The corporate services committee meeting was held on 5 June 2014. Apologies were received from Mayor Kempthorne, Crs Dowler, Canton, and Inglis.
The meeting agenda received several reports including: (1) the corporate mangers report, (2) financial and treasure report, and (3) the shareholders report on Port Nelson. Within these reports a number of topics were discussed which I will highlight below. These include: (1) rating review compliance, (2) audit fees, (3) the corporate teams financial performance, (4) health and safety legislation (and its impact on the volunteers), and (5) the financial position of council.
A confidential session was held to discuss the minutes of the joint shareholders committee (involving TDC and NCC who are the joint shareholders of various entities such as Port Nelson, the Airport, and NTT).
As some will be aware, the government recently passed a regulation to validate the imposition of rates in parts of Tasman, due to a failure to follow the correct rating process (see http://www.legislation.govt.nz/act/local/2014/0001/latest/DLM4980307.html?search=qs_act%40bill%40regulation%40deemedreg_rating+validation+tasman_resel_25_h&p=1&sr=1). In order that this event does not happen again, council staff are reviewing council processes and will be taking legal advice on some matters to ensure rates are compliant with statutory requirements. Any changes will be incorporated into the Funding Impact Statement for the 2014-15 Annual Plan.
Areas being examined include: the richmond and motueka business rate, lump sum targeted rates, the definition of “separately used and inhabited part”, partitioning, the rating of dams, and disclosure of some targeted rates.
A consequence of this review might involve council considering a new rating remission policy for certain activities or assets. For example, it might be that assets, thought exempt from rates, may have to be rated by law. To maintain the same fiscal outcome, the council will then have to consider whether it wants to remit the rates for such an asset through a new remissions policy.
Annual audit fees are to increase by $3,800 from $115,206 (for the 2012-13 period) to $117,800 (for 2013-14 period). This comprises an inflation adjustment of $1,800 plus an additional $2,000 for the increasing scope of the audit, due to Local Government Act changes
The corporate team has undergone restructuring over the last year with the team being divided into three groups and the addition of some staff (which has been reported in earlier posts). In my opinion, the financial result of the restructure has had a positive impact on the financial management of council (and the team itself). For April 2014, the corporate services team reported a saving of $228,000 against forecasted budgets for this time of year from reduced operating expenditure.
Health and Safety
The Health and Safety Reform Bill is currently before select committee (see http://www.legislation.govt.nz/bill/government/2014/0192/latest/DLM5976660.html). Submissions on the Bill closed on 9 May 2014. The Bill makes a number of proposed changes to the current law, including extending the definition of workers to include volunteers. While the existing Act requires employers to take all practicable steps to ensure volunteer’s health and safety is met, an employer will not commit an offence if they fail to do so. The proposed changes will mean employers will commit and offence if they fail to do so. This change may have a significant impact on the use of volunteers. For example, volunteers will be required to undergo health and safety training that would have only been provided to employed staff. This will place additional costs on any organisation using volunteers. Local Government NZ has asked that the current law is retained and the proposed changes are not made. Watch this space for further developments.
Financial and treasury performance
As at 31 March 2014, the council’s working capital was $3.346 million (compared to the year end forecast position of $4.4 million). Capital expenditure for the year to date of $14.4 million is also under budget. However, the positive variance is just timing, with capital expenditure on the Richmond Water Treatment plant to start in May which should return the amount of capital expenditure to budgeted levels.
Total income for council is $5.056 million ahead of forecasted budget for this time of year. Expenditure is also showing a positive variance of $370,00 below forecasted budget for this time of year. The net position is an accounting surplus of $9.068 million against forecasted budget of $3.662 million for this time of year. Outstanding debts remains higher than last year as some larger invoices have been questioned. This will need to be monitored. The March 2014 statements can be found at page 28 of the agenda.
As at 30 April 2014, the council’s total debt was $148.82 million. This is close to what is expected to be our end of year debt position for the 2013-14 year. Paying a weighted average interest rate of 5.161%. In lay terms, we are paying around $8 million in interest per year. With each ratepayer holding around $4,000 in debt each. At this time, the council had $130.78 million (88% of total debt) of interest rate swaps in place. In lay terms, this locks in our interest payments for set periods. However, as swaps mature, interest rate pressures will probably see new swaps negotiated at higher interest rates. At present, 70% of council debt matures before 30 June 2015. This could provide a financial bow wave for council in the future and will need to be carefully managed. Helpful table illustrating the councils debt is found on page 34 of the agenda.
As stated above, councils year end debt position (that June 2014) is expected to be around $148 million (thats $2-3 million lower than projections made in January this year). Projected debt (see full council annual plan discussions) at the end of the 2014-15 year (thats June 2015) is expected to be around $171 million. Much of the increase in debt (about half of the $20 million) is due to earlier expenditure being recognised in the 2014-15 year, as long term capital projects come are completed. The other half is a reflection of council approving new debt funded capital expenditure programs in the forthcoming 2014-15 year. Anyone who says we do not have a debt problem (and can debt fund “nice to have” capital items, like recreation centres) are deluding themselves. Unfortunately, this will mean that council will have to be tougher this year on cutting operational expenditure to turn this increasing large debt ship around.
Interestingly, council became non-compliant with its debt maturity profile in July 2013, when two banking credit facilities fell within the 0-3 year maturity bracket. Refinancing existing bank debt (ie credit facilities) with longer maturity dates should bring the debt profile back into compliance. At present, the councils debt is financed from two sources: 70% from the LGFA fund, and 30% from private banking facilities. As part of council reducing finance costs, the council has reduced its available credit facilities by 30%. In lay terms, this is like reducing our available over-draft facilities. Yes, council pays for funds that it could draw on but has yet to do so. A reduction in available funds will mean that council will have to carefully manage borrowing and cash flows. And avoid taking on any un-budgeted debt.
Richmond water treatment plant – update
Site works for Richmond Water Treatment Plant are progressing. Pipework installation in Lower Queen Street starts the second week of June 2014 and will cause some disruption for road users. Signs have been up for two weeks to inform people of likely delays and a media release was issued. Forty community members attended a meeting with Council staff on 26 May 2014 which was also attended by the Mayor and Councillor Mirfin. The issues of concern were around flooding, stormwater, and the increased speed of traffic on Lower Queen Street.
Agenda and minutes
The agenda and minutes for this meeting are located at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2014/2014-06-05.