Agenda of Policy Committee Meeting

19 February 2020

7.1 Bay Venues Limited - Capital and Renewals Expenditure and Pricing Review Proposals for the Draft Annual Plan 2020/2021

File Number: A11167519

Author: Anne Blakeway, Manager: CCO Relationships and Governance

Authoriser: Gareth Wallis, General Manager: Community Services

Purpose of the Report

1. The purpose of this report is to present Bay Venues Limited’s (BVL) proposed capital and renewals expenditure and entry pricing for the Draft Annual Plan 2020/2021.

Recommendations

That the Policy Committee:

(a) Receives Bay Venues Limited’s submission to the draft Annual Plan 2020/2021;

(b) Agrees to incorporate Option 1b into the capital list for prioritisation in the draft Annual Plan 2020/2021 going to Council in March, prior to community consultation.

This option incorporates some elements of Bay Venues Limited’s capital programme – in addition to other minor new capital projects totalling $346,757 – and their associated budgets, namely:

(i) the Greerton rejuvenation project ($1,103,666); and / or

(ii) the Adams Centre expansion project ($5,351,412).

(i) Operations Hub at Trustpower Baypark ($2,264,589)

(ii) Expansion of Clubfit Baywave ($2,403,000); and

(iii) Baypark Events Centre ($4,900,000).

(d) If Council approves the capital funding for (b)(i) and/or (b)(ii) above, delegate authority to the Chief Executive to approve an amendment of Bay Venues Limited’s existing loan agreement to reflect the approved capital budget;

(e) Approves Bay Venues Limited’s total renewals budget of $5,822,826 into the draft Annual Plan 2020/2021 and include for community consultation;

(f) In relation to Bay Venues Limited’s operating revenue, agrees to incorporate into the draft Annual Plan 2020/2021 and include for community consultation:

(i) Either Option 2a – the pricing structure identified in the Recreation Sport and Leisure Consultancy Ltd (RSL) pricing review report, along with RSL’s pricing schedule included in Attachment 3.

(ii) Or Option 2c – the hybrid model proposed by Bay Venues Limited (BVL), along with BVL’s proposed pricing schedule included in Attachment 3. This would enable some increase in user fees and charges ($400,000), with the remainder of the shortfall to be provided through an increase to the rates-funded operating subsidy ($150,000 plus CPI).

Executive Summary

2. BVL has provided its submission to inform the development of the draft 2020/2021 Annual Plan, with a summary provided as Attachment 1. It provides information that supports initiatives associated with capital projects, investment in renewals and its operational budget.

3. The submission includes a proposal for the inclusion of four major capital projects – three of which are new projects and one, Greerton Aquatics and Leisure Centre, was previously approved as part of the Long Term Plan (LTP) 2018-2028. Together, these four projects represent an increase in new capital funding of $5,370,724 from what was included in the LTP.

4. The total renewals budget is $5,822,826, which is an increase of $1,312,375 on what was approved as part of BVL’s submission to the LTP.

5. In terms of operational funding, BVL has undertaken a comprehensive review of profitability in the funded community network, which has indicated that a revenue increase of approximately $550,000 is required to offset additional operating costs incurred over recent years.

6. A report (Attachment 2) from specialist leisure industry consultants, Recreation Sport and Leisure Consultancy Limited (RSL), recommends price increases throughout the funded network, which would simplify the complex pricing structure and generate additional revenue of $534,717. RSL’s recommended pricing schedule is included as Attachment 3.

7. As an alternative to passing the full cost on to users, BVL has suggested a hybrid model of cost recovery, which includes some increases to user fees and charges, with the remainder of the shortfall provided through an increase to the rates-funded operating subsidy of $150,000. BVL’s proposed price increases are included as Attachment 3. They are less than those recommended by the RSL Pricing Review, however they still require Council approval as they are greater than CPI.

8. It is noted that the operating subsidy provided to BVL in return for delivering community outcomes has not increased above CPI since the inception of the organisation, despite a significant increase in user numbers over this time.

9. BVL are seeking Council approval for either the full RSL pricing schedule, or their proposed hybrid model (Attachment 3) to be included for community consultation through the 2020/2021 Annual Plan process.

BACKGROUND

10. BVL has provided its submission to inform the development of the draft 2020/2021 Annual Plan (Attachment 1). It provides information that supports initiatives associated with capital projects, investment in renewals and its operational budget.

11. In addition, each of the major new capital projects is supported by a detailed business case, which has been approved by the BVL Board and submitted to Council staff as per the requirements of the Enduring Statement of Expectation. The detailed business cases are provided in Attachment 4.

Significant capital projects requested

12. BVL’s submission proposes inclusion into the Annual Plan 2020/2021 of four major capital projects requiring Council approval as per the $200,000 threshold in the Enduring Statement of Expectation.

13. Three of the major capital projects are new projects and one, Greerton Aquatics and Leisure Centre, was previously approved as part of the LTP.

14. Together these four projects represent an increase in new capital funding of $5,370,724 from what is already in the LTP. Note: this figure includes the deferral of another significant project currently in the LTP, the Baypark Events Centre, with a detailed breakdown included in BVL’s submission (Attachment 1).

15. The new capital projects are:

(a) Trustpower Baypark Storage Compound and Operations Hub: $2,264,589

Construction of a multi-bay storage compound, which will provide facilities for BVL Operations and Maintenance staff and equipment. A component of the storage compound would also be available for lease to generate revenue.

(b) UoW Adams Centre High Performance Centre (Adams Centre): $5,351,412

Expansion of the University of Waikato Adams Centre for High Performance by creating a new purpose-built gym adjacent to the Centre, repurposing the existing gym into office space and utilising the neighbouring BVL property at 50 Miro Street to provide the required car parking.

Construction of a 285m2 high intensity fitness training studio at Clubfit Baywave to expand the product offering and maximise utilisation and revenue returns.

(d) Greerton Aquatic & Leisure Centre (Greerton): $1,103,666

This project has both a new capital and a renewals component. BVL have already had a business case approved through the LTP for the capital works however these were delayed due to the Baywave closure taking priority. In the interim, BVL have identified additional renewals required, resulting in an additional $1.128m of renewal funding being requested through the Annual Plan 2020/2021 process.

Options Analysis – CAPITAL PROJECTS

Option 1a: Incorporate Bay Venues Limited’s total capital programme and associated budgets into the draft Annual Plan 2020/2021 for community consultation.

16. Agree to support the capital programme outlined in Attachment 1, along with detailed business cases (Attachment 4). Incorporate the capital funding into the draft Annual Plan 2020/2021 for community consultation.

17. If this option is approved, Council will need to amend BVL’s existing loan agreement to reflect the approved capital funding. It is recommended that this is delegated to the Chief Executive.

18. If the projects were to go ahead, the BVL debt to equity ratio as stated in the current ESE would need to be reviewed.

Advantages

Disadvantages

· Approving this submission enables BVL to operate commercially, using community facilities to grow financial and non-financial returns.

· Greerton – improvements to an important but ageing aquatic facility to continue to meet the needs of Tauranga’s growing community and remedy several negative issues at the facility, including inadequate changing room space, carparking, entranceway and health and safety concerns.

· Baypark Operations Hub – increased operational efficiency and effectiveness, reduction of Health and Safety risks. Financial benefits through rental of storage units and Pavilion help subsidise the cost of providing community outcomes across the wider network. Cost savings of no longer having to rent external storage for Bay AV equipment.

· Adams Centre – resolves immediate and urgent issues around capacity by providing 638m2 of additional office space. Enables growth of existing tenants who have raised concerns about their ability to commit long-term in the absence of growth potential. Expansion of Adams Academy programme for developing community athletes.

· Clubfit Baywave – opportunity to expand product offering and maximise utilisation and revenue returns by increasing membership and relieving capacity issues. Enables Clubfit to continue to play a significant role in the BVL network, providing economic returns that help subsidise the cost of providing community outcomes across the wider network.

· Further increases to BVL’s capital funding will put pressure on TCC’s debt limitations.

Option 1b: Incorporate some elements of Bay Venues Limited’s proposed capital programme and associated budgets into the capital list for prioritisation in the draft Annual Plan 2020/2021 going to Council in March, prior to community consultation.

19. This option incorporates some elements of Bay Venues Limited’s capital programme outlined in Attachment 1, along with their detailed business cases (Attachment 4) and associated budgets, into the capital list for prioritisation in the draft Annual Plan 2020/2021 going to Council in March. This would be in addition to other minor new capital projects totalling $346,757.

20. If this option is approved, Council will need to amend BVL’s existing loan agreement to reflect the approved capital funding. It is recommended that this is delegated to the Chief Executive.

21. BVL has indicated that the Greerton and Adams Centre projects have greater urgency and that the Baypark Operations Hub and Clubfit HIIT studio could potentially be deferred to the LTP.

22. The advantages and disadvantages of Council approving both projects have been analysed below.

Advantages

Disadvantages

· Reduces the level of additional capital funding required for BVL by $4,667,589. The capital budget would represent an increase of $703,135 over and above what is already in the LTP budget for FY21.

· Enables the Greerton project capital works to be progressed in conjunction with the scheduled maintenance shut-down period in August 2020, thus maximising efficiencies and minimising customer inconvenience.

· Aligns TCC’s recent review of community facilities, which found Greerton to be a vitally important aquatic facility within the network and one which is currently operating at capacity. Maintaining asset condition becomes critical to de-risking the high level of reliance on this facility.

· Supports the significant momentum and success of the Adams Centre since inception and leverages the investment already made by the city into this facility.

· Triples the capacity of the Adams Academy, a subsidised community athlete development programme, which provides essential support services for aspiring young local athletes to develop their potential and compete on the national/international stage.

· Mitigates the weaknesses of the current Centre, including the capacity issues currently faced by existing users, functionality issues in the current gym and the risk of losing NZ Rugby as a key tenant following the Tokyo Olympics.

· Provide flexibility to attract new tenants to the Centre and contribute further revenue generation, while enhancing Tauranga’s reputation as a centre of excellence for high performance sport.

· Expanding the capacity of the Adams Centre and upgrading Greerton to support higher utilisation enables BVL to meet its strategic objectives around community participation, health and wellbeing outcomes.

· Not approving the Operations Hub will mean that BVL operations staff remain in substandard working conditions and BVL continue to incur costs for offsite storage of equipment.

· Not approving the Clubfit HIIT Studio will restrict BVL’s ability to grow membership and revenue. Risks Clubfit losing customers who are seeking small group training opportunities – the leading industry trend.

Option 1c: Do not incorporate any of Bay Venues Limited’s proposed capital programme and associated budgets into the draft Annual Plan 2020/2021 for community consultation.

23. Do not agree to support any of the proposals outlined in Attachment 1 of this report.

Advantages

Disadvantages

· This will reduce the level of capital funding required for BVL by $11,122,667.

· BVL may be unable to respond to increases in demand for its facilities and therefore unable to meet its performance and strategic objectives.

· Not supporting the Adams Centre expansion sends a negative message about the support for Tauranga as a centre of excellence for high performance sport and will risk NZ Rugby assessing alternative locations to base their programme for the long-term.

· Not approving the Greerton capital works will restrict improvements to the level of service and utilisation at this facility (i.e. new aquaplay and leisure equipment to cater for families). BVL will not be able to remedy existing major issues with the facility (more changing rooms, additional parking, upgrading the outdoor space).

· Deferring all capital and renewals works at Greerton has been identified as a major risk in the Community Facilities Needs Analysis which identifies that Greerton will experience proportionally the greatest increase in demand along with Baywave, due to the proximity to the growth areas. In order to keep pace with the demand, investment to address the facility’s shortcomings is required.

Renewals

24. BVL has provided a total renewals budget of $5,822,826, which is an increase of $1,312,375 on what is currently included in the draft Annual Plan 2020/2021 budget.

25. The increase is made up of a number of variations (both up and down), due to a number of major renewals being rescheduled to reduce facility closure times. Further detail has been provided in BVL’s submission (Attachment 1).

26. BVL’s renewals programme is prepared in conjunction with TCC staff using Council’s Accela Asset Management System.

27. Renewals capital is funded from the depreciation reserve, i.e. rates collected in the past, and does not impact on the Annual Plan 2020/2021 rates.

Operational revenue

28. BVL’s Enduring Statement of Expectation requires that BVL seek Council approval for any price increases in the funded community network that are greater than CPI.

29. CPI increases in revenue over the 2016-2019 period have been insufficient to cover operational expense growth.

30. A comprehensive pricing review of BVL’s funded community network has been undertaken with assistance from industry experts Recreation Sport and Leisure Consultancy Limited (RSL) and is provided as Attachment 2.

31. The objective of the pricing review is two-fold – firstly to enable BVL to recover cost increases in the funded network over recent years, and secondly to simplify and rationalise charges. Currently the charging structure and resulting entry prices across the network are overly complex and include a multitude of variations between facilities within the same network.

32. In order to offset the increases in operational expenses and to simplify and streamline the complex pricing structure across the funded network, BVL are seeking Council approval of the one of the pricing schedule options outlined below (and included in Attachment 3) for community consultation through the 2020/2021 Annual Plan process.

Strategic / Statutory Context

33. As a council-controlled organisation (CCO), BVL operates under an Enduring Statement of Expectation (ESE) with Council. The ESE identifies the purpose of BVL as:

“BVL exists to care for and optimise community facilities to create value for Tauranga City and enhance the quality of life of its people, now and into the future”.

34. Whilst BVL is required to operate in a financially prudent manner and has agreed financial targets, it’s purpose as a whole is to provide a service to the community on behalf of Council rather than to operate a business for profit. The predominant strategic driver for BVL is “maintaining and enhancing accessibility for all”.

35. There is very little strategic direction associated with the level of cost recovery BVL is required to recuperate through users fees and charges. While the CCO is expected to be financially prudent and achieve agreed financial targets, it is also expected to ensure accessibility and affordability and high levels of utilisation and satisfaction from facilities, while also aligning with the TCC Revenue and Financing policy.

36. Currently there is significant variation in the cost recovery achieved across different facilities and facility types as indicated in the table below:

Facility Type	Community Centres	Community Halls	Indoor Recreation Centres	Aquatic Centres	Total Funded Network
Cost recovery (%) FY19	50%	83%	32%	55%	48%

37. The Tauranga Aquatic Strategy indicates that the appropriate level of cost recovery from users is 60-80%. Whilst no such targets exist for indoor courts, community halls or community centres, this figure can be used as guide for the entire funded network.

38. Going forward, Council and BVL need to reach agreement on the cost recovery/subsidy targets that BVL is expected to achieve within each of the facility types. If Council desires certain facilities or activities to attract higher subsidies for strategic reasons that too needs to be clearly articulated, agreed and appropriately funded.

The Funded Network

39. Different facilities and activities of BVL has different degrees of commercial or community focus. This pricing review relates only to the funded network, which includes the facilities with more of a community focus and which receive the benefit of the subsidy provided by TCC in order to enable a greater degree of accessible to the community. The funded network includes:

Community Aquatic Network

Community Indoor Sports Network

Community Hall Network

Community Centre Network

Baywave

Greerton

Otumoetai

Memorial

Trustpower Baypark Arena 6 court

QEYC & Memorial Hall

Aquinas Action Centre

Merivale Action Centre

Mount Sport Centre

Greerton

Bethlehem

Tauriko

Welcome Bay

Matua

Waipuna Pavilion

Elizabeth Street

Cliff Road

Arataki Community Centre

Papamoa Community Centre

Papamoa Sport and Rec Centre

40. BVL is limited in the strategies they can implement to improve their profitability by the ESE and Letter of Expectations (LOE) between TCC and BVL. Within the funded network, BVL is only able to make price increases that are less than or equal to CPI; beyond that a Council decision is required.

41. The ESE also dictates that levels of service within community facilities are expected to remain the same (or increase) so reducing what is on offer (either reduced hours or closing some facilities) is not an option.

42. This means that BVL is limited in how it can respond to the operational cost increases it has incurred in the funded network over recent years.

Key Drivers of Pricing Review

Simplification of the current pricing structure

43. The current pricing approach is complicated, varies between facility types and has inconsistencies between different facilities in the network. BVL is seeking to provide a simplified pricing strategy that is clear to customers and simple for staff to implement.

44. With new technology, customers will increasingly need to be able to self-manage bookings, payments and memberships through online services. The pricing strategy must support this.

45. The last change to the pricing strategy, undertaken in 2018 was only minor in nature and simplified the pricing approach for some, but not all facilities (by removing peak and off-peak pricing differentials in some areas). In some cases, the 2018 price simplification resulted in a decrease in charges, particularly for regular users at some high demand facilities and times e.g. at Trustpower Arena.

Operational expense growth

46. CPI based price increases are not keeping pace with operational cost increases. Over the last four years, BVL funded network revenue growth has been insufficient to cover operational expense growth. Operational expense growth has primarily been driven by the following factors:

· General operational expenditure required to maintain quality facilities at a high level of service (e.g. cleaning, repairs and maintenance).

· Increases in BVL staff remuneration to align closer to market rates (including minimum wage increases) from an historically low base.

· Additional support costs associated with compliance requirements (e.g. Health & Safety and HR).

Increases in the cost of depreciation and debt servicing on new capital items to enhance levels of service

47. Under the ESE, BVL are responsible for funding the cost of depreciation and debt servicing on all new capital items incurred post the restructure of the BVL balance sheet in 2013, in both the funded and non-funded network. This results in the cost of financing new capital items that are required to increase the level of service to the community but do not have a corresponding revenue flow (i.e. new changing rooms).

48. The change in the financial performance of BVL from financial year 2016 to financial year 2020 clearly demonstrates these issues.

Table 1: Funded Network Financial variations FY16 - FY20

	FY16	FY20	Variance
User Fees	$2.379m	$3.065m	$0.685m
Subsidy	$2.496m	$2.670m	$0.174m
Operating Expenses	$4.692m	$6.099m	$1.407m
Net Surplus	$0.184m	$(0.364)m	$(0.548)m

Options Analysis – OPERATING REVENUE

49. Due to cost increases over the last four years, BVL estimates a revenue shortfall across the funded network of $550,000 in FY21.

50. There are three options for achieving this revenue objective:

Option 2a: Approve the pricing structure identified in the RSL pricing review report and include for community consultation through the 2020/2021 Annual Plan process

51. Agree to support the proposals outlined in the RSL report (Attachment 2) and incorporate into the draft AP, along with the pricing schedule included in Attachment 3.

52. Average percentage price change across the network would be as follows:

Facility	Average % price increase
Aquatic general entry	8.2%
Aquatic lane and squad	39.5%
Aquatics memberships	25.6%
Indoor court facilities	20.6%
Community halls	13.0%
Community centres	39%
Funded network total	18.9%

Advantages

Disadvantages

· The growing cost to operate the funded network is offset by users who benefit from the facilities.

· Ratepayer subsidy remains status quo.

· BVL financial sustainability is maintained, net loss does not increase.

· Complex pricing structure is simplified.

· Easier for the customer to understand.

· Lays the platform for digital transformation to occur e.g. online bookings.

· Consistent approach to pricing across facilities.

· Better alignment with nationally comparative facility entry prices.

· Allows BVL to maintain and/or increase levels of service.

· Percentage increases to some users could result in negative feedback and impact negatively on affordability and accessibility.

· Potential decline in volumes and utilisation.

Option 2b: BVL increases entry prices across the funded network by CPI and Council funds the remainder of the shortfall by increasing the rates-funded operating subsidy by $500,000 above CPI. Include for community consultation through the 2020/2021 Annual Plan process.

53. The operating subsidy provided to BVL in return for delivering community outcomes has not increased above CPI since the inception of the organisation, despite a significant increase in user numbers over this time.

Advantages

Disadvantages

· No impact on current users.

· No impact on utilisation rates.

· BVL financial sustainability is maintained, net loss does not increase.

· Allows BVL to maintain and/or increase levels of service.

· Ratepayer subsidy will increase by $500,000 above status quo.

· General entry prices for non-residents are subsidised by Tauranga ratepayers to some facilities.

· Complex pricing structure legacy issues remain in place.

· Minimal alignment with comparative national facilities.

Option 2c: Approve a hybrid model, which would enable some increase in user fees and charges ($400,000), with the remainder of the shortfall to be provided through an increase to the rates-funded operating subsidy ($150,000 plus CPI). Include for community consultation through the 2020/2021 Annual Plan process.

54. BVL prefers this option as it achieves both the revenue and simplification objectives and minimises impact on users.

55. BVL is seeking Council approval for the schedule of price increases associated with this option. Average percentage price change across the network would be as follows:

Facility	Average % price increase Option 2c	Average % price increase Option 2a
Aquatic general entry	7.4%	8.2%
Aquatic lane and squad	17.6%	39.5%
Aquatics memberships	24.3%	25.6%
Indoor court facilities	19.6%	20.6%
Community halls	13.0%	13.0%
Community centres	26.4%	39%
Funded network total	14.6%	18.9%

Advantages

Disadvantages

· Lower impact on current users than option 2a, particularly aquatic lane swimmers, squad swimmers and community centre users.

· Impact on rates funded subsidy is $350,000 lower than option 2b.

· The growing cost to operate the funded network is partially offset by user fees charged to those benefiting directly from the facilities.

· Closer alignment with comparative national facilities.

· BVL’s financial sustainability is maintained, net loss does not increase.

· Allows BVL to maintain and/or increase levels of service.

· Complex pricing structure legacy issues largely resolved.

· Ratepayer subsidy will increase by $150,000 above status quo.

· Percentage increases to some users could still result in negative feedback and impact negatively on affordability and accessibility, albeit less than option 2a.

Financial Considerations

56. The financial implications are outlined in the above report and attachments.

Legal Implications / Risks

57. There are no legal implications.

Consultation / Engagement

58. This proposal, if approved by Council, will be subject to community consultation in March 2020 as part of the Annual Plan 2020/2021 process.

Significance

59. Under TCC’s Significance and Engagement Policy, this proposal is of medium significance as it represents a significant amount of capital and operational expenditure by Tauranga City Council’s largest and most visible CCO.

NEXT STEPS

60. Council staff will continue to work with BVL to incorporate the approved capital and renewals expenditure and entry pricing for prioritisation into the draft Annual Plan 2020/2021, for development and consultation before adoption of the final Annual Plan.

61. The budgets and projects incorporated into the draft Annual Plan will inform the development of BVL’s 2020/2023 Statement of Intent with Council.

62. Council staff will work with BVL on a number of other recommendations from RSL in relation to pricing of facilities, including:

· Agree on the desired level of cost recovery from the funded network of facilities and investigate ways to respond to communities in need, where affordability is having a detrimental effect on participation.

· As part of the next review of BVL’s Enduring Statement of Expectation, consider an amendment that enables BVL to increase prices in the funded network up to a maximum of 5% percent per annum without Council approval. Any amendments to the ESE would need Council approval.

Attachments

1. Annual Plan 2020/2021 - BVL submission summary - A11169638 ⇩

2. Annual Plan 2020/2021 - BVL pricing review report by RSL - A11179228 ⇩

3. Annual Plan 2020/2021 - BVL detailed price increase schedule - A11179227 ⇩

4. Annual Plan 2020/2021 - BVL detailed business cases for AP submission - A11179233 ⇩

Policy Committee Meeting Agenda

19 February 2020

7.2 Annual Plan 2020/21 Update

File Number: A11114461

Author: Joel Peters, Corporate Planner

Tracey Hughes, Financial Insights & Reporting Manager

Authoriser: Paul Davidson, General Manager: Corporate Services

Purpose of the Report

1. To seek direction/approval of requests that affect the Annual Plan 2020/21 draft budget and provide an update on the development of the annual plan.

Recommendations

That the Policy Committee:

(a) Receives the report.

(b) Approves the inclusion in the capital programme prioritisation expenditure to:

(i) increase the capacity of the Oropi water treatment plant ($2.6 million 2020/21 and $4.4 million 2021/22),

(ii) construct an offloading wharf at the Marine Precinct ($1.4 million).

(d) Notes additional requests for funding are being prepared for:

(i) Tauranga Art Gallery

(ii) Future engagement costs

Executive Summary

2. In accordance with the Local Government Act 2002, Council is required to produce and adopt an annual plan, by 30 June 2020.

3. Since December several changes have meant council is required to take on significantly more debt in 2020/21. This has flow on effects to the capital programme. Essentially, council will not be able to deliver all the 2020/21 capital programme and will need to undertake some prioritisation.

4. Staff are working on these matters and will bring a paper to the Policy Committee, for decision, in early March.

5. There are also several items not currently confirmed/included in the annual plan budget calculations for information/decision:

(a) additional funding to increase the capacity of the Oropi water treatment plant

(b) additional funding to construct an offloading wharf at the Marine Precinct.

(d) additional funding for Tauranga Art Gallery exhibitions

(e) additional funding for engagement

(f) Bay Venues Ltd funding request (separate report on this agenda)

Background

6. On 10 December, staff presented the Annual Plan 2020/21 indicative budget for Council’s consideration. Staff recommended that Council:

(a) Agrees to continue with year three of the rating structure changes to reduce the UAGC to 15% and increase the commercial differential to 1.2%.

(b) Endorses in principle the Annual Plan draft budget for capital and operations as summarised in attachments 1, 2, and 3.

(c) In respect of the risk reserve:

(i) Notes that the draft annual plan endorsed in resolution (b) above includes $1 million increase to the risk reserve; or

(ii) Approves an increase to the contribution to the risk reserve from $1 million to 4.4 million to begin to address the current risk reserve deficit of $15 million and to recognise the likely ongoing calls on the risk reserve.

(d) Notes that prior to finalising the draft budget a further budget report will be provided to the Policy Committee in February regarding:

(i) requests from Bay Venues Ltd; and

(ii) any budget updates that might arise from work currently underway.

7. Council agreed to continue with rating structure changes and amended recommendation (b). Council endorsed, in principle, the Annual Plan draft budget for capital and operations within the envelope of a mean residential rates increase for 2020/21 of no more than forecast inflation plus 2% (3.9%) and Council to be provided with options to achieve this rating level, together with the pros and cons of these options.

8. Council did not decide on the risk reserve and noted the further requests and updates to come in February.

Strategic / Statutory Context

9. In accordance with the Local Government Act 2002 (LGA), Council is required to produce and adopt an annual plan, by 30 June 2020. The purpose is to identify variations from the financial statements of the third year of the current LTP.

10. Council must consult on changes that are significantly or materially different from the LTP.

Current situation

11. Since the December Council meeting several updates have occurred, which have implications for the 2020/21 budget, most significantly:

(a) The cost to deliver the Waiari water supply project has increased impacting the 2020/21 budget.

(b) Weathertight claims have been reviewed and have increased potential costs to council. Accordingly, staff are recommending adding extra provision for claims in the 2020/21 budget.

12. A key financial limit for council is its debt to revenue ratio. The limit through the LTP, and from the Local Government Funding Agency, is a debt to revenue ratio of 250%.

13. The updates since December mean that the forecast debt based on the current capital programme would be close to or exceed the 250% limit. As a result, council will need to review operational and capital budgets.

14. Staff are currently identifying what part of the capital programme is committed in 2020/21 and what could be prioritised. A summary of this work will be included in a report to this committee on 4 March.

15. The 4 March report will also include options and implications for the 2020/21 budget including the option of a 3.9% mean residential rates increase as requested in December.

16. There are also several items not currently confirmed/included in the annual plan budget.

(a) There are four options presented for your decision:

(i) funding to increase the capacity of the Oropi water treatment plant

(ii) additional $1.4m to construct an offloading wharf at the Marine Precinct.

(iii) funding Destination Management from the Airport Activity surplus

(iv) Bay Venues Ltd funding request (separate report on this agenda)

(b) There are also several costs/requests that staff are aware of but require further information in advance of a decision.

(i) Tauranga Art Gallery additional exhibitions grant

(ii) future engagement costs

Options

Option 1: Approve funding to increase the capacity of the Oropi water treatment plant for consideration in the capital programme.

17. Council’s existing water treatment supply capacity is being challenged as a result of several factors including:

(a) The Waiāri Water Treatment Plant commissioning is likely to be delayed to the first half of 2022 therefore the peak summer water demand for 2020/21 and 2021/22 will need to be met with existing infrastructure.

(b) The current peak summer water demands are higher than planning predictions and existing water treatment plants, particularly Joyce Road, do not have the capacity to meet the future forecast peak summer demands.

(c) The water network has pinch points and is currently struggling to deliver the peak summer demands across the city prior to the Waiāri being delivered.

(d) The current water demand from growth is almost exclusively being applied to the Joyce Road plant.

18. Budgets of $2.6m in 2020/21 and $4.4m in 2021/22 are requested for a project to increase water supply through the Oropi plant to meet growth requirements.

19. This capital project will be considered alongside existing capital projects for prioritisation on 4 March.

Advantages

Disadvantages

· This will provide for the peak summer demand of both 2020/21 and 2021/22.

· This option will improve the overall water supply into the City prior to Waiāri water treatment plant coming on line.

· The increased capacity will service projected population growth in advance of the Waiari project coming online.

· This option will also serve to provide water supply resilience into the future.

· Staff and Council will need to prioritise the capital programme, this adds to the projects in that process.

· Potential $2.6m impact on the 2020/21 capital programme.

· If prioritised, an additional $4.4m in 2021/22 would be required.

Option 2: Approve an additional $1.4m to construct an offloading wharf at the Marine Precinct for consideration in the capital programme.

20. $600,000 was included in the current financial year to construct an offloading wharf for users of the marine facility. Through engagement, users of the facility including the independent fishing fleet, have identified the planned wharf will not be fit for purpose.

21. Staff are investigating a new concept which will provide greater capacity for all users. Preliminary engagement with users and has been received positively.

22. Whilst it is still in preliminary design, high level estimates indicate that the facility would be costed at approximately $2m net (private portions of the wharf would be paid for by those with exclusive use).

23. This project would be undertaken in 2020/21, therefore the budget to support this would be a $600,000 carry forward from 2019/20 and an additional $1.4m not currently in the capital programme.

24. Detailed design and an updated business case will be available prior to the adoption of the final annual plan in June.

25. This capital project would be considered alongside existing capital projects for prioritisation.

Advantages

Disadvantages

· Increase the capacity of the fishing fleet in line with the original intention of the project, to provide fit for purpose user facilities.

· Better supports the objectives of the wharf users.

· No rating impact (subject to final business case)

· Staff and Council will need to prioritise the capital programme, this adds to the projects in that process.

· Additional $1.4m debt required (non rate funded)

Option 3: Continue to fund Destination Management from the Airport Activity surplus

26. Through the LTP, Council approved $621,000 of investment per annuum to Tourism Bay of Plenty for destination management from the airport activity. This funding was to revert to Economic Development targeted rate funding from 2019/20 unless alternatives were found.

27. Through the Annual Plan 2019/20, Council endorsed that Tourism Destination Management should continue to be funded through the airport activity surplus to ensure no significant change to rating structures.

28. Staff recommend continuing to fund this investment into destination management from the Airport activity in 2020/21.

29. Targeted rate funding or alternatives can be investigated through the LTP process.

30. Note; Staff have already included this in the 2020/21 budget presented to you in December.

Advantages

Disadvantages

· This option will continue to support destination management.

· Funding through the airport will not have an impact on overall rates.

· Debt will be higher by this amount

Upcoming Requests

Tauranga Art Gallery

31. The Tauranga Art Gallery is seeking funding for an additional $259,000 grant for exhibitions which would go primarily towards Tauranga Moana 2020.

32. A business case supporting this request will be presented to you for consideration in March.

Future Engagement Costs

33. Since the adoption of the LTP, Council has committed to implementing consistent and fit for purpose engagement planning for all projects.

34. At the time of this report a shortlist of more than 50 projects requiring engagement support over the next 12-24 months has been developed for prioritisation with the responsible council activities.

35. The costs for engagement are likely to be highly variable between projects and highly dependent on the level of service council seeks to provide. These costs will be operational rather than capital.

36. As an indication, some of the potential largest engagement projects are listed below.

· Cycle Plan

· Kerbside Collection Service Roll-out

· Long Term Plan

· Stormwater Improvements – flood hazard management

· Strategic Framework

· Transport Network Plan

· Transport Safety / Safer speeds and streets

· Te Maunga Wastewater Outfall

· Te Papa Peninsula Spatial Plan / City Plan Changes / Cameron Road

1. While many of these projects have their own budget, a more ‘extensive’ engagement compared to the level currently budgeted would likely incur significantly higher costs for the following reasons:

· likely to run over a longer time period and include several phases of engagement.

· Likely to involve a wider community decision-making approach.

· Incur more project manager time and administrative processes e.g. collating and reporting outcomes data.

37. For example, the talking trash campaign was an extensive city-wide campaign with an overall budget of approximately $135,000 (excluding GST) for that distinct engagement period.

38. Staff are developing the level of service for engagement and will be seeking guidance in March. Any increase in the level of service for engagement will impact the 2020/21 budget.

Legal Implications / Risks

39. In accordance with the LGA, council must consult with the community if the annual plan includes significant or material differences from the content of the LTP for the financial year to which the proposed annual plan relates.

Consultation / Engagement

40. Under the proposed approach, consultation on the annual plan will occur in March and April 2020 alongside consultation on the draft Development Contributions Policy (DC Policy) and draft Schedule of User Fees and Charges.

41. The DC Policy and Schedule User Fees and Charges form part of the annual plan. The draft documents have been presented to you as separate reports on this agenda.

Significance

42. The annual plan is likely to be of medium to high significance to communities.

43. The decision to accept this report and the recommendations are of medium significance as they may affect a subgroup of the community.

Next Steps

44. Staff will incorporate the decisions from this Policy Committee agenda into the 2020/21 budget.

45. Staff will bring a report to the 4 March Policy Committee which will provide you with options and implications for the 2020/21 budget including a 3.9% mean residential rates increase as resolved in December.

46. Staff will also present a consultation plan alongside the updated budget.

Attachments

Nil

Policy Committee Meeting Agenda

19 February 2020

7.3 Draft Fees for the 2020/21 Development Contributions Policy

File Number: A11176342

Author: Ana Blackwood, Development Contributions Policy Analyst

Authoriser: Christine Jones, General Manager: Strategy & Growth

Purpose of the Report

1. The purpose of this report is to provide an overview of the key changes that will be made to the 2020/21 Development Contributions Policy compared to the operative Development Contributions Policy. A draft 2020/21 Development Contributions Policy will be brought to Council to adopt for public consultation in March.

Recommendations

That the Policy Committee:

(a) Notes the contents of the report and the expected changes to Development Contribution policy which will be consulted on through the Draft 2020/21 Development Contribution Policy

(b) Notes that staff will be engaging with the building community with the purpose of providing early notice of a signficant increase to the Citywide Development Contribution levy in the 2021/22 financial year.

DISCUSSION

2. Tauranga City Council has elected to use Development Contributions (“DCs”) as the primary mechanism to fund growth related capital expenditure. The Development Contributions Policy (“DC Policy”) is updated on an annual basis. The new policy must be adopted by June to enable Council to continue collecting Development Contributions in 2020/21.

3. The rationale behind DCs is the growth pays for growth principle. The goal is to ascribe costs of growth back to the development community to reduce the burden of these costs on the existing rate payer community.

4. Use of DCs is governed by legislation set out in the Local Government Act 2002 (LGA).

5. Sections 2-5 of the DC Policy set out the rules for when a DC is charged, and the methodology used by TCC for calculating development contributions. These sections are not expected to change compared to the operative policy.

6. Section 1 contains the fees applicable to development and these will be updated to reflect changes made to capital expenditure budgets. Section 6 contains the Schedules of assets (tables) which show detailed costing information for each asset for which council collects development contributions. These tables have been updated to reflect budgets set out in the annual plan documents.

7. Development contribution fees are broken into two types, local development contributions and citywide development contributions. These are discussed separately below.

Local development contributions

8. Local development contributions (“LDCs”) are usually payable when land development occurs (i.e. subdivision). LDCs fund infrastructure within specific catchments and the amount payable varies with location. The following table sets out the LDCs that are expected to be included in the Draft 2020/21 DC Policy and comparisons to fees in the operative policy[1].

	Draft fees		Movement compared to operative policy
Fee increases
West Bethlehem	$ 372,880	Per hectare	+ 5.0%	+$17,400
Tauranga	$ 3,614	Per additional lot	+ 1.3 %	+ $46
Pyes Pa	$ 6,802	Per additional lot	+ 0.8 %	+ $ 51
Papamoa	$ 8,701	Per additional lot	+ 0.3 %	+ $ 27
Welcome Bay	$ 8,480	Per additional lot	+ 0.3%	+ $ 23
Bethlehem	$ 12,516	Per additional lot	+ 0.2 %	+ $ 21
Fee decreases
Pyes Pa West	$ 29,752	Per additional lot	- 3.3 %	-$1,000
Wairakei	A: $480,124 B: $329,847 C: $648,053	Per hectare	- 0.6 % - 0.6 % - 3.0 %	-$3,096 -$1,830 -$19,917
Tauriko	$ 352,404	Per hectare	- 2.0 %	-$7,355
Ohauiti	$11,272	Per additional lot	- 0.5 %	-$61.46

9. As shown in the above table, the fees for West Bethlehem will increase by 5%. This increase is because LDCs in this catchment are subsidised by Council and the level of the subsidy decreases each financial year. As the subsidy decreases the fees go up.

10. The West Bethlehem subsidy is the result of previous Council decisions. Without the subsidy the LDC was so high that it was inhibiting growth in the area and limiting TCC’s ability to recover debt incurred in constructed infrastructure.

11. Other fee increases are only minimal amounts and are the result of updated capital expenditure budgets.

12. Fees for Wairakei, Tauriko, Pyes Pa West and Ohauiti are decreasing. These decreases are because NZTA funds have been apportioned towards specific projects in these catchments. Money received from NZTA decreases the proportion that needs to be recovered as development contributions.

13. While the charges for Wairakei are decreasing overall it is important to note that there has been an increase in the wastewater fees of approximately 111%, from $22,600 per hectare to $48,000 per hectare.

14. The wastewater increases are primarily driven by increased costs of the Opal Drive and Wairakei Trunk networks. Budgets for these projects were reviewed to provide for needs identified in the review of strategic wastewater projects in the eastern corridor.

15. The review considered the constraints, future needs, and ground conditions of the area to provide for future populations and resilience. The review identified new design requirements and provided a greater understanding of constraints and risk to be managed throughout construction.

Citywide Fees

16. Citywide development contributions (“CDCs”) are applied to building consents for growth developments such as new houses or new commercial buildings. CDCs are due payable immediately prior to the issue of the building consent.

	Current 2019/20 Citywide charge	Projected 2020/21 Citywide charge	Movement
Charge per household	$ 8,530	$9,380	+10%

17. The CDC is currently just over $8,500 per household. As shown in the above table, this is expected to increase by 10% in 2021. This increase is driven by increased cost to construct the Te Maunga Wastewater Treatment Plant. The two main reasons for this cost escalation are:

(a) Increased preliminary & general costs and contractor profit. The national trend has been going upward the last couple of years.

(b) Large increase due to poor ground conditions and requirement for additional subfloor ground support for the bioreactor.

18. In the 2022 financial year the CDC is expected to increase by an even greater margin. The exact increase cannot be determined until project costs are finalised, but projections show it is likely to be in the order of $5,000 - $9,000 more than the 2021 charge. This means that the CDC could potentially double from $9,380 to $18,380 per household.

19. The increase primarily relates to the Waiari Water Supply Project which will be entirely funded by CDCs collected from the 2022 year on. There are also some other smaller projects which will be funded from 2022 year on that contribute to this increase.

20. There is already a brief mention of this expected increase within the operative DC policy. Staff will update and expand on this information in the 2021 DC Policy and are planning an engagement strategy designed to highlight this information to the development community to whom it will impact.

21. While this increase does not technically impact the 2021 DC policy which is being consulted on in March, it could be expected that Council may receive some feedback on this matter via this year’s annual plan submission process.

Community Infrastructure

22. The review of the LGA in 2019[2] resulted in a broader definition of the term ‘community infrastructure’ being adopted. Staff have identified several community facilities projects planned in the western corridor and Wairakei/Te Tumu catchments that were planned to be loan funded but, based on the new definition of community infrastructure, could potentially be funded using DCs.

23. In order to calculate the proportion of the projects which could be funded by DCs, we first need to understand the rationale for the facilities, and the extent to which these facilities benefit growth versus the benefit to existing populations. Work is currently being undertaken on community facility needs (by Visitor Solutions) which will help to inform this decision.

24. We cannot start collecting DCs for any of these projects yet (as none are budgeted within this planning period) and so staff have determined it is more appropriate to make any updates to project funding through the LTP process when more detailed information will be available.

25. A further report will be brought to Council for consideration on this matter within the next few months.

Strategic / Statutory Context

26. The Local Government Act 2002 requires Council to have a Development Contributions Policy. Development contributions are a significant and strategic revenue source for the Council and are critical to funding capital expenditure associated with providing for the growing city. Development contributions enable infrastructure to be built to unlock additional development capacity.

Consultation / Engagement

27. In March 2020 a draft version of the 2020/21 DC Policy will be brought to Council to adopt for public consultation. This draft policy will be consulted on alongside the annual plan. The policy will also be distributed directly to key stakeholders in the development community.

28. Through this process the community will have the opportunity to submit to Council on the key changes proposed.

29. The draft policy will include a discussion around the expected future increases to the Citywide Development Contribution charges. Staff are also working on an engagement strategy that will likely run in parallel to the annual plan consultation to ensure that this future increase is highlighted to the building community whom will be impacted by this increase.

30. While the increase is not technically occurring in this financial year it is likely that Council will receive feedback on this matter through the consultation process.

Significance

31. Under the Significance and Engagement Policy 2014, this report is of low significance as it is asking Council to note the changes that will be incorporated into the Draft 2020/21 Development Contributions Policy. The adoption of the Draft policy itself will be of medium to high significance and this policy will brought back to Council and will be consulted on in accordance with requirements under the Local Government Act 2002.

Next Steps

32. Staff will finalise the content of the Draft 2020/21 Development Contributions Policy and will bring the Policy to Council to be adopted in March. Once adopted the Draft Policy will be distributed for public consultation. Specific targeted consultation will be undertaken with the development community and with the building industry regarding the anticipated future increases to the Citywide Development Contributions Fees.

Attachments

Nil

Policy Committee Meeting Agenda

19 February 2020

7.4 Draft user fees and charges

File Number: A11189535

Author: Tracey Hughes, Financial Insights & Reporting Manager

Joel Peters, Corporate Planner

Kathryn Sharplin, Manager: Finance

Authoriser: Paul Davidson, General Manager: Corporate Services

Purpose of the Report

1. To seek your approval of the proposed schedule of user fees and charges, for 2020/21, to be consulted on alongside the annual plan.

Recommendations

That the Policy Committee:

(i) Approve the proposed schedule of user fees and charges for 2020/21, outlined in Attachment 1, for future consultation with communities.

Discussion

2. User fees and charges are one of our largest sources of revenue. They assist the operation and maintenance of a variety of services provided to communities.

3. Each year, we update user fees and charges to respond to economic and legislative changes, and to ensure that charges do not become outdated.

4. We produce and make a schedule of user fees and charges for communities to find all fees and charges council is authorised to set under the various pieces of legislation that we work under.

5. User fees and charges and revenue projections have been reviewed and updated. Updates reflect changing circumstances, amendment to descriptions to make the document clearer for the community, Consumer Price Index (CPI) adjustments, new or removed fee requirements, or benchmarking with other councils. Some user fees and charges are set by government legislation.

6. Attachment 1 outlines the user fees and charges for each activity and are presented with a comparison to the actual fees charged for the current financial year. A summary is also included to discuss any proposed changes.

7. The financial implications of proposed changes have been incorporated into the draft Annual Plan 2020/21.

Summary of changes

8. Changes to the CPI have been used as the basis for increases. Most fees and charges are proposed to increase by 1.9% from 2019/20 (where more practical, values are rounded).

No proposed increase

9. Some activities have proposed not to increase most of their fees and charges via CPI. This is due to fees having undergone a significant increase last financial year, and/or due to the current level being appropriate and in line with the current market, or the fees are set by legislation. They include:

(a) Airport

(b) Digital Services

(d) Libraries

(e) Mount Maunganui Beachside Holiday Park

(f) Official information requests

Proposed changes above CPI

Explanations have been provided in Attachment 1 for fee increases greater than CPI.

Animal Services	Increase of fees by 6% to match operational costs. Increase of mileage reimbursement fee to reflect the current rate.
Asset Protection Bonds and service connection fees	Significant increase in service connection application fees to reflect the actual cost processing applications.
Bay Venues	Increases subject to Council/Policy Committee decisions. Note: this is the subject of a report to the Policy Committee
Building services	Increase to the solar installation fee to reflect an accurate cost and increase to the environmental planning processing fee.
Laboratory fees	Fees updated to reflect new contract rates
Parking	Small increase to off street parking fees which supports continued investment in parking infrastructure and to encourage less dependency on private transport, help manage congestion, and reduce carbon emissions. Remove early bird fees from carpark buildings
Parks & Recreation	Increase in the fee to stay at McLaren Falls Reserve. Increase to the events on parks commercial fee.
Planning	Increase to the hourly rate for some staff positions.
Regulation Monitoring	Increase to mobile shops fee for Marine Parade tender sites.
Sustainability and Waste	Increase in the abandoned car storage fee to reflect actual costs.

Proposed new fees

Some activities have proposed new fees. They include:

Baycourt	For clarity, a community organisation fee and a separate commercial fee are proposed in place of a general fee and subsidised fee for community organisations.
Building Services	New fees proposed for on-site minor variations to amended plans, Code Compliance Certificate (over 5 years old) Drainage, Solid Fuel Heaters, Solar, Retaining Walls, Commercial Code Compliance Certificate (over 5 years old), and CCC Reactivation Fee.
Parks and Recreation	New fees proposed for public amenities use for events on parks and to McLarens Falls events with over 100 participants. Commercial and Not for Profit fees for markets on public open space.
Planning	New fee proposed for Environmental Monitoring Technician.

Next Steps

10. Should you approve the proposed schedule of user fees and charges at Attachment 1, it will become the basis of future consultation under a special consultative procedure.

11. If you propose amendments to the user fees and charges, this may result in changes to required activity budgets.

12. We will present a statement of proposal to the Policy Committee in March for approval ahead of consultation.

Attachments

1. Draft user fees and charges 2020-21 - A11189525 ⇩

[1] These fees are based on current capital expenditure budgets and may vary slightly if any further capital expenditure changes are made prior to adoption of the 2020/21 Draft DC Policy.

[2] Local Government (Community Well-being) Amendment Act 2019


AGENDA Policy Committee Meeting Wednesday, 19 February 2020
I hereby give notice that a Policy Committee Meeting will be held on:
Date:	Wednesday, 19 February 2020
Time:	2pm
Location:	Tauranga City Council Council Chambers 91 Willow Street Tauranga
Please note that this meeting will be livestreamed and the recording will be publicly available on Tauranga City Council's website: www.tauranga.govt.nz.
Marty Grenfell Chief Executive