to oversee proactive identification of money saving
opportunities and consider the cost effectiveness of the governance, funding
and delivery across the Auckland Council Group.
8. In
June 2023, the Governing Body agreed a mix of levers for the Annual Budget
2023/2024 to close the estimated $325 million operating budget gap. This mix of
financial levers included rates increases, increasing fees and user charges,
the sale of some of the council’s Auckland Airport shares, a modest use
of additional debt and operating cost savings.
9. The
details of the Governing Body decision (resolution number GB/2023/100) on the final budget can be
found in Attachment A.
10. Total
operating spend reductions of $83 million were agreed to and allocated across
the Auckland Council Group. Included in this target was a $5 million target for
the committee which was to be identified from a further review of revenue,
capital, and operating budgets.
Tātaritanga me ngā
tohutohu
Analysis and advice
11. When the
Annual Budget 2023/2024 was adopted in June 2023, specific items to achieve the
$5 million savings target allocated to this committee still needed to be
identified.
12. To assist the
work of the committee in identifying savings, the group provided detailed
financial data which provided additional transparency of revenue and
expenditure budgets for the group.
13. Staff have
been undertaking line-by-line reviews, with a particular focus on expenditure
trends highlighted by the chair of the committee as well as investigating areas
as a result of questions raised by elected members about specific budget lines.
14. Through this
exercise and other additional items that have been resolved since the adoption
of the annual budget, staff can confirm that the $5 million savings required
from the committee have been found through the following items.
Line-by-line reviews
15. A total of
$1.4 million in operating cost savings have been identified from:
· a
review of completed capital projects at year end (2022/2023) and the updated
programming for the current year has resulted in a $1 million saving in
consequential operating expenditure requirements for this financial
year.
· a
review of depreciation budgets has identified $400k reduction in cost due to the
reclassification of Bledisloe House from an operational asset (specifically
property, plant and equipment) to an asset held for sale. The reclassification
is required as the Governing Body has previously approved the sale (long-term
ground lease) of Bledisloe House. Assets held for sale are no longer subject to
depreciation as their value comes not from use, but from sale, therefore
Bledisloe House should not have been included in the calculation of
depreciation budgets. The accounting treatment / classification is prescribed
by generally accepted accounting practices.
Interest cost savings
16. Auckland
Transport, working with the council Treasury team have consolidated several
loans that were entered into in previous years to finance the acquisition of
electric trains and the development of the Wiri Electric Train Depot (completed
in 2013). The new loan and associated interest rates were confirmed after the
adoption of the Annual Budget and due to slightly favourable interest rates
compared to those previously anticipated will result in a $2.4 million saving
against budget this financial year.
Insurance premiums
17. In April
2023, the committee considered a confidential item on the Council Group
Insurance Renewal for 2023/2024. The significant challenges around the
insurance renewal given the recent weather events at the time was noted in that
report. The committee also endorsed council staff exploring options to reduce
premiums for the current and future renewals.
18. In June 2023,
staff provided supporting reports as part of the final Mayoral Proposal for the
Annual Budget 2023/2024. Highlighted in this advice was additional operating
cost pressures which were partly driven by insurance premiums that were
projected to increase due to the significant insurance claims the group is
likely to suffer (from the storms), as well as increasing asset values,
increased future risk of storm events, and reduced competition in the market.
19. Insurance
premiums have now been confirmed for the current year. Savings of $1.2 million
can be confirmed from the difference in actual insurance premiums payable for
the group compared with the budget that was provisioned. The lower premiums
were enabled by work done by staff through expanding
council’s exposure to the international insurance markets, creating a
more diversified and balanced insurance coverage going forward which should
help moderate and contain future premium increases. Introducing Ports of
Auckland Limited into the group insurance arrangements also helped moderate
increases in premiums. A confidential paper is included in this agenda
which will provide an insurance update in more detail.
20. The
table below provides a summary of the above items, confirming that $5 million
of operating cost reductions have been identified for the current 2023/2024
year:
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Description
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Amount (m)
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Line-by-line reviews
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$1.4
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Interest cost saving
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$2.4
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Insurance premiums
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$1.2
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Total
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$5.0
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Tauākī whakaaweawe
āhuarangi
Climate impact statement
21. There are no
direct climate impacts arising from the recommendations/ decisions sought in
this report.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
22. The agreed
operating savings target of $83 million was allocated across Auckland Council,
Auckland Transport, Tātaki Auckland Unlimited and Eke Panuku.
23. Auckland
Transport’s share of the operating savings was $22.5 million of which
$7.5 million was identified as part of the work programme of this committee.
With the additional $2.4 million interest cost savings included in this report,
the total savings contribution in the current year from Auckland Transport is
around $25 million.
24. In addition,
Ports of Auckland agreed to a $10 million improvement in its net operating
performance and dividend projections in 2023/2024. Introducing Ports of
Auckland Limited into the group insurance arrangements also helped moderate
increases in premiums.
25. Staff from
across the group continue to identify and implement and ongoing savings
opportunities.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
26. Local board
views were not sought in relation to this report. Local boards provided
feedback on the final Mayoral Proposal that included savings targets for local
board budgets.
27. The Governing
Body agreed to reduce total local board funding by $4 million as part of the
$83 million operating spending reductions.
Tauākī whakaaweawe
Māori
Māori impact statement
28. Engagement
with mana whenua and mataawaka was a focus for the wider engagement strategy
for the annual budget. Targeted engagement with mana whenua and mataawaka was
held before and during the consultation period, including pre-consultation
workshops held in February 2022.
29. An in-depth
report analysing the feedback from Māori entities was included as an
attachment to the regional feedback report presented at a workshop on 26 April
2023 which is also attached to this report.
Ngā ritenga
ā-pūtea
Financial implications
30. The
achievement of the $5 million operating budget savings outlined in this report
means the committee has met the target that it was allocated to help mitigate
the overall $325 million operating budget gap.
31. However,
given the temporary nature of the savings items outlined in this report and the
ongoing need to respond to financial challenges, the committee may need to
identify a broader range of enduring savings through its forward work programme
and the next Long-term Plan process for the next financial year and
beyond.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
32. The risk of
not achieving the committee’s savings target in the current year has been
mitigated.
33. Staff will
work with the committee to confirm a pipeline of work to implement permanent
cost reduction opportunities to mitigate the risk of not finding enough further
enduring savings.
Ngā koringa ā-muri
Next steps
34. No further
action is required to achieve the $5 million operating savings target in the
current financial year.
35. Staff will
present the committee’s forward work programme at its September meeting
which will outline ongoing work to achieve the outcomes outlined in the updated
terms of reference for the committee.
Ngā tāpirihanga
Attachments
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No.
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Title
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Page
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a⇨
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Annual Budget 2023/2024: Mayor's Final Budget Proposal
Resolution
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Ngā kaihaina
Signatories
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Author
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Pramod Nair - Manager Group Financial Planning &
Analysis
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Authorisers
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Ross Tucker - General Manager, Financial Strategy and
Planning
Peter Gudsell - Group Chief Financial Officer
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Revenue,
Expenditure and Value Committee
22 August 2023
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Summary of Revenue, Expenditure and
Value Committee information memoranda and briefings (including the forward work
programme) – 22 August 2023
File No.: CP2023/00611
Te take mō te
pūrongo
Purpose of the report
1. To
tuhi ā-taipitopito / note the progress on the Revenue, Expenditure and
Value Committee forward work programme appended as Attachment A.
2. To
whiwhi / receive a summary and provide a public record of memoranda or briefing
papers that have been distributed to Revenue, Expenditure and Value Committee.
Whakarāpopototanga matua
Executive summary
3. This
is a regular information-only report which aims to provide greater visibility
of information circulated to Revenue, Expenditure and Value Committee members
via memoranda/briefings or other means, where no decisions are required.
4. There
were no information items distributed.
5. The
following workshops have taken place:
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Date
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Subject
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26/7/2023
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Workshop
– Savings Programme
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6. Note that, unlike an agenda report, staff will not be present
to answer questions about the items referred to in this summary.
Committee members should direct any questions to the relevant staff.
Ngā tūtohunga
Recommendation/s
That the Revenue, Expenditure
and Value Committee:
a) tuhi
ā-taipitopito / note the progress on the forward work programme appended
as Attachment A of the agenda report
b) whiwhi /
receive the Summary Revenue, Expenditure and Value Committee information
memoranda and briefings – 22 August 2023.
Ngā tāpirihanga
Attachments
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No.
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Title
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Page
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a⇨
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Forward Work Programme
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b⇨
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Workshop – Savings Programme
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Ngā kaihaina
Signatories
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Author
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Duncan Glasgow - Kaitohutohu Mana Whakahaere Matua / Senior
Governance Advisor
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Authoriser
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Peter Gudsell - Group Chief Financial Officer
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