Revenue, Expenditure and Value Committee

20 August 2024

Auckland Council savings report for the year ended 30 June 2024

File No.: CP2024/11050

Te take mō te pūrongo

Purpose of the report

1. To provide a year-end update on the result against the $50 million savings target for Auckland Council for 2023/2024 financial year.

Whakarāpopototanga matua

Executive summary

2. The adopted final 2023/2024 Annual Budget included a revised enduring savings target for Auckland Council of $50 million per annum over the remaining term of the 2021-2031 Long-term Plan.

3. At 30 June 2024, Auckland Council has achieved $60.2 million (120 per cent) towards the $50 million savings target for the 2023/2024 financial year. To the extent that the savings target is exceeded, this means a lower net debt at 30 June 2024 and a favourable starting position for the next financial year.

4. $9.7 million was achieved during the fourth quarter mainly due to staff vacancies from ongoing labour market constraints, as well as further detailed budget reviews and expenditure falling below budget due to careful financial management.

5. Over the last three financial years to 30 June 2024, Auckland Council has achieved cumulative operating savings of $332 million – a combination of achieving more than the annual ongoing $90 million savings target set in the Long-term Plan 2021-2031, including the additional $33 million target set in the Annual Plan 2023/2024.

6. In respect of the 2024/2025 financial year’s $50 million target, $14.6 million is still to be achieved through initiatives identified as part of the 2023/2024 annual budget process.

7. The Governing Body adopted the Long-term Plan 2024-2034 with an additional operating savings target of $28 million for 2024/2025, rising to $67 million for 2026/2027 for Auckland Council and the council-controlled organisations (CCOs). This is on top of the existing $50 million savings target. Future reporting will consider both of these targets.

8. Progress against the savings target is reported quarterly to the Governing Body as part of the quarterly performance reporting, and monitored monthly by the Executive Leadership Team for progress, risks and opportunities.

Ngā tūtohunga

Recommendation/s

That the Revenue, Expenditure and Value Committee:

a) tuhi ā-taipitopito/ note that Auckland Council has achieved $60.2 million operating savings for the year ended 30 June 2024, against a target of $50 million.

b) tuhi ā-taipitopito/ note that over the last three financial years to 30 June 2024, Auckland Council has achieved cumulative operating savings of $332 million.

Horopaki

Context

9. In June 2023, the Governing Body agreed a mix of levers for the 2023/2024 annual budget 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 International Airport shares to reduce interest costs, modest use of additional debt and operating cost savings.

10. The additional $32.8 million operating spend reduction savings target was set for Auckland Council and the resolution is listed as follows:

Resolution number GB/2023/100

11. This was on top of the existing $90 million savings target, of which $17.2 million was still to be achieved as at June 2023.

12. The adopted final Annual Budget 2023/2024 therefore includes a total remaining operating savings target for Auckland Council of $50 million per annum over the remaining term of the 2021-2031 Long-term Plan (LTP) ($17 million existing plus $33 million new).

13. Some reductions were specifically decided by the Governing Body and have had an impact on some services that council currently delivers, such as the withdrawal from the direct provision of early childhood education (ECE) services on a regional basis.

14. Savings targets under the delegation of the Chief Executive focus on efficiencies without material changes to service levels to the community.

15. There is a pipeline of ongoing initiatives underway that deliver savings and efficiencies including:

· Procurement – reducing contract spend with third parties through negotiating better terms for the council

· Functional leadership project – centralising and reducing internal support functions, leveraging capability and capacity more efficiently, e.g. centralisation of software purchasing and management

· Simplification programme – improving the efficiency of processes by leveraging robotic processing automation and consolidating transactional services across the organisation, e.g. automating the transfer of data between systems for licensing and regulatory compliance activities

· Revenue project – identifying new or growing existing revenue opportunities to improve non-rates revenue

· Prudent financial management – a strong focus on costs through a culture of questioning and challenging expenditure, reviewing and evaluating budgets and other finance-related transactions, e.g. zero-based budgeting on targeted areas and review of targeted expenditure lines.

16. The savings target relates to operating expenditure. It excludes any benefits related to capital works and cost avoidance. These benefits are tracked separately.

Tātaritanga me ngā tohutohu

Analysis and advice

17. In the fourth quarter ended 30 June 2024, $9.7 million of savings have been realised. A one-page summary of the Auckland Council savings programme as at 30 June 2024 is included as Attachment A to this report.

No change to the achieved operating spending reductions implemented per the Annual Budget 2023/2024

18. Auckland Council has secured a new commercial partnership for core Enterprise Resource Planning (ERP) software, with projected capital expenditure savings and operational cost avoidance of $42 million over the next seven years. The projected savings include perpetual SAP licenses no longer required and avoidance of software maintenance costs related to the licenses. The new partnership aligns with the council’s long-term plan priorities, as well as being part of shifting to a fit for purpose technology and operating model strategy. This commercial deal helps achieve the significant reduction in capital expenditure anticipated in the long-term plan, including associated depreciation expense savings of $26 million which contribute to the savings target in the latter half of the Long-term Plan 2024-2034.

19. This commercial partnership allows us to adopt off-the-shelf technology, minimise customisation to reduce our cost of ownership, support group shared services, and enable improved value for our customers.

20. Savings from exiting the direct provision of ECE services were estimated at $1.0 million per annum. These enduring savings are partially at risk due to some fixed overhead costs requiring further action and a longer time to realise. In addition, the anticipated commercial lease revenue from vacated ECE premises attached to leisure centres has been delayed due to an ongoing service review, staff capacity and local board decisions. An updated forecast on ECE savings will be provided at the next savings update.

21. In relation to the remaining savings target from a reduction in group strategy and planning activities, no further financial benefits were achieved in 2023/2024. Work remains underway to simplify the strategy and planning approach across the council group, which is supported by the refreshed organisational structure.

22. One-off savings and cost reductions are currently mitigating delays and shortfalls from permanent savings anticipated in the identified savings initiatives outlined above. Further permanent and one-off savings are expected to be identified through the existing savings programme, such as quarterly reviews of spending versus budget.

Reductions of $9.7 million under delegation to the Chief Executive:

· $6.1 million one-off underspend from staff cost budget due to vacancies. Mainly due to ongoing labour market constraints slowing the pace of recruitment across the council, although it is noted that these constraints have eased in the past couple of months

· $2.4 million one-off saving from related training costs not incurred as a result of staff vacancies and the impact of the leadership restructure

· $0.3 million one-off saving of outsourced works and services budget not required based on detailed review of work programmes compared to the budget allowed in this financial year

· $0.9 million one-off saving due to expenditure below budget for the financial year-to-date, including from:

o support activities, software expense, telecommunication, travel and other expenditure on activities as a result of slower than planned delivery with fewer staff and contractor constraints.

23. Staff costs savings were realised in the last quarter due to careful financial management and the ongoing difficulties in filling some specialist roles, particularly engineering, sustainability, and information technology. This under-resourcing placed pressure on the delivery of services and programmes and in some cases additional outsourcing was required, such as in Building Consents, Resource Consents and Planning.

24. Other one-off operating expenditure savings are mainly due to a continued focus on cost control and budget reviews. They include savings resulting from actual expenditure being below budget at the end of the fourth quarter.

25. Of the $60.2 million savings achieved, $29.3 million is one-off expenditure reductions and $30.9 million is ongoing cost reductions. Overall, the current year savings target has been exceeded, with a strong focus on careful financial management.

Cumulative savings achieved from the 2021-2031 Long-term Plan

26. Over the last three financial years to 30 June 2024, Auckland Council has achieved cumulative operating savings of $332 million – a combination of achieving the ongoing $90 million savings target set in the Long-term Plan 2021-2031 and the additional $33 million target set in the Annual Plan 2023/2024.

A graph of savings

Description automatically generated

Savings target for 2024/2025

27. In respect of the ongoing $50 million operating savings target for 2024/2025, $36.5 million was achieved at 30 June 2024, leaving $14.6 million still to be achieved.

28. The Long-term Plan 2024-2034, adopted by the Governing Body on 27 June 2024, includes an additional $28 million operating savings target for 2024/2025, rising to $67 million for 2026/2027 for Auckland Council and the CCOs. This is on top of the existing $50 million savings target. Future reporting will consider both of these targets.

29. An early risk to achieving the 2024/2025 Long-term Plan target has emerged due to the recent Governing Body decision regarding the service delivery model for pools and leisure. Around $6 million of operating savings were anticipated in the planning for the savings and a target of $3 million was resolved, of which only a portion will be achieved in 2024/2025. This means that other savings will need to be identified for which the implications will need to be carefully worked through.

Tauākī whakaaweawe āhuarangi

Climate impact statement

30. Projects or activities that have a positive impact on climate change may be affected by the reduction of climate change related programmes within the regional service reductions .

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

31. The $50 million savings target for 2023/2024 only applies to Auckland Council. Some savings initiatives are to be achieved for the group, for example, corporate property rationalisation, strategy and planning simplification, and group shared services.

32. New tools and process improvements successfully implemented in Auckland Council may also be shared with the CCOs for greater efficiencies and other benefits.

33. A Group Shared Services Board compromising of an Independent Chair and Chief Executives from the Auckland Council Group substantive council-controlled organisations and from the Auckland Council organisation has been established, to oversee the implementation and ongoing delivery of group shared services.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

34. Local boards provided feedback on the final Mayoral Proposal for the 2023/2024 Annual Plan that included savings targets for local board budgets. The Governing Body agreed to reduce total local board funding by $4.0 million as part of the $32.8 million operating spending reductions for Auckland Council.

35. With the exception of the $4.0 million local board funding reduction, all savings initiatives and annual budget decisions follow the centralised savings approach, which has been set at a regional level.

Tauākī whakaaweawe Māori

Māori impact statement

36. This report does not seek any decision. The savings initiatives and targets were set as part of the annual budget process which was subject to consultation and considered impacts on Māori for the purposes of that decision-making.

37. The Māori outcomes budget is ring-fenced for delivery of the Kia Ora Tāmaki Makaurau framework and was not subject to cost reductions.

Ngā ritenga ā-pūtea

Financial implications

38. This report provides an overview of how Auckland Council has performed against its operating savings target, which supports meeting the 2023/2024 Annual Budget. Savings reporting is included in the Auckland Council quarterly performance reporting to the Governing Body for context as part of the council’s overall financial performance.

39. The savings target of $50 million has been exceeded. To the extent that the savings target is exceeded, there is benefit in respect of a having a favourable starting position for the next financial year. This means that we would have lower net debt at 30 June 2024 and therefore this would help to mitigate some of the interest cost pressures for next year and beyond.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

40. As the 2023/2024 savings target has been met, there are no remaining risks.

41. The significant risks to achievement of future savings and cost reduction targets include inflationary pressure on staff and operating costs which may reduce savings opportunities; the pace at which process and efficiency improvements are implemented in order to realise benefits; and the political decision-making process particularly in respect of any proposed changes to delivery models and service reductions.

Ngā koringa ā-muri

Next steps

42. The next update will be provided after the council’s quarter one results are finalised for the financial year 2024/2025.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇨	Auckland Council savings programme overview as at 30 June 2024

Ngā kaihaina

Signatories

Author

Nicole Heng - Senior Finance Advisor - Programmes

Authorisers

Nicola Mills - General Manager Financial Advisory

Ross Tucker - Group Chief Financial Officer

Revenue, Expenditure and Value Committee

20 August 2024

Māngere flood resilience project procurement plan

File No.: CP2024/09662

Te take mō te pūrongo

Purpose of the report guidance

1. To provide an update on the procurement plan for the Te Ararata and Harania flood resilience projects.

Whakarāpopototanga matua

Executive summary

2. The Making Space for Water programme includes a range of initiatives to reduce flood risk to Aucklanders. The programme forms part of the wider Te Mahere Whakaora mō Tāmaki Makaurau / Tāmaki Makaurau Recovery Plan to improve the resilience of the region.

3. Capital spending of $507 million for the Making Space for Water programme is included in the Long-term Plan 2024-2034. This is in part funded under the co-funding agreement entered into with the Crown in October 2023 as part of the National Resilience Plan.

4. The Making Space for Water programme aims to reduce flood risk and support communities to build resilience to the impacts of increased rainfall and extreme weather events by implementation of flood mitigation projects. Te Ararata and Harania culvert upgrade flood resilience projects in Māngere are among the first projects to be delivered under the Making Space for Water programme. The business case for these projects was approved by the Transport and Infrastructure Committee on 4 July 2024 (TICCC/2024/75).

5. The densely populated urban catchments of Te Ararata (~550 ha) and Harania (~300 ha) in Māngere were seriously affected in the Auckland Anniversary floods and continue to experience heavy rain events. These two flood resilience projects will increase the capacity of the stream systems and reduce potential for blockage which is expected to reduce flood risks to 376 properties and the wider community and build future stormwater capacity.

6. An analysis of the options considered for procurement of these contracts will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Ngā tūtohunga

Recommendation/s

That the Revenue, Expenditure and Value Committee:

a) tuhi ā-taipitopito / note the information contained in this report, for the Te Ararata and Harania culvert upgrade projects enables transparency on the topic due for discussion in the public excluded part of the meeting

b) tuhi ā-taipitopito / note that the confidential report, ‘Te Ararata and Harania flood resilience procurement plans’, contains information that could prejudice the council's commercial position with suppliers.

Horopaki

Context

Early 2023 weather events highlighted an urgent need for improved flood resilience

7. The 2023 Auckland Anniversary Day floods, followed closely by Cyclone Gabrielle, caused significant infrastructural damage, with an estimated 8,000 homes destroyed or damaged and thousands of residents’ lives affected.

8. The events underscored the city’s vulnerability to extreme weather, prompting Auckland Council to endorse the Making Space for Water programme (GB/2023/203), which includes seven initiatives to build resilience for the stormwater network and reduce the impact of future flooding. The programme’s initiatives include a series of blue-green networks, which will address critical flood-prone areas with sustainable stormwater solutions.

Te Ararata and Harania culvert upgrade projects are expected to reduce flood risk

9. Two specific areas identified as flood-prone are Harania and Te Ararata. These two urbans catchments, located in Māngere, were amongst the worst affected in the early 2023 weather events, and are frequently impacted by heavy rain events.

10. Of the 376 dwellings with flood risk in the combined Harania and Te Ararata catchment (850-hectares), there are at least 56 homes where there is a risk to life. A package of works involving infrastructure upgrades has been proposed for Harania and Te Ararata to mitigate the risk to life and property in this area, and to increase resilience for Watercare’s Eastern Interceptor pipe. Further information on these projects including the business case can be found in the report on the Transport and Infrastructure Committee’s 4 July 2024 agenda (TICCC/2024/75).

11. The proposed projects are expected to reduce flood risk to 376 properties in Te Ararata and Harania catchments. These areas flood in heavy rain events and despite progressing property acquisition through the Voluntary Buy-out process, hundreds of properties will remain at risk if further resilience works are not done.

12. There will be two separate projects: stream works in the Te Ararata waterway with culvert upgrades, and culvert improvements in the Harania catchment. Refer to Figure 1 and 2 for project locations.

13. These two projects are scoped to:

· reduce blockage risk of the Walmsley Road bridge and Mahunga Drive culverts

· increase flood conveyance in the Te Ararata Stream between the Walmsley Road Bridge and Mahunga Drive culverts

· increase flood conveyance under or through the Tennessee Avenue and Blake Road embankment dams

· reduce or remove the potential for blockage, including potential sedimentation at Tennessee Avenue and Blake Road

· improve maintenance access of stormwater assets in the Te Ararata Stream downstream of Moyle Park, and in the Harania Stream at the location of the dam embankments.

Figure.1 Te Ararata project area.

Figure 2. Harania project area.

Auckland Council and the Crown are co-funding resilience projects

14. On 6 October 2023, the Governing Body agreed to enter a co-funding arrangement with the Crown (GB/2023/187) as part of the National Resilience Plan. This agreement covered the Voluntary Buy-out Support Scheme and risk mitigation projects. The Long-term Plan 2024-2034 included $507 million of capital spending for the Making Space for Water programme.

15. Te Ararata and Harania flood resilience projects are co-funded by the Crown’s National Resilience Plan funding, which is focused on delivering work that will reduce intolerable risk to life as quickly as possible. The cost share arrangement is 68 per cent Crown funding and 32 per cent Auckland Council funding. Funding from the Crown is conditional on the project being delivered within a two-year timeframe.

16. Further context will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Tātaritanga me ngā tohutohu

Analysis and advice

17. Staff have assessed what contract model and procurement approach are best suited to deliver the outcomes required through these projects.

18. Further analysis and recommendations will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Tauākī whakaaweawe āhuarangi

Climate impact statement

19. The Making Space for Water programme delivers on actions identified in Te Tāruke-ā Tāwhiri: Auckland's Climate Plan 2020. Specifically, Action N3 “to integrate connected, nature-based solutions in development planning”, and Action B2, “to ensure new infrastructure is planned and designed to minimise climate risks and lifecycle emissions. It also responds to the challenge identified in the Auckland Water Strategy of “reducing exposure to water related natural hazard risk over time”, and the strategic shift to regenerative water infrastructure.

20. The procurement of Te Ararata and Harania culvert upgrades projects responds directly to existing and predicted future flood risks in Māngere.

21. Further analysis of climate impacts will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

22. Healthy Waters and Flood Resilience will work with Watercare, Auckland Transport, and Eke Panuku, as well as the Recovery Office, Regulatory Compliance, Legal Services, and Parks and Community Facilities for physical works projects enabling storm recovery.

23. Healthy Waters and Flood Resilience will need to seek approval from Watercare and Auckland Transport to undertake work that will impact their assets during construction and have commenced discussions on these approvals.

24. Further council group impacts and views will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

Local impacts

25. Further local impacts and local board views will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Local board views

26. Engagement with the Māngere-Ōtāhuhu Local Board (9 August 2023 and 22 November 2023) has indicated support for a collaborative design process that involves the community. The local board provided formal support for Te Ararata and Harania flood resilience projects at its business meeting on 19 June 2024 (MO/2024/71) and have advocated for rapid flood recovery action through public forums which local board members have attended.

Tauākī whakaaweawe Māori

Māori impact statement

27. As kaitiaki, mana whenua are impacted by physical works in te taiao. Staff have been in discussion with Te Ahiwaru and Te Akitai Waiohua since the floods through individual hui and the operational Mana Whenua Kaitiaki Forum. At these meetings, Te Ahiwaru and Te Akitai Waiohua have advocated for nature-based solutions and enabling local Māori involvement in the projects. Staff have met with Te Ahiwaru and Te Ākitai Waiohua representatives and are developing a term of reference that defines the roles for the project. This includes inputting to the design and management plans including construction management with assistance from the engaged contractors.

28. Further Māori impact statement analysis will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Ngā ritenga ā-pūtea

Financial implications

29. An analysis of the financial implications will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

30. An analysis of the risks and mitigations will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Ngā koringa ā-muri

Next steps

31. Next steps will be provided in the confidential section of the 20 August 2024 Revenue, Expenditure and Value Committee meeting.

Ngā tāpirihanga

Attachments

There are no attachments for this report.

Ngā kaihaina

Signatories

Authors

Leighton Gillespie - Principal Delivery - Special Projects

Vivian Dias - Procurement Manager

Authorisers

Craig Mcilroy - General Manager Healthy Waters and Flood Resilience

Parul Sood - Deputy Director Resilience and Infrastructure

Ross Tucker - Group Chief Financial Officer

No.	Title	Page
a ⇨	Forward Work Programme

Revenue, Expenditure and Value Committee

20 August 2024

Exclusion of the Public: Local Government Official Information and Meetings Act 1987

That the Revenue, Expenditure and Value Committee

a) whakaae / agree to exclude the public from the following part(s) of the proceedings of this meeting.

The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter, and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution follows.

This resolution is made in reliance on section 48(1)(a) of the Local Government Official Information and Meetings Act 1987 and the particular interest or interests protected by section 6 or section 7 of that Act which would be prejudiced by the holding of the whole or relevant part of the proceedings of the meeting in public, as follows:

C1 CONFIDENTIAL: Māngere flood resilience project procurement plan

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

s7(2)(h) - The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities.

s7(2)(i) - The withholding of the information is necessary to enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).

In particular, the report contains information that could prejudice the council's position with potential suppliers.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

C2 CONFIDENTIAL: Council Group Post Insurance Renewal Update 2024-2025

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

s7(2)(h) - The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities.

In particular, the report contains details of the proposed insurance strategy, policies and programme for which terms and costings are being negotiated with the insurance market.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

Chairperson	Cr Maurice Williamson
Deputy Chairperson	Cr Wayne Walker
Members	Cr Angela Dalton	Cr Daniel Newman, JP
	Cr Chris Darby	Cr Greg Sayers
	Cr Julie Fairey	Cr Sharon Stewart, QSM
	Cr Shane Henderson	Houkura Chair David Taipari
	Houkura Member Tony Kake, MNZM	Cr Ken Turner
Ex-officio	Mayor Wayne Brown
	Deputy Mayor Desley Simpson, JP

Date	Subject
8/7/2024	Confidential Memo - Update on the Pools and Leisure Contract Service Delivery Model (Contracts) Review

Author	Sonja Tomovska - Kaitohutohu Mana Whakahaere Matua / Senior Governance Advisor
Authoriser	Ross Tucker - Group Chief Financial Officer