Agenda of Finance, Audit and Risk Committee Meeting

UNCONFIRMED Finance, Audit and Risk Committee Meeting Minutes

11 August 2020

MINUTES

Finance, Audit and Risk Committee Meeting

Tuesday, 11 August 2020

Order of Business

1 Apologies. 3

2 Public Forum.. 3

3 Acceptance of Late Items. 4

4 Confidential Business to be Transferred into the Open. 4

5 Change to Order of Business. 4

6 Confirmation of Minutes. 4

6.1 Minutes of the Extraordinary Finance, Audit and Risk Committee Meeting held on 28 April 2020. 4

7 Declaration of Conflicts of Interest 4

8 Business. 4

8.1 Mainstreet Monitoring Report for January to June 2020. 4

9 Discussion of Late Items. 6

10 Public Excluded Session. 6

10.1 Bay Venues Limited - Independent Legal Review of the Bay Dreams Festival 6

10.2 Pool fencing issues and communications. 6

10.3 Litigation Report 6

10.4 Corporate Risk Register - Quarterly Update. 7

10.5 Revised Internal Audit Programme for 2019/20 to 2020/21. 7

10.6 Internal Audit Report - Health & Safety and NZTA Funding. 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, 11 August 2020 AT 9.30am

PRESENT: Mr Bruce Robertson (Chairperson), Cr John Robson (Deputy Chairperson), 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 Dr Wayne Beilby

MEMBER

IN ATTENDANCE: Marty Grenfell (Chief Executive), Paul Davidson (General Manager: Corporate Services), Barbara Dempsey (General Manager: Regulatory & Compliance), Susan Jamieson (General Manager: People & Engagement), Christine Jones (General Manager: Strategy & Growth), Gareth Wallis (General Manager: Community Services), Michael Vujnovich (Manager: Project Tauranga), Coral Hair (Manager: Democracy Services), Anne Blakeway (Manager: CCO Relationships and Governance), Nick Swallow (Manager: Legal & Commercial), Graeme Frith (Team Leader: Legal), Kathryn Sharplin (Manager: Finance), Jenny Teeuwen (Committee Advisor), Raj Naidu (Committee Advisor), Robyn Garrett (Team Leader: Committee Support)

1 Apologies

Apology

Committee Resolution FI7/20/1

Moved: Mr Bruce Robertson

Seconded: Cr Tina Salisbury

That the apologies received for lateness from Cr Morris and for absence from Cr Grainger and Cr Kiddie be accepted.

Carried

2 Public Forum

2.1 Mr David Holland and Mr Murray Osmond

Key points

· Requested that public excluded agenda items 10.2 and 10.3 be provided to the presenters as requested, as they considered withholding the reports under grounds of legal privilege was unjustified and that the agenda items referred to personal correspondence already in the public domain. The grounds of legal privilege and individual privacy could both be waived.

· Noted that councillors were elected to represent community views but also to exercise common sense; and to operate under the appropriate rules. Emphasised the need for accountability; and for councillors to have independence of thought and advice.

· Elected members needed appropriate advice to make decisions and could disagree with staff advice.

· There were a number of checks and balances in the system e.g. appeals and queries to the Office of the Ombudsman.

· Recommendations to hear items in committee with the public excluded could be challenged and information could also be brought out into the public domain. Council could also allow certain people to be present in a public excluded session.

· Clarified that there was not an invitation to the presenters attend the afternoon’s Council meeting at this time.

At 9.37am, Cr Steve Morris entered the meeting.

3 Acceptance of Late Items

Nil

4 Confidential Business to be Transferred into the Open

Agenda item 10.2 – councillors could look at the possibility of public release of information contained in that report when considering the report.

5 Change to Order of Business

Nil

6 Confirmation of Minutes

6.1 Minutes of the Extraordinary Finance, Audit and Risk Committee meeting held on 28 April 2020

Committee Resolution FI7/20/2

Moved: Mr Bruce Robertson

Seconded: Cr Tina Salisbury

That the minutes of the Extraordinary Finance, Audit and Risk Committee meeting held on 28 April 2020 be confirmed as a true and correct record.

Carried

7 Declaration of Conflicts of Interest

Nil

8 Business

8.1 Mainstreet Monitoring Report for January to June 2020

Staff Michael Vujnovich, Manager: Project Tauranga

External Tauranga Mainstreet – Sally Cooke, Fiona Corkery and Brian Berry (Chair).

Greerton Mainstreet – Sally Benning

Key points

· Mainstreet operation was different this year with many events having to be postponed or cancelled due to COVID-19. Activities were much more limited than normal.

· Collectively the three Mainstreets had run a joint Buy Local media campaign. The campaign was designed to be personal and reintroduce the face of the business owners, and highlighted the impact of the lockdown on local businesses.

· Greerton – noted that this year’s Cherry Blossom Festival coincided with election day. Generally, around 5000-6000 people attended the Festival. Some assistance had been provided with facilitating click and collect and online shopping during the lockdown. Did not lose any businesses in Greerton from the COVID lockdown.

· Tauranga – did their best with the resourcing available; contributed to CBD revitalisation; worked actively with members and stakeholders. The Activate vacant spaces programme had been reinstated post-lockdown.

· Supported the Careers Expo held in Durham St in conjunction with University of Waikato, Toi Ohomai and local businesses.

In response to questions

· There had not been any specific co-ordinated work between the Mainstreets regarding upskilling of businesses in a more online world.

· The police had been contacted regarding any grey areas not covered in Greerton by cameras or community patrols; information not yet received. Council support for cameras and community patrols would need to be requested in writing once the relevant information was received from the police.

· Concern about the streetscape of the Greerton village centre was expressed e.g. removal of bollards; replacement/repair of timber seating. Very slow progress.

· Mainstreet Tauranga had asked for foot counter trackers to be installed across the city. In terms of free carparking, a resurgence in people in town had been observed; however, enforcement was critical.

· Central city landlords were generally very supportive of the city centre and were doing what they could to retain and stimulate business.

· Able to access Paymark data to get a better picture of retail spend.

· Unlikely to see international cruise ship passengers for some time.

Committee Resolution FI7/20/3

Moved: Cr John Robson

Seconded: Cr Jako Abrie

That the Finance, Audit and Risk Committee:

(a) Receives the report: Mainstreet Monitoring Report for January to June 2020.

Carried

9 Discussion of Late Items

Nil

10 Public Excluded Session

RESOLUTION TO EXCLUDE THE PUBLIC

Committee Resolution FI7/20/4

Moved: Cr Larry Baldock

Seconded: Mayor Tenby Powell

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
10.1 - Bay Venues Limited - Independent Legal Review of the Bay Dreams Festival	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) - 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
10.2 - Pool fencing issues and communications	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) - 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
10.3 - 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) - 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
10.4 - 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) - 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
10.5 - Revised 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) - 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
10.6 - Internal Audit Report - Health & Safety and NZTA Funding	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)(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	s48(1)(a) - 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

(b) Permit Mr Rhys Harrison QC and Mr Mark Beech, Barrister to remain at this meeting, after the public has been excluded, for Agenda Item 10.2, because of their knowledge of litigation, official information and consent processes.

Carried

The meeting closed at 1.12pm.

The minutes of this meeting were confirmed at the Finance, Audit and Risk Committee meeting held on 10 December 2020.

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

CHAIRPERSON

UNCONFIRMED Finance, Audit and Risk Committee Meeting Minutes

22 September 2020

MINUTES

Finance, Audit and Risk Committee Meeting

Tuesday, 22 September 2020

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. 4

5 Change to Order of Business. 4

6 Confirmation of Minutes. 4

6.1 Minutes of the Finance, Audit and Risk Committee Meeting held on 12 May 2020. 4

7 Declaration of Conflicts of Interest 4

8 Deputations, Presentations, Petitions. 4

8.1 Presentation from Bay of Plenty Regional Council and Quayside Holdings Limited. 4

9 Business. 6

9.1 Annual Residents Survey 2020. 6

9.2 CCO Draft and Final Annual Reports for 2019/2020. 6

9.3 Tauranga City Council Draft Annual Report 9

9.4 Funding and Financing for the Long Term Plan. 10

9.5 Quarter 4 Local Government Official Information Requests and Mayor and Councillors' Requests. 11

10 Discussion of Late Items. 11

11 Public Excluded Session. 12

11.1 Public Excluded Minutes of the Finance, Audit and Risk Committee Meeting held on 12 May 2020. 12

11.2 Litigation Report 12

11.3 Corporate Risk Register - Quarterly Update. 12

11.4 Quarterly Cyber Security Report - Q4 2020. 13

11.5 Update: Kerbside Waste Collection, Waste Facilities and Litter Services. 13

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, 22 September 2020 AT 9.30am

IN ATTENDANCE: Marty Grenfell (Chief Executive), Paul Davidson (General Manager: Corporate Services), Susan Jamieson (General Manager: People & Engagement), Christine Jones (General Manager: Strategy & Growth), Nic Johansson (General Manager: Infrastructure), Gareth Wallis (General Manager: Community Services), Jeremy Boase (Manager: Strategy & Corporate Planning), Josh Logan (Team Leader: Corporate Planning), Anne Blakeway (Manager: CCO Relationships and Governance), Nick Swallow (Manager: Legal & Commercial), Graeme Frith (Team Leader: Legal), Hemi Leef (Corporate Solicitor), Allan Lightbourne (Chief Digital Officer), Sam Fellows (Manager: Sustainability and Waste), Kathryn Sharplin (Manager: Finance), Rhea Brooks (Corporate Planner), Mohan De Mel (Treasurer), Chris Quest (Team Leader: Risk), Coral Hair (Manager: Democracy Services), Jenny Teeuwen (Committee Advisor), Raj Naidu (Committee Advisor), Robyn Garrett (Team Leader: Committee Support)

1 Apologies

Apology

Committee Resolution FI0/20/1

Moved: Mr Bruce Robertson

Seconded: Deputy Mayor Tina Salisbury

That the apology for absence received from Mayor Powell be accepted.

Carried

2 Public Forum

Nil

3 Acceptance of Late Items

Committee Resolution FI0/20/2

Moved: Mr Bruce Robertson

Seconded: Cr Kelvin Clout

That the following item be included in the public excluded agenda:

11.5 Update: Kerbside waste collection, waste facilities and litter services.

This item was not able to be included in the agenda when published as information relevant to the report was unavailable at that time.

Carried

4 Confidential Business to be Transferred into the Open

Nil

5 Change to Order of Business

Nil

6 Confirmation of Minutes

6.1 Minutes of the Finance, Audit and Risk Committee Meeting held on 12 May 2020

Committee Resolution FI0/20/3

Moved: Mr Bruce Robertson

Seconded: Cr Jako Abrie

That the minutes of the Finance, Audit and Risk Committee meeting held on 12 May 2020 be confirmed as a true and correct record.

Carried

7 Declaration of Conflicts of Interest

Nil

8 Deputations, Presentations, Petitions

8.1 Presentation from Bay of Plenty Regional Council and Quayside Holdings Limited

External: Chairman Doug Leeder, Deputy Chair Jane Nees and Councillors Norm Bruning, Stuart Crosby, David Love, Matemoana McDonald, Stacey Rose, Paula Thompson, Andrew von Dadelszen and Lyall Thurston; Chief Executive Fiona McTavish, General Managers Mat Taylor and Namouta Poutasi; Compliance Manager Alex Miller; and Chief Executive Quayside Holdings Ltd Scott Hamilton.

PowerPoint presentation

Key points

Bay of Plenty Regional Council (BOPRC)

· Noted the Regional Council’s vision statement “Thriving together”. Different focus from territorial authorities – land, water and air and the interactions of these with the community and people.

· Responsible for flood protection

· Responsible for regional civil defence; noted the number of emergencies in the region recently. Outlined response to the COVID pandemic and noted the close working relationship with TCC for that response; including stepping into social responses.

· Involved in regional economic development. BOPRC played a role in regional development; with a sustainable and focused financial strategy which delivered transparent results for the region.

· BOPRC was working through the strategic framework needed to deliver its Long-Term Plan (LTP). Four main challenges and opportunities – implications of climate change; natural resource limitations and implications; transport planning and urban and sub-regional growth; and the complex landscape of Maori engagement.

· The current operating environment was very complex with central government environmental reforms e.g. NPS-Freshwater, Three Waters reform; new look Environmental Protection Agency.

· Key focus and top priority was improving the quality of freshwater systems and efficient management of allocation of freshwater. These areas were a major pressure for BOPRC work programme.

· BOPRC had taken a forward-thinking approach to climate change. Had created a Climate Change Action Plan and was looking for further feedback from the community as part of the LTP process.

· In terms of thriving tangata whenua relationships, local authorities needed to be working more collaboratively in this space; aware of challenges for Māori for resourcing and capacity for participation in this spacer. It was the responsibility of Komiti Māori to reach out to TCC and Maori representatives on TCC committees.

· Transport planning outcomes were fundamental to the region and the city; the port was a key driver and its success required a regional approach to transport planning. It was a key role of the Regional Transport Committee to ensure collaboration between authorities and to access funding. Noted an increase in student use of public buses since the free school trials were introduced; noted the introduction of tag-on tag-off Bee card ticketing across the region which would provide good data to enable good public transport planning. Need to work on efficient, effective and reliable bus services to stimulate the mode shift change necessary for the city.

At 10:32am, Cr Heidi Hughes left the meeting.

· Natural hazards work was being undertaken as a critical part of urban development.

· Noted collaboration on joint spatial planning via SmartGrowth and UFTI; and implementation through the TSP.

· BOPRC was committed to improving air quality in the region, especially in the Mount industrial area. Had increased the number of monitors in the area and was actively communicating with the community.

· Acknowledged the work of the Tauranga Moana Advisory Group. Noted the co-governance work of Te Maru o Kaituna as an example of collaborative work with all parties around the table; precedent for Tauranga Moana once settlement was reached. Co-governance entities offered part of the solution around engagement and iwi joint management.

· BOPRC’s current financial situation included an increased focus on the four well-beings; all financial settings were being examined with PWC engaged to carry out a financial review. Outlined the structure and role of Quayside Holdings and noted that a diversification strategy was being implemented to reduce reliance on Port of Tauranga revenue.

Quayside Holdings Ltd

· Quayside was the investment arm of BOPRC; started in 1991 when it acquired a 55% share in the Port of Tauranga Lt.

· Note that Quayside was an independent vehicle from BOPRC.

· Currently trying to diversity its portfolio and was looking for opportunities to grow its own backyard. Aim of $350m non-port income for BOPRC.

· Quayside a strategic asset for BOPRC; about 24% of BOPRC income.

· The port was a strategic asset; NZ’s largest bulk exporter. Had a market listing and a very commercial strategy. Noted the port’s responsibility to the Tauranga environment.

· Noted long-term relationships with Fonterra and Zespri.

· Outlined the development of Rangiuru Industrial Park.

In response to questions

· Opportunities for collaborative work between the two councils’ engineering and planning teams could be discussed further.

· Quayside Board had a Diversity and Culture Charter and was aware of its obligations in that space. Quayside is primarily an investment vehicle; skill set required was based around financial and investment skills.

· Responsibility of the Regional Transport Committee to prioritise; some feeling that the region had not received a fair share of transport funding.

· Considered more work could take place in the joint governance space between the three Western Bay authorities; assist with alignment between the three councils.

· Quayside provided an opportunity for BOPRC to invest for the benefit of ratepayers in the region; offset rates costs.

· Clarification was provided regarding asset and liability values; and distribution of asset values.

· If the port had not been able to distribute dividends due to COVID then Quayside would have stepped in to deliver the required revenue.

The Chair thanked BOPRC and Quayside Holdings for their presentations.

At 10.54am the meeting adjourned.

At 11am the meeting reconvened.

9 Business

9.1 Annual Residents Survey 2020

Staff Josh Logan, Team Leader: Corporate Planning

Jeremy Boase, Manager: Strategy & Corporate Planning

External Elena Goryacheva, Key Research

Key points

· Over half the respondents were satisfied with TCC

· Areas of dissatisfaction included: less rate increases; Council making poor decisions; need for recycling and waste to be included in rates.

· Reputation, value for money and core services were the three main drivers of satisfaction; reputation had the highest impact.

· Used a mail-out this year rather than Telecom landline calls. A profile of residents had been generated based on responses provided e.g. champions/pragmatists/sceptics. Residents profile had remained very similar over the years of the survey.

Committee Resolution FI0/20/4

Moved: Cr John Robson

Seconded: Cr Jako Abrie

That the Finance, Audit and Risk Committee:

(a) Receives Report – Annual Residents Survey 2020

(Cr Hughes absent)

Carried

9.2 CCO Draft and Final Annual Reports for 2019/2020

Staff Anne Blakeway, Manager: CCO Relationships and Governance

External CCO Chief Executives (CE), Chairs and staff as listed.

Key points

· Noted these were draft unaudited reports as had an extension to November to file audited annual reports.

Bay Venues Limited (BVL)

Justine Brennan, Acting CE; Michael Smith, Chairperson

· Had achieved five targets out of seven; missed the two targets regarding to financial targets and venue utilisation.

· Total revenue – the TCC grant to BVL was about 14% of revenue which was a decrease from 18%. Outlined the total COVID related revenue impact for BVL; the financial target would still have been missed without COVID, but by a smaller amount. Per person cost was $1.49, up from $1.22 in the 2019 financial year.

· Noted the utilisation rates of various BVL venues; aquatic facilities led the way. Noted the capacity restraints from the various levels of COVID lockdown.

At 11:22am, Cr Heidi Hughes returned to the meeting.

· Highlighted the Baywave upgrade; visitor numbers had increased after installation of the aquaplay area. Other community pool facilities would be the focus of the next year. Noted the introduction of the “Keep me safe” pool supervision policy and process for parents of young children.

· 89% of customers across the BVL network responded as satisfied or highly satisfied with the customer service received.

· Now an accredited provider of school lunches with the Ministry of Education “Our healthy kai” initiative and already contracted to provide lunches to a number of schools.

· BVL was also looking at opportunities to work with community meal providers with BVL community facilities.

· Required to complete a revaluation of assets which was underway and would be completed in time for November sign-off.

In response to questions

· Clarification was provided regarding the depreciation reserve. TCC rated for depreciation within BVL; depreciation was divided between community assets (cost covered by TCC) and newer more commercial assets (cost covered by BVL).

BOPLASS Ltd

Stephen Boyle, CE; Craig O’Connell, Independent Chair

· Primary purpose was to save money for ratepayers in the long run. Primary function had evolved into procurement. There had been negligible impact from COVID; no projects missed targets and revenue was not impacted to any extent.

· Savings were passed back to TCC rather than retained within BOPLASS.

· Clarified that Item 35 (pg. 188) should have shown a zero budget; $329,000 was inaccurate. Performance was close to target with a small deficit of $15,000.

· BOPLASS was working more closely with the other LASSes; each LASS has developed its own speciality or focus e.g. Waikato software development; BOP procurement.

· Created a forum to discuss collaboration opportunities whether or not the LASS was the implementation vehicle.

· A number of new initiatives had been undertaken in the last 12 months and regional collaboration had increased. There was opportunity to share best practice across a large group.

· Noted the appointment of an insurance broker/provider with a better price achieved. Noted the joint project with Waikato around development of consistent waste management standards and performance indicators. Underground infrastructure was harder to insure every year and was obtained through the BOPLASS process.

Tauranga Art Gallery Trust (TAGT)

Mary Stewart, Acting Gallery Director; Mark Wassung, Chair; Jillian Peck, Gallery Services Manager

· Acknowledged the contributions of the previous Chair and trustees; and recent departure of Director Alice Hutcheson.

· The gallery had achieved 18-22,000 visitors for signature exhibitions. Gallery downtime was significantly higher (eight weeks) due to the COVID lockdown; normally only down for four days per year.

· Education programme went online and a suite of online projects were developed; virtual exhibitions were scoped.

· TAGT had managed a financial turnaround and made a surplus this year. Donations from international tourists and cruise ship passengers had performed well.

· The number of exhibitions was reduced from 20-30 per year to 12-16 per year, with decreased install and marketing costs.

· TAGT had met 26 of 28 performance targets. Did not meet the 60,000 visitation target and the closure days target due to COVID.

· The gallery’s exhibition reputation was growing around the country.

· Achieved a 99% satisfaction rate. Two thirds of visits were return visits; 55% of visitors from local area.

· Prudent financial management; was assisted this year by the COVID wage subsidy. Achieved above target for non-TCC income.

· Installation of solar panels on the roof was being investigated.

· TAGT was working on further outreach initiatives e.g. with Our Place, with marae, with the Collective.

· The Annual Report would be signed off at the 28 October Board meeting.

Tourism Bay of Plenty (TBOP)

Esther Goldsworthy, Partnerships Manager; Stacey Linton, Marketing Research Analyst; Russ Browne, Trustee

· Noted the eruption of Whakaari as the worst tourism disaster in New Zealand and acknowledged the victims and their families.

· The COVID border closure had a devastating impact on tourism in NZ. TBOP had suffered a 32% reduction in independent income sources, but had finished the year very slightly in surplus.

· Achieved 53 out of 65 key measures; four measures missed directly related to visitor spend.

· “No place like home” campaign was relaunched; encouraged locals to stay home and experience local activities and experiences.

· TBOP continued to build a strong relationship with Air New Zealand. Was now seeing strong growth in the ability to come and go from Tauranga post-COVID.

· Outlined annual visitor spend figures. Due to the impact of COVID the June year-end showed a decline. While visitor spend in Tauranga was down 7% at year end, the impacts of recession and the border lockdown were still to be fully realised.

· TBOP had received an additional $700,000 in central government funding, with additional funding sources for 12 months from the Strategic Tourism Assets Protection Programme (STAPP) and the Regional Events Fund.

· Continued to implement destination management and regeneration tourism.

· Audit was on track and should be completed for the next Board meeting in October.

Local Government Funding Agency (LGFA)

Staff: Mohan de Mel, Treasurer

· LGFA had a good year; equity had built up and its credit rating was confirmed.

· Negative interest rates should have minimal impact on LGFA.

Discussion points raised

· Noted the importance of receiving CCO Annual Reports and reflecting on CCO performance; showed good accountability.

· Noted the impact of COVID and the management initiatives taken by the CCOs to respond.

· Noted the control and detailed management of expenses by TAGT to achieve a financial turnaround.

· Importance of domestic tourism to Tauranga noted.

· Noted a theme of importance of collaboration.

Committee Resolution FI0/20/5

Moved: Mr Bruce Robertson

Seconded: Cr Kelvin Clout

That the Finance, Audit and Risk Committee:

(a) Receives the council-controlled organisations’ draft and final annual reports for 2019/2020.

(b) Writes letters of thanks to the CCOs for work undertaken this year and the time taken to present to the Committee.

Carried

At 12.40pm the meeting adjourned.

At 12:40pm, Cr Larry Baldock left the meeting.

At 1.17pm the meeting reconvened.

9.3 Tauranga City Council Draft Annual Report

Staff Paul Davidson, General Manager: Corporate Services

Kathryn Sharplin, Manager: Finance

Josh Logan, Team Leader: Corporate Planning

Marin Gabric, Senior Financial Accountant

Key points

· On track for the Annual Report to be adopted by the end of October.

· Reviewed the past financial year and how Council had actually delivered compared to planned delivery; and summarised the financial position at year end.

· Noted there was a workshop scheduled for October 5 2020 to review in more detail. Particularly welcomed councillor feedback on the commentary parts of the Annual Report.

· Noted the small general rates surplus.

· Operating revenue was about $3m down on budget; due to the impact of COVID on revenue streams and the decision not to harvest forestry resource on reservoir areas.

· The reduction from a budgeted surplus of $85m to a surplus of $3.6m was largely due to the write-off of Harington St; increased provision for weathertight claims; and revaluations of swaps due to low interest rates.

· The balanced budget benchmark was not achieved – capital delivery was lower and revenue down due to COVID; the operations control benchmark was also not met – the LTP budget had anticipated greater rates increases.

· 135 non-financial KPIS measured; with 49 not achieved. 22 were COVID affected. Those activities affected by COVID were outlined in the report; numbers related indicators were impacted by the lockdown.

In response to questions

· There were no serious implications of missing the benchmarks in terms of financial prudence. The fact that those benchmarks were not achieved was reported, and highlighted areas of financial risk. There would be other councils that would also breach those benchmarks this year.

· Regarding the implications of under-delivery of 30% of the capital programme, infrastructure not delivered would have an impact of delay and would create a bow-wave of capital works needing to be done. Had also rated for this infrastructure. The budget was to drive the progress of the city; it was an issue if not achieved.

Discussion points raised

· Need to be aware that COVID only impacted the last three months of the financial year; the nine months before that should have been business as usual.

· Need to be careful of messages portrayed in the Annual Report; it should not only be good news stories.

· Capital delivery issue was not only a COVID impact but was an ongoing significant challenge.

· Critical point was that the Annual Report was about accountability and transparency.

· Suggested consideration of a possible performance measure for collaboration with other authorities and agencies.

Committee Resolution FI0/20/6

Moved: Cr John Robson

Seconded: Cr Andrew Hollis

That the Finance, Audit and Risk Committee:

(a) Receives Report on Tauranga City Council Draft Annual report

Carried

9.4 Funding and Financing for the Long-Term Plan

Staff Paul Davidson, General Manager: Corporate Services

Kathryn Sharplin, Manager: Finance

Mohan De Mel, Treasurer

Key points

· The report was the first financial introduction into the Long-Term Plan (LTP); outlined some of the financial and funding issues. Forecast numbers only at this stage.

· Noted the two scenarios agreed on at the previous Policy meeting.

· The report outlined key levers able to be utilised during the LTP process. Direction was sought for LTP priorities.

· Highlighted paragraph 13 which modelled the relationship between rates level, ability to deliver capital infrastructure and debt/revenue ratio.

· Direction sought on any other levers that needed to be considered other than those identified in the report.

· Three months behind due to COVID; resources were stretched to deliver in a timely manner.

In response to questions

· If there was $220m capex spent instead of $200m the debt ratio went up 2% or 3%.

· Aimed to have the capital expenditure programme back in mid-October for consideration and prioritisation.

· Progress and timeframes for appointments to the Sustainability Board would be confirmed and reported back; the idea was to have a core group in place to feed into the LTP process.

Committee Resolution FI0/20/7

Moved: Cr John Robson

Seconded: Cr Andrew Hollis

That the Finance, Audit and Risk Committee:

(a) Agrees to further consideration of the following funding and financing matters and prioritisation for the Long-Term Plan

(i) Infrastructure Funding and Financing (IFF) application to new greenfield growth areas

(ii) Prioritisation and timing of expenditure

(iii) Targeted rates for transportation and stormwater

(iv) Level of commercial differential

(v) Treatment of risk reserve and providing for weathertight claims and unforeseen events

(vi) Financial limits on rates that take into account the wider funding impacts

(vii) Other funding and finance opportunities at local, regional and national level

Carried

9.5 Quarter 4 Local Government Official Information Requests and Mayor and Councillors' Requests

Staff Susan Jamieson, General Manager: People & Engagement

Coral Hair, Manager: Democracy Services

Key points

· LGOIMA requests increased by about 100% during this quarter.

In response to questions

· Was a possible impact from the elections on the LGOIMA requests for that quarter.

· Had recently started publishing responses to requests of public interest on the TCC website.

· Any seasonal effect was not yet evident.

Committee Resolution FI0/20/8

Moved: Cr Jako Abrie

Seconded: Cr Andrew Hollis

That the Finance, Audit and Risk Committee:

(a) Receives the report Quarter 4 Local Government Official Information Requests and Mayor and Councillors’ Requests.

Carried

10 Discussion of Late Items

Nil

11 Public Excluded Session

RESOLUTION TO EXCLUDE THE PUBLIC

Committee Resolution FI0/20/9

Moved: Mr Bruce Robertson

Seconded: Cr Dawn Kiddie

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

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
11.1 - Public Excluded Minutes of the Finance, Audit and Risk Committee Meeting held on 12 May 2020		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)(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)(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) - 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
11.2 - 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) - 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
11.3 - 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) - 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
11.4 - Quarterly Cyber Security Report - Q4 2020		s7(2)(c)(i) - the withholding of the information is necessary to protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide under the authority of any enactment, where the making available of the information would be likely to prejudice the supply of similar information, or information from the same source, and it is in the public interest that such information should continue to be supplied s7(2)(c)(ii) - the withholding of the information is necessary to protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide under the authority of any enactment, where the making available of the information would be likely otherwise to damage the public interest	s48(1)(a) - 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
11.5 - Update: Kerbside Waste Collection, Waste Facilities and Litter Services	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) - 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

At 3.42pm the meeting resumed in open session.

The meeting had agreed during the public excluded session that Agenda item 11.5 should be received in the open session.

11.5 Update: Kerbside Waste Collection, Waste Facilities and Litter Services

Staff Sam Fellows, Manager: Environmental Regulation

Key points

· The maximum cost for the first year of the kerbside recycling and waste collection service would be $230 per household. This cost included the cost currently paid for the glass recycling service, $10 per year for the government waste levy rise, and an optional $60 for garden waste. All households would be provided with a 140L rubbish bin, a 240L recycling bin and a 23L food scrap bin to add to their existing 45L glass recycling crate.

· The first year cost was increased to flatten costs out across the longer term and to avoid a big jump in cost after the first year.

In response to questions

· Voting records for kerbside recycling and waste collection decisions could go into the public domain when commercial negotiations were concluded.

· Noted that the cost was a flat rate which would advantage some and disadvantage others compared to current cost.

· The successful contractor had substantial previous experience with kerbside collection, and would be working with TCC to find the best solutions for multi-unit dwellings, apartments and houses with difficult access.

· A comprehensive project would be developed around implementation and continued governance of the scheme.

Committee Resolution FI0/20/10

Moved: Mr Bruce Robertson

Seconded: Deputy Mayor Tina Salisbury

That the Finance, Audit and Risk Committee:

(a) Receives the report – Update: kerbside waste collection, waste facilities and litter services.

Carried

The meeting closed at 3.55pm.

The minutes of this meeting were confirmed at the Finance, Audit and Risk Committee Meeting held on 10 December 2020.

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

CHAIRPERSON

Finance, Audit and Risk Committee Meeting Agenda

10 December 2020

8 Business

8.1 Long Term Plan 2020-30 Deliberations - Funding a Backlog of Development Contribution (DC) Funded Projects

File Number: A12030629

Author: Frazer Smith, Manager: Strategic Finance & Growth

Authoriser: Paul Davidson, General Manager: Corporate Services

Purpose of the Report

1. To confirm the current principles in relation to funding the Development Contribution Backlog.

2. To establish the level of Development Contribution funded debt to be transferred to ratepayer funded debt for the 2021/31 LTP.

Recommendations

That the Finance, Audit and Risk Committee:

(a) Receives Report – Funding a Backlog of Development Contribution (DC) Funded Projects

(b) Endorses the current principles in relation to funding any backlog

(c) That Council provides for the transfer of DC funded debt to rates funded debt to a level of $3.98 Million a year for the next 10 years.

Executive Summary

3. While Council has a policy of growth pays for growth, we have not been able to collect the full costs of growth through development contributions. Council’s financial DC reserves are less than they should be in order to fully recover our capital costs.

4. Rather than leave this as a problem for future ratepayers, Council (in 2011/12) started making transfers from DC funded debt to rates funded debt.

5. The transfers budgeted at this time have essentially been completed. Given that there is still a considerable backlog, provision for further transfers is recommended for inclusion in the 2020-30 LTP.

6. Rather than leave this as a problem for future ratepayers making transfers from DC funded debt to rates funded debt will remedy the problem. Spreading the repayment over the LTP period recognises the intergenerational aspect (the backlog has been built up over many years).

7. While Council has made changes to its DC policy over the years to reduce the likelihood of future backlogs (such as getting developers to directly construct and fund key infrastructure), this process recognises that the current legislation and funding tools do not permit full cost recovery to occur.

Background

8. TCC has been collecting Development Contributions (DCs) (either as Development Contributions (LGA) or as Financial Contributions (RMA)) since 1994. While Council has a policy of growth pays for growth, in practical terms we have not had sufficient knowledge of the future or the ability through the legislation to fully recover our costs.

9. Over time these charges have increased considerably. In many instances we have found that the charges paid by developers in the past were too low, given the greater information we have available now. More detail on this can be seen in Attachment A.

10. The result is that when the growth area is full, Council expect to have a shortfall in the amount of DCs collected. This is referred to as the ‘backlog’. Legally TCC cannot charge current or future developments more to recover this backlog.

11. Council first quantified this backlog in 2008. Figure 1 shows the movement in this backlog since then.

Figure 1: Graph of DC Backlog

12. This backlog was reducing, predominantly due to a decision made by Council in 2011 to start funding this backlog by transferring some of the backlog growth debt to rates funded debt. Since 2015 this has been offset by significant project increases, predominantly in the Pyes Pa West growth area.

13. As a proportion of total DC Revenue (adjusting for backlog transfers) TCC has collected over 83% of the cost of DC funded projects.

14. It is important to note that we cannot just look at the overall picture, but need to examine each element in each growth area individually. This is because gains in one area cannot be used to offset losses in another. The full breakdown can be seen in Attachment A. The six key components (largest and least likely to reverse) are shown on Table 1.

Table 1: Key Components of DC Backlog

DC Component	2020 Backlog
West Bethlehem Stormwater	2,747,106
West Bethlehem Transportation	3,130,436
Papamoa Transportation	4,849,314
Papamoa Stormwater	16,435,136
Pyes Pa West Stormwater	10,185,556
Pyes Pa West Transportation	4,793,415
Total	42,140,962
Less 2020/21 Backlog Adjustment (already budgeted)	(2,317,000)
Revised Total	39,823,962

15. These key components represent over 100% of the total backlog ($40.0 Million). This is because some of the growth areas are in credit and offset the smaller balances.

16. In 2011/12 Council reviewed this backlog and determined that about $23 Million of it (at least) was very likely to be permanent and outlined a process of transferring this DC funded debt to rate funded debt.

17. Despite the transfers that had occurred, this backlog has increased to $40.0 Million by 30 June 2020.

18. Up until 30 June 2021 (including 2021 budgeted transfer) a total of $18.0 Million will have been transferred from DC funded debt to rates funded debt in relation to the backlog.

19. These transfers were made on the basis of the following principles:

(a) There is certainty that the shortfall is permanent

(b) The amount of the shortfall is known and certain

(d) The amount that is transferred is treated as any other rate funded project would be for debt retirement purposes i.e. debt would be retired as per Council’s Debt Retirement Funding Policy which is part of its Revenue and Financing Policy

(e) Elected members have approved the transfer

20. The remaining budgeted transfers from DC funded debt to rates funded debt ($18.5 million) will be insufficient to clear the backlog.

Strategic / Statutory Context

21. There are no statutory implications.

Options Analysis

22. On the basis that the principles adopted by Council (see above) remain valid, doing nothing about the backlog balances (and leaving a problem for future ratepayers) is not an option. The options below, therefore, relate to the timing of transfers.

Option 1: Transfer specific reserve balances from DC funded debt to rates funded debt in 2020/21

23. For identified reserves (where there is a high backlog and no expectation of recovering this), transfer the reserve balance from DC funded debt to ratepayer funded debt.

Advantages		Disadvantages
· Matches current principles · Transparent write-off · Targets large balances · Resolves issue quickly		· Would be a significant financial impact in 2020/21 year.

Budget – Capital Expenditure	No change in capital expenditure or total debt, but there would be an increase of approximately $39.8 M on rates funded debt (based on Table 1 above).
Budget – Operating Expenditure	There would be an increase of rates funded interest of approximately $1.4 M in the 2021/22 year (being interest at 3.5% on the debt impact above). This represents a 0.7% increase in rates.
Key risks
Recommended?	No

Option 2: Transfer specific reserve balances from DC funded debt to rates funded debt over a fixed period (3, 5 or 10 years)

24. For identified reserves (where there is a high backlog and no expectation of recovering this), transfer the reserve balance from DC funded debt to ratepayer funded debt over a set period of years.

Advantages		Disadvantages
· Matches current principles · Transparent write-off · Targets large balances · Spreads the impact more evenly		· .

Budget – Capital Expenditure	No change in capital expenditure or total debt, but there would be an increase of approximately $13.3 M (3yrs), $8.0 M (5yrs) or $4.0 M (10yrs) on rates funded debt (based on Table 1 above).
Budget – Operating Expenditure	There would be an increase of rates funded interest of approximately $0.46 M (3yrs), $0.28M (5yrs) or $0.14 M (10yrs) in the 2021/22 year (being interest at 3.5% on the debt impact above). This represents a 0.2% (3yrs), 0.1% (5yrs) or 0.1% (10yrs) increase in rates.
Key risks
Recommended?	The option to write this balance off over 10 years is recommended. While the options to write this balance off over a shorter period reduce the risk, the longer period option better reflects intergenerational equity.

Option 3: Transfer specific reserve balances from DC funded debt to rates funded debt in line with future capital (option adopted before 2017)

25. For identified reserves (where there is a high backlog and no expectation of recovering this), transfer the reserve balance from DC funded debt to ratepayer funded debt in proportion to the remaining capital expenditure remaining in that growth area.

Advantages		Disadvantages
· Matches current principles · Transparent write-off · Targets large balances · Spreads the impact more evenly · Basis previously used by Council (before 2017 decision)		· More difficult to calculate. · Most of the remaining expenditure in these growth areas occurs over the next three years, meaning significant impacts in these years.

Budget – Capital Expenditure	No change in capital expenditure or total debt, but there would be an increase of approximately $15.4 M on rates funded debt in 2021/22. This is because almost 40% of the remaining Capital Expenditure is expected in the 2021/22 year.
Budget Operating Expenditure	There would be an increase of rates funded interest of approximately $0.54 M in the 2021/22 year (being interest at 3.5% on the debt impact above). This represents a 0.3% increase in rates.
Key risks
Recommended?	No. While this was previously the preferred option, the short timeline for the remaining capital expenditure in the growth areas creates too large an impact.

Recommended Option

26. Council staff recommend that the previously adopted principles are retained.

27. In terms of timing, it is recommended that the transfers are spread out over the next 10 years (see option 2 above). This is consistent with the previous approach. As this backlog has been built up over a long time (since 1994) a longer period of adjustment is recommended.

Financial Considerations

28. The financial implications of this approach are detailed in Table 2 below. These changes will not have a material impact on the LTP.

Table 2: Funding of DC Backlog: Proposed compared to current budgets

Financial Year	Impact on rates funded debt	Impact on rates (cumulative)
2021/22	3,983,000	139,405
2022/23	3,983,000	278,810
2023/24	3,983,000	418,215
2024/25	3,983,000	557,620
2025/26	3,982,000	696,990
2026/27	3,982,000	836,360
2027/28	3,982,000	975,730
2028/29	3,982,000	1,115,100
2029/30	3,982,000	1,254,470
2030/31	3,982,000	1,393,840
Total	39,824,000

Legal Implications / Risks

29. There are no legal implications in relation to this decision.

30. The backlog principally relates to Stormwater and Transportation projects. The water reforms will have a significant impact only if Stormwater is transferred out of Council control along with Water Supply and Wastewater. We would mitigate this by applying the backlog transfer to Transportation reserve balances in 2021/22 and reviewing future backlog transfers in future years if Stormwater activities are transferred out of Council control.

Consultation / Engagement

31. Due to the size of the impact on rates no further consultation is planned.

Significance

32. Under the Significance and Engagement Policy, this matter is of low significance as it involves a rates impact of only $139,405 on the 2021/22 financial year.

Click here to view the TCC Significance and Engagement Policy

Next Steps

33. Council staff will complete these transfers based on Elected Members decisions.

Attachments

Attachment A: Background Paper on Development Contributions Backlog - ID: A8734161

ATTACHMENT A

BACKGROUND PAPER ON development contributions (DCs) BACkLOG

1. What is the DC backlog and how is it calculated?

The DC charge is calculated each year based on the best (latest) information available. Over time this tends to become more accurate, as more of the DC’s are received and capital projects become actual figures.

In many instances project costs were higher than originally budgeted. This means that over time DC charges have increased. The Local Government Act does not allow Council to recoup this shortfall from future developers.

The difference between the lower DC that was charged in the past and what the DC charge is today reflects the amount by which the reserve is likely to end up in a deficit when the growth area is full.

Therefore the backlog is the difference between what the actual balances of each reserve is compared to the amount it should be. This backlog could be either:

· Permanent (eg cost of construction is much higher than estimated), or

· Temporary (eg a delay in the timing of growth that is expected to reverse)

A worked example of this is included in Table 1 below.

Finance, Audit and Risk Committee Meeting Agenda

10 December 2020

The model in Table 1 above is a simplified version of that used by TCC to calculate DC charges. The top section shows the expected movement in the DC reserve from its establishment until its expected completion.

The model is balanced by amending the Unit rate charge until the closing balance at the end of year 10 is zero.

As a by-product of this calculation the expected balance of the reserve is also shown (See (A) on Table 1). This can be compared to the actual balance of the reserve (see (B) on Table 1) to determine if we are ahead (in surplus) of where we expected to be or behind (in deficit) (ie B-A).

The closer a growth area gets to the end of its life, the less likely it is for a significant surplus or deficit to be reversed. For a deficit this will need to be recovered from the ratepayer.

An under collection can also be demonstrated graphically by reviewing a graph of the actual DCs charged against what ‘should’ have been charged. This is shown in Figure 1 below. The area between the two lines represents the under collection.

Figure 1: Graphical representation of backlog

2. How significant is the shortfall?

Council has a policy of growth pays for growth. However, as outlined above, we have historically under-collected this cost resulting in a backlog.

Given the size of the backlog it calls into question the value of having the DC at all (ie just charge through rates). Table 2 highlights that Council has collected over 80% of the funding required to fund growth Capital Expenditure.

Table 2: Proportion of Growth Capital Expenditure funded from DC’s

	Total ($Million)
Backlog as at 30 June 2020 (excl reserves)	$40.0 M
Total of DC to loan debt transfers to 30 June 2020	$18.0 M
Total Shortfall in DC’s collected	$58.0 M

Total Revenue collected from DC’s (1994 to 2020)	$349.9 M
Proportion of growth capital costs collected through DC’s	83.4 %

3. What makes up the DC backlog?

The DC backlog as at 30 June 2020 is shown on Figure 2 below. This calculation is based on actual results to date and the assumption that future revenues and costs will eventuate as per the 2020-21 DC Policy. Any changes to budgeted project costs and growth projections will amend this position.

It is important to note that we cannot just look at the overall picture but need to examine each element in each growth area individually. This is because gains in one area cannot be used to offset losses in another.

In addition, losses in growth areas that are almost full are of much more concern than in growth areas that are relatively new. This is because the potential for subsequent DCs being able to reverse the current position are much higher if there is more growth remaining.

From 2012 to 2015 the backlog had been reducing. This is primarily the result of a decision made by Council in 2011 to start funding this backlog by transferring some of the backlog growth debt to rates funded debt. This trend is shown of Figure 2.

This trend has reversed in 2016 and 2017 as despite the continued debt transfers, cost increases for a number of growth projects (particularly in Pyes Pa West and Papamoa) have caused the backlog portion to increase.

Figure 2: Graph of DC Backlog

The full breakdown of the backlog as at 30 June 2020 is shown on Table 3 below

Table 3: DC Backlog forecast as at 30 June 2020

Note 1: A number in brackets shows a surplus compared to where we expected to be and is a good position for Council.

Note 2: The highlighted backlog figures are the funds Council has most concerns over. These are the funds to which the transfers to rates funded debt have been applied since 2011. The total of the highlighted portions total’s $42,140,962

Because of the nature of DC reserves (established through legislation) negative balances (surpluses) cannot be offset against other balances. Therefore each balance has to be examined and resolved on its own merits. A summary of the breakdown of the backlog by growth area is shown in Figure 3.

Figure 3: DC Backlog by growth area

3.1. Generic Causes

There are a number of generic causes of this backlog. Inflation (2007) and Cost of Capital (2008) were not originally included in the calculation of DC charges. This had the impact of increasing and then stabilizing the DC charges. Much of the backlog was created in the early years of charging DCs where these important components were not included. This needs to be understood within the context of that time;

· Initially DCs were charged as Financial Contributions (FCs)

Until the Local Government Act 2002 DC’s were collected as Financial Contributions under the Resource Management Act (RMA). FC charges are very difficult to increase (main reason to change to DC’s)

· When DCs were introduced there was significant opposition

If Council had attempted to introduce concepts of Inflation and Cost of Capital into the mix at the same time as it changed to DCs this may have resulted in legal challenges, significantly delaying the implementation.

· TCC has been a ‘lead’ adopter of DCs

TCC has been a leader in this area, both in terms of timing and methodology. While this has meant we have had to ‘learn from our own mistakes’ it has meant that TCC has collected millions of dollars from developers that would have been missed if we had delayed.

3.2. Specific Causes

When Council reviewed the backlog in 2011 it identified three components of the backlog that were particularly significant. These parts were Papamoa Transportation, Papamoa Stormwater and Bethlehem Transportation. Since 2016 Bethlehem Transportation has reduced in significance, but Pyes Pa West Stormwater, Pyes Pa West Transportation, Bethlehem West Stormwater and Bethlehem West Transportation have also become significant. Figure 4 shows the movements for these components.

Figure 4: Major components of Backlog

Papamoa Transportation

This relates to the increase in costs of projects. In particular the Sandhurst Interchange was omitted from the list of projects in this growth area for many years.

Papamoa Stormwater

The initial backlog related to the huge increase in land prices from when DCs were originally charged up until the land purchases were actually made. While this impacted right over the city it was particularly impacted here due to Papamoa’s proximity to the coast and Papamoa’s reliance on open swales rather than pipe solutions (due to flatness of the land). In 2018 the Kaituna Overflow project (33% funded from Papamoa) increased from $11.6M to $43.5M.

West Bethlehem

This area, historically, had much higher DC charges than most of the other areas (mostly due to small catchment size). Despite offering discounts, growth has been slow in this area until recently and the cost of projects and the interest on these has gradually increased to backlog component.

Pyes Pa West Stormwater

This relates to the increase in costs of projects. In particular the projects outside the Lakes (Carrus) development were under budgeted.

Pyes Pa West Transportation

This relates to the increase in costs of projects. In particular the projects outside the Lakes (Carrus) development were under budgeted.

4. What is not included in the DC backlog calculation?

There are three main components not included in the DC Backlog calculation

4.1. Citywide DCs

Citywide DCs are not included in the above analysis. This is because:

· Citywide DCs are generally in surplus (ahead of where we expected to be).

· Unlike Local DC charges the area does not become full (although capacity may be all used up). This increases the opportunity to prevent an under collection.

4.2. Reserve DCs

When the DC backlog was first calculated a significant portion related to Reserves (both Local Purpose and Active Reserves). However in 2012/13 TCC changed the Level of Service in relation to Reserves. While the total amount of reserves required did not change, Council now allow 50% of this area to be achieved utilizing Stormwater Reserves and Coastal Reserves. This massively reduced the amount of reserve land still required to be purchased and practically eliminated the backlogs relating to reserves.

With some exceptions, TCC is generally not collecting reserve contributions any more.

4.3. Southern Pipeline DCs

A backlog has not been calculated for the Southern Pipeline project. This is because it is difficult to project the final reserve outcome. DCs will be collected on the Southern Pipeline project for 40 plus years. Therefore the ability to predict a backlog is less certain. This difficulty is considerably increased due to the fact that the Southern Pipeline ‘catchment’ includes growth areas that do not yet exist.

Recently there is also the potential for the water reforms to remove this risk.

5. What has TCC done about the backlog to date?

As part of the 2012-22 TYP Council undertook a detailed review of the backlog. This resulted in an initial report in June 2011 and a final recommendation in November 2011.

5.1. Key Findings

5.1.1. Principles adopted in relation to the transfer of shortfalls

· There is certainty that the shortfall is permanent

· The amount of the shortfall is known and certain

· The projects that the shortfall relates to have been completed

· The amount that is transferred is treated as any other rate funded project would be for debt retirement purposes i.e. debt would be retired as per Council’s Debt Retirement Funding Policy which is part of its Revenue and Financing Policy

· Elected members have approved the transfer.

5.1.2. Scope of Transfers

The Council has focused on three significant shortfalls. These were the transportation activity in Papamoa and Bethlehem and the stormwater activity in Papamoa. None of the other balances satisfied the principles outlined above at that time (particularly the second bullet point).

5.1.3. Timing of Transfers

The transfer from growth funding to rates funding in relation to the transportation activity in Papamoa and Bethlehem and the stormwater activity in Papamoa was included in the 2012-22 LTP on a progressive rates transfer basis, rather than all at once. This was based on the future capital expenditure in relation to these reserves. The logic for this was that the transfers would eventuate as these costs were incurred (in effect funding these projects from rates funded debt).

When this policy was reviewed as part of the 2018-28 LTP the basis for making the transfers was changed to a 10 year basis. This was because of the reduced period of the future capital expenditure in these growth areas meant that basing it on future capital expenditure meant that the backlog was written off over a very short period (3 years).

5.2. Financial Impact

The progressive transfer originally proposed has been completed on a less aggressive basis. The actual transfers (and budgeted per current TYP) are as per Table 4.

Table 4: Financial Transfers Actual and Budgeted

Financial Year	Basis	Original Plan ($M)	Actual / Budget (LIPS 2578,2579) ($M)
2012/13	Actual	$7.5 M	$0 M
2013/14	Actual	$2.7 M	$2.7 M
2014/15	Actual	$5.7 M	$5.7 M
2015/16	Actual	$2.8 M	$2.7 M
2016/17	Actual	$0 M	$2.3 M
2017/18	Actual	$0 M	$0 M
2018/19	Actual	$0 M	$2.3 M
2020/21	Budget	$4.3 M	$2.3 M
Total		$23.0 M	$18.0 M

Note: This Table excludes the write-offs made in relation to Bethlehem West.

6. How is Council minimizing the risk of a backlog developing in current growth areas?

Council staff are well aware of the risk of future under-collection. This was reinforced by the growth in West Bethlehem being much slower than expected after most of the capital projects were completed.

Some of the ways Council has addressed this risk is to:

· Move from using engineers’ estimates for projects to standard rates that can be updated each year.

· Undertake a review of structure plans to ensure these are accurate

· Completed a peer review of big projects, such as Te Okura Drive

· Recent increase in resourcing in both growth management and infrastructure areas.

· Just in time approach to putting infrastructure in, only after we are sure the developer is committed to developing (as opposed to profiting from an uplift in value for serviced land through a bulk land sale).

More specifically we have worked with developers to get them to complete works that would historically be funded through DCs.

In addition to this TCC have included a development viability step into the assessment of all future growth areas. For Wairakei this had the following advantages:

· Helped create a positive relationship with the developers

· Council comfortable that developer would undertake development as there was sufficient profit for them (rather than just try to resell large land blocks)

· Significant rationalization of infrastructure to be put in place

· Developer increased the amount of works the developer would complete (ie changed from DC funded to developer funded projects)

· TCC better able to stage DC funded capital projects.

The net impact of this approach (in Wairakei) was a Local Development Contribution currently about $25,000 per lot (at 15 lots per ha) compared to an original figure (in 2012) of close to $50,000 per lot.

Note: While TCC can reduce this risk the legislation prevents us from passing on all of the risks onto the developer.


AGENDA Finance, Audit and Risk Committee Meeting Thursday, 10 December 2020
I hereby give notice that a Finance, Audit and Risk Committee Meeting will be held on:
Date:	Thursday, 10 December 2020
Time:	9.30am
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

Chairperson	Mr Bruce Robertson
Deputy chairperson	Cr John Robson
Members	Deputy Mayor Tina Salisbury Cr Larry Baldock Cr Kelvin Clout Cr Bill Grainger Cr Andrew Hollis Cr Heidi Hughes Cr Dawn Kiddie Cr Steve Morris
	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

	Actual project costs and new dwellings					Estimated project costs and new dwellings
Interest Rate	6.00%	6.00%	5.80%	5.80%	6.00%	6.00%	6.25%	6.25%	6.25%	6.25%	6.25%
					Current AP Year
	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10	Total
Opening Balance	0	5,910	12,478	18,110	28,640	25,428	18,932	22,397	10,610	2,482	0
Revenue	(4,262)	(5,967)	(10,230)	(12,787)	(12,787)	(12,787)	(12,787)	(12,787)	(8,525)	(2,557)	(95,479)
Plus Interest	172	536	862	1,318	1,575	1,292	1,252	1,000	397	75	8,479
Less Capital Expenditure	10,000	12,000	15,000	22,000	8,000	5,000	15,000	0	0	0	87,000
Closing Balance	5,910	12,478	18,110	28,640	25,428 (A)	18,932	22,397	10,610	2,482	0	0

Unit Rate	852.49	852.49	852.49	852.49	852.49	852.49	852.49	852.49	852.49	852.49
Number of new sections	5	7	12	15	15	15	15	15	10	3	112
Revenue	4,262	5,967	10,230	12,787	12,787	12,787	12,787	12,787	8,525	2,557

Historical Charge (Actual)	752.69	780.66	775.21	802.74	845.87	852.49
Actual Reserve Balance
Opening Balance	0	6,424	13,541	20,189	31,607
Revenue	(3,763)	(5,465)	(9,303)	(12,041)	(12,688)
Plus Interest	187	581	951	1,460	1,756
Less Capital Expenditure	10,000	12,000	15,000	22,000	8,000
Closing Balance	6,424	13,541	20,189	31,607	28,675 (B)
Under collection				(B) - (A)	3,247

Multiple Requests Data
Number of multiple requests	No of requesters
12 requests	1 requester
10 requests	1 requester
9 requests	1 requester
6 requests	1 requester
4 requests	2 requesters
3 requests	3 requesters
2 requests	8 requesters