Agenda of Finance, Audit and Risk Committee Meeting

Terms of reference – Finance, Audit & Risk Committee

Common responsibilities and delegations

The following common responsibilities and delegations apply to all standing committees.

Responsibilities of standing committees

· Establish priorities and guidance on programmes relevant to the Role and Scope of the committee.

· Provide guidance to staff on the development of investment options to inform the Long Term Plan and Annual Plans.

· Report to Council on matters of strategic importance.

· Recommend to Council investment priorities and lead Council considerations of relevant strategic and high significance decisions.

· Provide guidance to staff on levels of service relevant to the role and scope of the committee.

· Establish and participate in relevant task forces and working groups.

· Engage in dialogue with strategic partners, such as Smart Growth partners, to ensure alignment of objectives and implementation of agreed actions.

Confirmation of committee minutes.

Delegations to standing committees

· To make recommendations to Council outside of the delegated responsibility as agreed by Council relevant to the role and scope of the Committee.

· To make all decisions necessary to fulfil the role and scope of the Committee subject to the delegations/limitations imposed.

· To develop and consider, receive submissions on and adopt strategies, policies and plans relevant to the role and scope of the committee, except where these may only be legally adopted by Council.

· To consider, consult on, hear and make determinations on relevant strategies, policies and bylaws (including adoption of drafts), making recommendations to Council on adoption, rescinding and modification, where these must be legally adopted by Council,

· To approve relevant submissions to central government, its agencies and other bodies beyond any specific delegation to any particular committee.

· To appoint a non-voting Tangata Whenua representative to the Committee.

· Engage external parties as required.

Terms of reference – Finance, Audit & Risk Committee

Membership

Chairperson	Mr Bruce Robertson
Deputy chairperson	Cr John Robson
Members	Mayor Tenby Powell Cr Jako Abrie Cr Larry Baldock Cr Kelvin Clout Cr Bill Grainger Cr Andrew Hollis Cr Heidi Hughes Cr Dawn Kiddie Cr Steve Morris Cr Tina Salisbury
Non-voting members	Dr Wayne Beilby – Tangata Whenua representative A maximum of two external appointments may be made by Council on recommendation from the Committee
Quorum	Half of the members physically present, where the number of members (including vacancies) is even; and a majority of the members physically present, where the number of members (including vacancies) is odd.
Meeting frequency	Six weekly

Role

· To ensure that Council is delivering on agreed outcomes.

· To ensure that Council is managing its finances in an appropriate manner.

· To ensure that Council is managing risk in an appropriate manner.

Scope

· Monitor financial and non-financial performance against the approved Long Term Plan and Annual Plan (Note: Council cannot delegate to a Committee the adoption of the Long Term Plan and Annual Plan).

· Oversee the development of the council’s Annual Report.

· Oversee the development of financial and treasury management strategies and policies.

· Consider and approve external audit arrangements and receiving Audit reports.

· Consider the outcome of internal and external audit reviews.

· Advise Council on matters of finance and provide objective advice and recommendations for its consideration.

· Advise Council on matters of risk and provide objective advice and recommendations for its consideration.

· Consider matters which are related to quality assurance and internal controls in council and ensure the financial management practices and processes comply with the Local Government Act 2002, other relevant legislation and Council’s own policies.

· Consider, monitor and recommend (where appropriate) in respect to Council’s financial interest in CCOs.

· Consider all matters regarding the Local Government Funding Agency (LGFA).

· Monitor key activities, projects and services (without operational interference in the services) in order to better inform the members and the community about key Council activities and issues that arise in the operational arm of the council.

Power to act

· To make all decisions necessary to fulfil the role and scope of the Committee subject to the limitations imposed.

· To appoint a non-voting Tangata Whenua representative to the Committee.

· To establish working parties and forums as required.

· For the avoidance of doubt, this Committee has not been delegated the power to:

o make a rate;

o borrow money, or purchase or dispose of assets, other than in accordance with the Long Term Plan.

Power to recommend

· To Council and/or any standing committee as it deems appropriate.

UNCONFIRMED Finance, Audit and Risk Committee Meeting Minutes

27 November 2019

MINUTES

Finance, Audit and Risk Committee Meeting

Wednesday, 27 November 2019

Order of Business

1 Apologies. 3

2 Public Forum.. 3

3 Acceptance of Late Items. 3

4 Confidential Business to be Transferred into the Open. 3

5 Change to Order of Business. 3

6 Declaration of Conflicts of Interest 3

7 Business. 4

7.1 Council-Controlled Organisations' Annual Reports for 2018/2019. 4

7.3 Treasury Strategy. 6

7.2 Financial and Non-Financial Monitoring Report: Period ended 31 October 2019. 7

7.4 First Quarter Report LGOIMAs 1 July 2019 - 30 September 2019. 8

7.5 IANZ Audit 2019 report 8

8 Discussion of Late Items. 9

9 Public Excluded Session. 9

MINUTES OF Tauranga City Council
Finance, Audit and Risk Committee Meeting
HELD AT THE Tauranga City Council, Council Chambers, 91 Willow Street, Tauranga
ON Wednesday, 27 November 2019 AT 10.30am

PRESENT: Mayor Tenby Powell (interim Chairperson), Cr Tina Salisbury (Deputy Chairperson), Cr Jako Abrie, Cr Larry Baldock, Cr Kelvin Clout, Cr Andrew Hollis, Cr Heidi Hughes, Cr Dawn Kiddie, Cr Steve Morris and Cr John Robson.

IN ATTENDANCE: Marty Grenfell (Chief Executive), Paul Davidson (General Manager: Corporate Services), Barbara Dempsey (General Manager: Regulatory & Compliance), Susan Jamieson (General Manager: People & Engagement), Nic Johansson (General Manager: Infrastructure), Christine Jones (General Manager: Strategy & Growth), Gareth Wallis (General Manager: Community Services), Coral Hair (Manager: Democracy Services), Anne Blakeway (Manager: CCO Relationships and Governance), Mohan de Mel (Treasurer), Kathryn Sharplin (Manager: Finance), Tracey Hughes (Financial Insights and Reporting Manager), Josh Logan (Team Leader: Corporate Planning), Robyn Garrett (Team Leader: Committee Support)

1 Apologies

Apology

Committee Resolution FI1/19/1

Moved: Cr Dawn Kiddie

Seconded: Cr Tina Salisbury

That the apology for absence received from Cr Bill Grainger be accepted.

Carried

2 Public Forum

Nil

3 Acceptance of Late Items

Nil

4 Confidential Business to be Transferred into the Open

Nil

5 Change to Order of Business

Nil

6 Declaration of Conflicts of Interest

Nil

7 Business

7.1 Council-Controlled Organisations' Annual Reports for 2018/2019

Staff: Anne Blakeway, Manager: CCO Relationships and Governance

Mohan De Mel, Treasurer (representing the Local Government Funding Authority – LGFA)

External: Bay Venues Ltd (BVL) – Gary Dawson (CEO), Michael Smith (Chairman)

Bay of Plenty Local Authority Shared Services (BOPLASS) – Stephen Boyle (CEO)

Tauranga Art Gallery Trust (TAGT) – Alice Hutchison (Director), Peter Anderson (Chair), Judith Stanway (Deputy Chair)

Tourism Bay of Plenty (TBOP) – Kristin Dunne (CEO), Peter Moran, Trustee

Powerpoint presentations were provided by BVL, BOPLASS, TAGT, TBOP

BVL

Key points

· Emphasised focused delivery strategy; summarised performance highlights. Had achieved 80% of performance measures and delivered to shareholders

· Health and Safety had been a key focus, with a decline in incidents this year. Staff turnover remained high but was trending downwards; noted that the nature of the business included a short-term and casual workforce. Noted the high ratings of customer satisfaction. Highlighted key stories from the year and planned FY20 initiatives, increased utilisation of facilities would be a focus. Strategic alignment with Tauranga City Council (TCC) a priority.

In response to questions

· Discussions had been held with Badminton Tauranga regarding a badminton facility. A space had been identified adjacent to BayPark where an indoor sports facility could go; would need to determine priority for the indoor facility. The facility envisaged by Badminton Tauranga was very specialised and expensive.

· Ratepayers’ input into BVL was more than the operating grant; also included a renewals grant, transferred ownership of the facilities, and provision of loan funding.

· Clarification provided around ownership of events. BVL had initially been in a one third partnership with two developers for Bay Dreams and had received one third of the profit, but had also carried a share of the risk and operational costs. Now considered it was no longer appropriate to be a partner and BVL was the venue provider only. Noted the impact of flow-on spend from 30,000 concert goers.

BOPLASS

Key points

· Explained that BOPLASS was owned by nine councils in the Bay of Plenty region. Outlined the background to the formation of BOPLASS and noted that the key drivers behind formation of BOPLASS were still relevant. Outlined governance structure and membership; and services and benefits provided to TCC.

· BOPLASS had delivered on all financial and non-financial performance measures this financial year. Noted some key highlights of the year e.g. aerial photography programme; insurance renewals for the BOPLASS councils; development of the collaboration portal.

In response to questions

· There was a solid waste activity group for solid waste. Several joint projects were being considered e.g. licensing of waste management collection entities and access to collection data for the Waikato and Bay of Plenty regions.

· There were many opportunities for growth; only limited by resourcing.

TAGT

Key points

· Provided an overview of TAGT structure, assets and governance. Noted the higher level values agreed to by the Board for Art Gallery operation. Noted the number of digital visitors, including social media and website; and high visitor satisfaction levels.

· Outlined the purpose and aspirations of the Gallery – an anchorage for art, both historical and contemporary. Noted key exhibitions from the year and the “Mega World” signature event, and the partnership with the TCC libraries on a major exhibition.

· TAGT had experienced issues around funding; had to make up the difference from the funding provided by TCC. Had ended the year in a deficit position.

· Civic heart projects were vital to the Gallery. A major project was planned for 2020 to celebrate Mana Moana.

· Mr Anderson noted that this would be his last report as he was standing down after seven years on the Board. The Mayor thanked him for his service.

In response to questions

· The decrease in valuation of the art works was an issue around GST which had previously not been recorded properly.

TBOP

Key points

· Outlined a snapshot of the TBOP team and the funding and strategic framework. Outlined key changes over the year including Destination Management focus; elevation of Maori principles, changed practices around community engagement; integrated visitor marketing.

· Had achieved financial KPIs and 13 out of 15 of non-financial KPIs; summarised highlights of the year. Had budgeted for a breakeven position and achieved a small profit.

· Outlined the growth trend in visitor spend; largely unaffected by softening in the Chinese tourism market. Increased focus on off-peak visitor spend, important for operators and retailers.

· Noted the key features of the partnership with Air New Zealand and increased seats in and out of Tauranga.

In response to questions

· Increasingly the TBOP role as placemakers needed to include residents as well as visitors.

LGFA

Key points

· Outlined the background and membership of the LGFA. Outlined the borrowing profile and cost and dividends paid to TCC. Initial costs to establishment councils were now fully refunded.

In response to questions

· The benefit to TCC was more favourable interest rates, enabled by economies of scale and credit rating the same as the Crown. Auckland and Dunedin were now the only councils that entered the loan market on their own, Dunedin was looking to join LGFA.

Committee Resolution FI0/19/2

Moved: Mayor Tenby Powell

Seconded: Cr Kelvin Clout

That the Finance, Audit & Risk Committee:

(a) Receives the council-controlled organisations’ annual reports for 2018/2019.

Carried

Committee Resolution FI1/19/3

Moved: Mayor Tenby Powell

Seconded: Cr Kelvin Clout

That the Finance, Audit & Risk Committee:

(a) Amends the order of business so the next item of business is agenda item 7.3.

Carried

7.3 Treasury Strategy
Staff: Mohan De Mel, Treasurer Key points · A six-monthly report to align with the Annual Plan and the Council-approved Treasury Policy. · Noted council’s current debt profile and maturity dates; and funding proposed for the next six months. · Requested bank facilities to be approved to $100million. · Noted the debt ratios and debt maturity sub-limits. · Noted drawdowns specific to the Waiari and Te Maunga wastewater systems; and the recommendation to put any further Housing Infrastructure Fund (HIF) drawdowns on hold while the loan agreement was varied. Extension of coverage to other wastewater projects would provide a significant benefit to the ratepayer in terms of loan cost. · Outlined gross debt and current interest rates. In response to questions · The capital programme provided challenges; if the 250% debt/revenue ratio was breached then the debt needed to be repaid. · Council underwrote CCO debt so it sat within council covenants. · Clarification provided around the postponement of HIF drawdown; there would be a cost to the ratepayers if draw down before the loan agreement was varied. · Unable to draw down from the HIF for Te Tumu until had certainty of access to Te Tumu. · Te Maunga and Waiari HIF agreements were completed and signed.
Committee Resolution FI0/19/4 Moved: Cr Larry Baldock Seconded: Cr Tina Salisbury That the Finance, Audit and Risk Committee: (a) Approves the issuance of long and short-term debt on a wholesale basis to manage cash-flows. (b) Approves the increase of bank facilities by $30m. (c) Approves maintenance of fixed interest rate hedging in the range of 40% to 50% at 5 years forward, and range of 15% to 20% at 10 years forward. (d) Approves maintenance of a minimum of $15m of short-term investments to manage cash-flows. (e) Approves hedging of all significant foreign exchange exposures. (f) Approves that no further HIF (Housing Infrastructure Fund) drawdowns are undertaken for the remainder of the 2019/20 financial year or the 2020/21 Annual Plan unless a satisfactory conclusion is made in relation to discussions with the Government. Carried
The meeting adjourned at 12.14pm The meeting reconvened at 1pm on 3/12/2019

7.2 Financial and Non-Financial Monitoring Report: Period ended 31 October 2019

Staff: Kathryn Sharplin, Manager: Finance

Josh Logan, Team Leader: Corporate Planning

Tracey Hughes, Financial Insights and Reporting Manager

Key points

· The report assessed performance against budget and levels of service contained in the Long-Term Plan (LTP).

· The financial report provided key points in relation to the statement of comprehensive revenue and expense; treasury report; capital programme report; financial overspends in capital programme.

· Statement of comprehensive revenue and expense was set out as it was in the Annual Report. The various operating revenue components were explained and areas where revenue was tracking less than expected were noted. Main revenue was from rates. Noted asset development revenue including development contributions and capital expenditure subsidies and grants.

· Outlined the components of operating expenditure.

· Noted compliance with treasure policy and financial limits.

· Outlined key points of the capital project summary; grouped into key projects and programmes. Further information and updates on specific projects were provided through the Projects, Services and Operations Committee. Noted the inclusion of the total current and future project/programme budget, which provided an indication of the status of a project moving forwards.

· Noted land sales summary; sales offset capital expenditure.

· Explained the data contained in the capital project variations to budget table; and the projected full year variances.

· Non-financial performance indicators reported on levels of service targets set in the LTP. About 62% on track, which was standard for this time of the year. Noted proposed amendments to several targets and measures in the sustainability and waste area.

In response to questions

· The marine precinct was under-performing in terms of number of lifts; would need to work with the operator on how these targets would be met.

Committee Resolution FI1/19/5

Moved: Cr Kelvin Clout

Seconded: Cr Tina Salisbury

That the Finance, Audit and Risk Committee:

(a) Receives Report Financial and Non-Financial Monitoring Report: Period ended 31 October 2019.

(b) Agrees to amend the non-financial performance indicators as proposed in Attachment 4.

Carried

Item - 7.3 Treasury Strategy - has been moved to another part of the document.

7.4 First Quarter Report LGOIMAs 1 July 2019 - 30 September 2019

Staff: Susan Jamieson, General Manager: People & Engagement

Key points

· The report provided a snapshot of the type of requests received and trends in those inquiries.

Committee Resolution FI1/19/6

Moved: Mayor Tenby Powell

Seconded: Cr John Robson

That the Finance, Audit & Risk Committee

(a) Receives the report First Quarter Report LGOIMAS 1 July 2019 – 30 September 2019.

Carried

7.5 IANZ Audit 2019 report

Staff: Barbara Dempsey, General Manager: Regulatory & Compliance

Key points

· Acknowledged the amount of work done by the team leading up to this audit.

· Was a good outcome with no serious non-compliances and 26 general non-compliances; no follow up audit was scheduled. A number of non-compliances had already been addressed and the remainder would be completed on schedule.

In response to questions

· In terms of staff resources, the budget and the roles necessary for the work and to deliver the processing outcomes were in place, but it was difficult to fill the roles and currently there was reliance on consultants to deliver.

Committee Resolution FI1/19/7

Moved: Cr Tina Salisbury

Seconded: Cr Heidi Hughes

That the Finance, Audit & Risk Committee

(a) Receives the IANZ Audit 2019 report.

Carried

8 Discussion of Late Items

Nil

9 Public Excluded Session

RESOLUTION TO EXCLUDE THE PUBLIC

Committee Resolution FI1/19/8

Moved: Cr Larry Baldock

Seconded: Cr Jako Abrie

That the public be excluded from the following parts of the proceedings of this meeting.

The general subject matter 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 of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows:

General subject of each matter to be considered

Reason for passing this resolution in relation to each matter

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

9.1 - Litigation Report

s7(2)(a) - the withholding of the information is necessary to protect the privacy of natural persons, including that of deceased natural persons

s7(2)(g) - the withholding of the information is necessary to maintain legal professional privilege

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

s48(1)(a)(i) - the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist under section 6 or section 7

Carried

The meeting closed at 1.58pm.

The minutes of this meeting to be confirmed at the Finance, Audit and Risk Committee meeting held ______________________________

...................................................

CHAIRPERSON

UNCONFIRMED Finance, Audit and Risk Committee Meeting Minutes

25 February 2020

MINUTES

Finance, Audit and Risk Committee Meeting

Tuesday, 25 February 2020

Order of Business

1 Apologies. 3

2 Public Forum.. 4

3 Acceptance of Late Items. 4

4 Confidential Business to be Transferred into the Open. 4

5 Change to Order of Business. 4

6 Declaration of Conflicts of Interest 4

7 Business. 4

7.1 Mainstreet Monitoring Report July to December 2019. 4

7.2 Financial and Non-Financial Monitoring Report: Period ended 31 December 2019. 5

7.3 Quarter 2 - LGOIMA and Mayor & Councillor Requests. 7

8 Discussion of Late Items. 7

9 Public Excluded Session. 7

MINUTES OF Tauranga City Council
Finance, Audit and Risk Committee Meeting
HELD AT THE Tauranga City Council, Council Chambers, 91 Willow Street, Tauranga
ON Tuesday, 25 February 2020 AT 10am

PRESENT: Mr Bruce Robertson (Chairperson), Cr Tina Salisbury (Deputy Chairperson), Mayor Tenby Powell, Cr Jako Abrie, Cr Andrew Hollis, Cr Heidi Hughes, Cr Dawn Kiddie, Cr Steve Morris and Cr John Robson.

IN ATTENDANCE: Marty Grenfell (Chief Executive), Paul Davidson (General Manager: Corporate Services), Barbara Dempsey (General Manager: Regulatory & Compliance), Christine Jones (General Manager: Strategy & Growth), Nic Johansson (General Manager: Infrastructure), Gareth Wallis (General Manager: Community Services), Michael Vujnovich (Manager: Project Tauranga), Kathryn Sharplin (Manager: Finance), Kath Norris (Team Leader: Democracy Services), Coral Hair (Manager: Democracy Services), Jenny Teeuwen (Committee Advisor),Robyn Garrett (Team Leader: Committee Support)

INTRODUCTION AND WELCOME

The Chairperson Mr Robertson opened the meeting and welcomed everyone. Mr Robertson introduced himself and noted his appreciation of the honour of being appointed as the independent Chair for the committee. Mr Robertson considered that he would bring a fresh independent approach to the committee, with a fresh eye on its scope and role. Mr Robertson was currently a member of 12 local authority Audit and Risk committees, including his position as Deputy Chair of the Bay of Plenty Regional Council (BOPRC) Audit and Risk Committee. Noted the challenges of being a growth city; and the finance function of this committee as well as its audit and risk role.

The Chairperson noted several key points for an audit and risk committee:

· The need to discuss the risks – the committee was designed to have constructive tension to test and gain assurance that Council’s risks were under control;

· An expectation of honesty and transparency from management; and the importance of playing the risk not the person;

· Risk often had a negative connotation (about avoidance) but risk was positive and about achieving outcomes for the community.

· The need to be strategic – the role of the committee was to look up and forward not focus down.

Mayor Powell formally welcomed Mr Robertson, noted his experience and looked forward to his contribution to the committee and to Council.

1 Apologies

Apology

Committee Resolution FI2/20/1

Moved: Mr Bruce Robertson

Seconded: Mayor Tenby Powell

That the apologies for absence received from Crs Larry Baldock, Kelvin Clout and Bill Grainger be accepted.

Crs Baldock and Clout were absent on other Council business.

Carried

2 Public Forum

Nil

3 Acceptance of Late Items

Nil

4 Confidential Business to be Transferred into the Open

Nil

5 Change to Order of Business

The Chairperson indicated that the order may change if needed to accommodate external visitors.

6 Declaration of Conflicts of Interest

Nil

7 Business

7.1 Mainstreet Monitoring Report July to December 2019

Staff: Gareth Wallis, General Manager: Community Services

Michael Vujnovich, Manager: Project Tauranga

Key points

· Noted that the Mainstreets would normally present their six-monthly reports; however, due to the length of the meeting agenda, they had been asked to present to their annual reports.

· Noted that all were in surplus and financially positive; place-making and economic development were key concerns.

In response to questions

· The challenge to sustain a bus service for the cruise ships was noted, as was the recent council decision to contribute up to $50,000 to assist with the provision of the service. This was still an ongoing issue; TBOP would be conducting a comprehensive review of all cruise ship shuttle operations from the summer and would co-ordinate a collective workshop with council and the various Mainstreets. The intention was to find a solution before the start of the next cruise ship season.

· Provision of appropriate signage from the cruise ships to the Mount shopping centre was still being investigated; there was an issue with degraded light and power poles in terms of attaching signage.

· In relation to the possible inclusion of parking prices for the Mount and Greerton in the draft parking strategy, technical work was being completed on the parking strategy with no decisions yet made and would come back to council through the Urban Form and Transport Initiative (UFTI) project.

· The terms of reference for all four Mainstreets were being reviewed, in terms of their role in the city and funding.

Committee Resolution FI2/20/2

Moved: Mr Bruce Robertson

Seconded: Cr Tina Salisbury

That the Finance, Audit and Rick Committee:

(a) Receives the report Mainstreet Monitoring Report July to December 2019.

Carried

7.2 Financial and Non-Financial Monitoring Report: Period ended 31 December 2019

Staff: Kathryn Sharplin, Manager: Finance

Tracey Hughes, Financial Insights and Reporting Manager

Mohan de Mel, Treasurer

Rhea Brooks, Corporate Planner

Key points

· Overall financial performance was on track, with some unders and overs.

· Noted the key information provided in the Statement of Comprehensive Revenue and Expense.

· Noted the smaller operating budget; forecast was to continue to be under budget but by a decreasing amount.

· Explained the structure of the Capital expenditure (Capex) programme as reported. Colours were used to identify status of project e.g. red – critical. Noted the adjustment downwards of $60 million.

· Treasury report projected a full year debt position close to budget.

In response to questions

· Te Maunga works were identified as critical and would be in either the Annual or Long-Term planning process; further information would be provided through the Projects, Services and Operations Committee.

· A report on the Harington Street transport hub, including costings and liabilities, would be brought to the 10 March Council meeting.

· The Mauao base track repairs budget was adopted through the last Annual Plan; the budget would not be altered but expenditure would be lower. Noted forecast expenditure of $840,000.

· Clarification was provided on the overspend on Te Papa o Ngā Manu Porotakataka.

· A significant cost increase was expected with the Waiari project; difficult to quantify the unknown costs of a big project such as this. Areas of increased cost included geotech testing; challenging ground conditions on the farms section of the pipeline; tender prices above estimate; completion date pushed out so works of longer duration.

· To decrease the “unknown” risk in a tender and contract process involved paying a premium for someone else to take that risk and was a balancing act with the contracting sector. An independent piece of work was being undertaken on procurement processes and risk management, particularly in larger projects.

· Debt position lower than anticipated as expected borrowing was adjusted down to reflect more realistic delivery of capital projects.

· Pending Elizabeth St development was to coincide with the Farmers site development. There was an obligation to complete this in full and on time as part of partnership with the Farmers development.

· Noted that a lack of contractors available to conduct building inspections was impacting the Building Services KPIs.

· Inability to meet the current National Policy Statement requirements for housing supply was due to an insufficient supply of land – key barriers were multiple owned Maori land, road linkages to state highways, and resilience issues. Had been raised at national level through various submissions; a consortium of growth councils was in discussion with central government.

· With the Special Housing Area (SHA) tool now no longer available, there were no other mechanisms to provide additional zoned land apart from the normal plan change process.

· A variety of workstreams were underway for pandemic preparedness; the General Manager: Community Services had been appointed as responsible for pandemic planning.

· Clarification was provided regarding the overspends noted in the report. The overspends were within the Chief Executive’s financial delegation and had been included for information not approval.

Committee Resolution FI2/20/3

Moved: Cr John Robson

Seconded: Cr Andrew Hollis

That the Finance, Audit and Risk Committee:

(a) Receives Report Financial and Non-Financial Monitoring Report: Period ended 31 December 2019.

b) Notes an overspend of $375,000 for the Durham Street Streetscape project

Carried

7.3 Quarter 2 - LGOIMA and Mayor & Councillor Requests

Staff: Kath Norris, Team Leader: Democracy Services

Coral Hair, Manager: Democracy Services

Key points

· The report was taken as read.

In response to questions

· Councillors requested that the Colgan report be made available to councillors and noted that it was a matter of trust that the report and its contents would remain out of the public domain.

· The Office of the Ombudsman had been on site the previous week and had conducted a number of interviews of staff across the organisation; a formal report would follow. Some recommendations were expected around transparency of process and accountability, and there would be a subsequent work programme as a result of that report.

· The Ombudsman was required to review several local authorities per year; the report would be tabled in Parliament.

Committee Resolution FI1/20/4

Moved: Cr Andrew Hollis

Seconded: Cr Jako Abrie

That the Finance, Audit and Risk Committee:

Receives the report: Quarter 2 Local Government Official Information and Meetings Act 1987 and Mayor and Councillors requests.

Carried

8 Discussion of Late Items

Nil

9 Public Excluded Session

RESOLUTION TO EXCLUDE THE PUBLIC

Committee Resolution FI1/20/5

Moved: Mr Bruce Robertson

Seconded: Cr Andrew Hollis

That the public be excluded from the following parts of the proceedings of this meeting with the excption of Council legal advisers who are allowed to stay and contribute to the discussion due to their specialist knowledge of legal proceedings.

General subject of each matter to be considered	Reason for passing this resolution in relation to each matter	Ground(s) under section 48 for the passing of this resolution
9.1 - Litigation Report	s7(2)(a) - the withholding of the information is necessary to protect the privacy of natural persons, including that of deceased natural persons s7(2)(g) - the withholding of the information is necessary to maintain legal professional privilege s7(2)(i) - the withholding of the information is necessary to enable Council to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)	s48(1)(a)(i) - the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist under section 6 or section 7
9.2 - Bella Vista Update - Building Matters	s7(2)(a) - the withholding of the information is necessary to protect the privacy of natural persons, including that of deceased natural persons s7(2)(g) - the withholding of the information is necessary to maintain legal professional privilege	s48(1)(a)(i) - the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist under section 6 or section 7
9.3 - Corporate Risk Register - Quarterly Update	s7(2)(b)(i) - the withholding of the information is necessary to protect information where the making available of the information would disclose a trade secret s7(2)(b)(ii) - the withholding of the information is necessary to protect information where the making available of the information would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information s7(2)(h) - the withholding of the information is necessary to enable Council to carry out, without prejudice or disadvantage, commercial activities s7(2)(i) - the withholding of the information is necessary to enable Council to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)	s48(1)(a)(i) - the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist under section 6 or section 7
9.4 - Internal Audit Programme for 2019/20 to 2020/21	s6(b) - the making available of the information would be likely to endanger the safety of any person s7(2)(a) - the withholding of the information is necessary to protect the privacy of natural persons, including that of deceased natural persons s7(2)(b)(i) - the withholding of the information is necessary to protect information where the making available of the information would disclose a trade secret s7(2)(d) - the withholding of the information is necessary to avoid prejudice to measures protecting the health or safety of members of the public s7(2)(g) - the withholding of the information is necessary to maintain legal professional privilege s7(2)(j) - the withholding of the information is necessary to prevent the disclosure or use of official information for improper gain or improper advantage	s48(1)(a)(i) - the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist under section 6 or section 7
9.5 - Harington Street Transport Hub - Project Update	s7(2)(b)(ii) - the withholding of the information is necessary to protect information where the making available of the information would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information s7(2)(g) - the withholding of the information is necessary to maintain legal professional privilege s7(2)(h) - the withholding of the information is necessary to enable Council to carry out, without prejudice or disadvantage, commercial activities	s48(1)(a)(i) - the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist under section 6 or section 7

Carried

The meeting closed at 4.28pm.

The minutes of this meeting to be confirmed at the Finance, Audit and Risk Committee Meeting held on .

...................................................

CHAIRPERSON

Finance, Audit and Risk Committee Meeting Agenda

30 June 2020

9 Business

9.1 Treasury Strategy

File Number: A11534829

Author: Mohan De Mel, Treasurer

Authoriser: Paul Davidson, General Manager: Corporate Services

Purpose of the Report

1. Treasury Policy requires strategies to be developed for approval on a six-monthly basis. This report seeks approval for treasury risk management activities, for debt issuance, investments, foreign exchange exposure management and interest rate hedging activities.

Recommendations

That the Finance, Audit and Risk Committee:

(a) Approves the issuance of long and short-term debt on a wholesale basis to manage cash-flows.

(b) Approves maintenance of fixed interest rate hedging in the range of 30% to 50% at 5 years forward, and range of 10% to 20% at 10 years forward.

(d) Approves hedging of all significant foreign exchange exposures.

(e) Recommends to Council to approve an interim Borrowing Programme of $35m for the month of July 2020.

Executive Summary

2. This report outlines all significant treasury operational activities and seek approval for planned strategies.

3. The Treasury Strategy is an important element of sound financial management and allows Council to efficiently manage its funding and associated risks.

4. This report also seeks approval to amend the Borrowing Programme 2019-2020, as an interim to manage operational cash flows until the Annual Plan 2020-2021 together with the Borrowing Programme 2020-2021 are approved.

Background

Debt Management

5. Council has a large investment in infrastructural assets which have a long economic life and long-term benefits. Debt is utilised to fund infrastructure and it is recognised as an efficient mechanism to allocate the cost of infrastructure to the community.

6. Core external debt and working capital requirements are managed by issuing a combination of long-term and short-term debt. The maturity dates for new debt issuance are assessed under the following criteria:

· Borrowing margins for short vs long-term

· Investor demand including bank funding

· Local Government Funding Agency (LGFA) or other wholesale margins / maturities offered

· Ensure compliance with LGFA covenants

· Housing Infrastructure Fund (HIF) drawdowns

· Existing maturity profile

· Available undrawn bank facilities

· Maturity profile policy limit bands

7. The graph below shows the debt maturity profile as at 31 May 2020 (years ending June).

8. Over the last 11 months a total of $132m of new medium to long-term debt has been issued. In-addition a further $70m of short-term debt was issued during the year to manage intra-year cash flows and manage net interest budgets, and all short-term debt has now been repaid.

9. Debt duration (i.e. average maturity) is now at 6.02 years and is planned to be maintained above 5.0 years while staying within the debt maturity policy (refer to paragraph 23 below) under the Treasury Policy.

10. During 2020-21, $54m of long-term debt is due to mature and it is planned to progressively pre-fund these maturities from July / August onwards.

11. Below are planned funding positions up to 30 June 2021:

Debt as at 31 May 2020 $535m

Drawdown from HIF during June or arrange funding from LGFA, approximately $15m

Forecast gross Debt 30 June 2020 (net debt forecast $525m) $550m

Long-term debt – May 2021 (maturity) ($50m)

HIF – June 2021 (maturity) ($4m)

Planned debt issuances

HIF drawdown estimate (drawdown amount is based on the level of work

completed on Waiari and Te Maunga projects) $50m

Long-term debt (adjust as required) $126m

Issue short-term debt to manage intra-year cash flows

Forecast Debt for the year ending 30 June 2021 $672m

Closing debt 30 June 2021 will be adjusted once the Annual Plan 2020-2021 is approved.

Interim Borrowing Approval July 2020.

12. Under Council’s Treasury Policy, Council is required to approve the borrowing programme for the year. Normally this approval is sought in conjunction with the annual plan in June for the subsequent year. Because the Annual Plan 2020-2021 approval is now planned to be completed post 30 June 2020, an interim borrowing approval for July is requested. It is proposed that borrowing for this period of up to $35m be approved to manage operational cash flows from 1 July through to 31 July. This amount of $35m represents the average cash outflows per month. Following approval of the annual plan, borrowing approval for the remainder of the 2020-21 year will be sought.

Bank Facilities

13. Currently Council has a $70m bank facility which is undrawn. This facility matures on 31 October 2023. Generally, bank facilities are maintained within the ‘2 to 4 year’ maturity band.

14. In general, bank facilities are available to be drawn down at short notice, provided if drawn, they are able to be repaid on a quarterly basis.

15. Access to liquidity funding by way of committed bank facilities and or liquid investments is required to manage liquidity risk.

16. Both Council’s Treasury Policy and LGFA financial covenants require a level of undrawn committed bank facilities or liquid investments or a combination of these. The key objective is to maintain adequate liquidity in the context of managing debt maturities and debt servicing on a 12-month rolling basis.

17. It is important to note that any drawdown from bank facilities would need to be managed within the existing net debt to operating revenue ratio.

18. Previously the Finance, Audit and Risk Committee (27 November 2019) approved to increase committed facilities from $70m to $100m.

19. LGFA are planning to offer committed facilities to Councils and so it is planned to enter into a committed facility with LGFA.

20. Current annual facility costs are 0.20% ($140k for $70m). These costs are reviewed and agreed with the bank on an annual basis as part of the annual review. Based on the additional $30m facilities, additional costs are estimated at $60k. On total debt of over $500m the cost of $100m of annual facilities is 0.04% based on current pricing.

Debt Maturity Limits

21. Treasury Policy outlines the management framework for funding, liquidity and credit risks. Debt maturities are managed with minimum and maximum percentages by time bands (refer to paragraph 23). These minimum and maximum levels are designed to minimise maturity (liquidity) risks. Liquidity risk primarily focuses on ensuring that there are sufficient funds available to meet obligations in an orderly manner. These sub-limits (paragraph 23) also take into account undrawn bank facilities and any confirmed debt issuances.

22. The primary debt maturity limit requires ‘external debt, committed bank facilities and cash / cash equivalent investments’ to be maintained above 100% on 12-month peak forecast net external debt.

Debt Maturity Sub-limits

23. The table below shows the existing debt maturity profile together with planned debt issuance up to 30 June 2020 under the limits structure.

Month End

0 - 2 Years

Minimum 0%

Maximum 60%

2 – 5 Years

Minimum 20%

Maximum 60%

5 Years Plus

Minimum 10%

Maximum 60%

30 Jun 2019

21%

33%

46%

30 Jun 2020 estimate

18%

38%

44%

All current maturity band percentages are within the recommended maturity band ranges.

24. New debt issuances are managed to maintain debt duration above 5 years.

Local Government Funding Agency (“LGFA”)

25. The New Zealand Local Government Funding Agency (“LGFA”) is an agency specialising in financing of the local government sector. LGFA was established to raise debt on behalf of councils on terms that are more favourable to them than if they raised the debt directly.

26. LGFA was incorporated as a limited liability company under the Companies Act 1993 on 1 December 2011. Following the enactment of the Local Government Borrowing Act 2011. As LGFA is majority owned by councils, it constitutes a “Council Controlled Organisation” (“CCO”) under the Local Government Act 2002.

27. LGFA currently has 45m ordinary shares on issue, 20m of which remain uncalled. Currently there are 30 council shareholders owning 80% and New Zealand Government owning 20%.

28. The capital structure of LGFA also includes Borrower Notes. These are subordinated convertible debt instruments which each council that borrows from LGFA must subscribe for being 1.6% (increasing to 2.5%, expected date 1 July 2020) of any long-term borrowing from LGFA by a council. Under normal circumstances, these Borrower Notes are redeemed at the maturity of the associated debt.

29. LGFA has credit ratings from S&P Global Ratings and Fitch Rating Services. Current credit rating is AA+ and is equivalent to the New Zealand Government’s offshore rating.

30. LGFA’s debt obligations are guaranteed by council shareholders and any other councils that borrow in excess of $20m (total guarantors 54). The New Zealand Government does not guarantee LGFA. Any call under the guarantee will be allocated across all the guarantors on a pro rata basis in relation to their rates revenue.

31. The LGFA Board is responsible for the strategic direction and control of LGFA’s activities and comprises five independent directors and one non-independent director.

32. The LGFA Shareholders’ Council comprises five to ten appointees from the council shareholders and the New Zealand Government. The role of the Shareholders’ Council being to:

· Review and report performance of LGFA and the Board;

· Recommend the appointment, removal, replacement and remuneration of directors;

· Recommend changes to polices, or the Statement of Intent, or any other matters requiring council approval;

· Update shareholders on LGFA matters; and

33. LGFA can lend to councils and shareholders recently approved to allow lending to 100% owned Council Controlled Organisations (CCOs) (only exception being those with a Crown ownership). Any lending to CCOs requires parent council(s) approval with appropriate security structure arrangements.

34. As at 31 May 2020, total LGFA bonds (long-term) on issue were $11,360m, of which $525m have been on-lent to Tauranga City Council.

35. The graph below shows the split of borrowings from LGFA on a fixed interest vs floating interest rate basis.

36. Currently LGFA borrowing margins range from 0.39% to 1.09% (May 2021 to April 2033) and fixed interest rates range from 0.61% to 1.94% (May 2021 to April 2033). By way example, LGFA’s weekly pricing schedule is attached.

37. LGFA Board has recently reviewed the foundation policy covenants and is recommending to shareholders to amend the net debt to revenue financial covenant to 300% from 250% for the year ending 30 June 2021 and then decrease to 280% by 30 June 2026. This proposal is subject to shareholders’ vote at the Special General Meeting to be held on 30 June 2020.

Security

38. All debt will be issued under the existing Council’s Debenture Trust Deed (“DTD”) which offers rates revenue as security to attract lower borrowing margins. Council’s Trustee appointed under the DTD is Covenant Trustee Services Limited. All debt obligations are registered with Link Market Services Limited.

Interest Rate Risk Management

39. The overall objective of the interest rate risk management strategy is to:

· Minimise the average net interest cost on borrowings over the long-term.

· Minimise large concentrations of interest rate risk.

· Increase duration of the interest rate re-pricing profile.

· Maintain an appropriate mix of floating / fixed interest rate exposures.

40. Council is exposed to interest rate fluctuations on existing and future borrowings. Interest rate risk is minimised by managing floating and fixed interest rate exposures within the Treasury Policy limits framework. The overall outcome of interest rate risk management is reflected in the average interest rate on borrowings.

41. The graph below shows the existing fixed interest rate position (fixed rate debt and interest rate hedging) as at 31 May 2020:

42. Treasury Policy outlines the framework for interest rate risk management activities. Interest rate risk is managed with minimum and maximum percentages by time bands. These minimum and maximum levels by time bands are designed to minimise interest rate re-price risks. The chart below shows the fixed interest rate positions relative to forecast debt over time. The fixed interest rate positions include fixed rate debt issued, planned drawdowns from HIF and existing interest rate hedging.

43. To illustrate the above graph, at May 2022 the fixed interest rate position is at 50% based on forecast debt of $854m.

44. The fixed interest rate profile (%) will change once forecast debt levels are updated as part of the next Long Term Plan.

45. In terms of managing longer term interest rate risks, it is recommended to maintain an interest rate hedging profile of between 30% to 50% at 5 years forward and 10% to 20% at 10 years forward.

46. Currently gross debt is forecast to be $550m with net debt of $525m as at 30 June 2020. The average interest is forecast to decrease over time as new lower cost debt is added. The average interest rate for 30 June 2020 is forecast to be 3.70%.

47. The table below shows the net external interest position for the current year. Forecast interest savings resulting from the Reserve Bank reducing the Official Cash Rate, long-term interest rates reducing due to global risks and slower capital expenditure spend.

Net External

Interest

Budget

Forecast

Variance

Fav (Unfav.)

2019-2020

$21.50m

$20.35m

$1.15m

48. The graph below shows the forecast debt levels together with the average interest rate for the next financial year.

Investments

49. From a short-term working capital management perspective, it is proposed to maintain a minimum liquid investments balance of $15m. This level of working capital is sufficient to manage the net cash flows during an average month. Overall the investment portfolio is managed in line with the detailed monthly cash flow forecast.

Foreign Exchange

50. Under the policy, upon approval of expenditure, all significant commitments for foreign exchange are hedged. Generally foreign exchange exposures above NZ$100,000 are regarded as significant.

There is only one foreign exchange contract outstanding currently. This relates to managing exposure for the purchase of water meters (a total exposure of GBP 100,000 up to 30 June 2020).

Treasury Policy

51. Treasury Policy is planned to be reviewed as part of the 2021-31 Long Term Plan. Key aspects of the policy are management of costs and risks in external borrowings and exposure to interest rate movements.

Strategic / Statutory Context

52. The Treasury Strategy is an important element of sound financial management and allows Council to efficiently manage its funding and associated risks. These strategies ensure compliance with Treasury Policy Limits.

Options Analysis

53. Option 1: Approve Recommendations

The Committee is recommended to approve the above treasury strategies. The recommendations ensure compliance with Council’s Treasury Policy: the effective management of both interest rate and funding risks and allows the achievement of existing net interest rate budgets.

Option 2: Do not Approve Recommendations

Council may decide not to approve the recommendations. This may risk Council not complying with its Treasury Policy and may lead to increased interest rate and funding risks, and sub-optimal net interest costs. Council would not be able to borrow to fund its capital programme for the month of July without an approved borrowing resolution.

Significance

54. The consideration of treasury risk management activities is considered of low significance, in terms of Council’s Significance and Engagement Policy. These approvals support ongoing operational risk management activities.

Next Steps

55. Implementation of Treasury Strategy within the Treasury Policy framework.

Attachments

1. LGFA Weekly Pricng to Councils 4 June 2020 - A11553223 ⇩


AGENDA Finance, Audit and Risk Committee Meeting Tuesday, 30 June 2020
I hereby give notice that a Finance, Audit and Risk Committee Meeting will be held on:
Date:	Tuesday, 30 June 2020
Time:	1pm
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