The corporate services committee met on 12 February 2015. All councillors were present.
Earlier in the day, the public forum received a very comprehensive presentation from Michael Rea on the Motueka harbour and coastal works account, which I will discuss below.
The agenda comprised the following items: (1) the Motueka harbour and coastal works account, (2) corporate manager’s report, (3) financial report, and (4) treasury report.
Motueka harbour and coastal works account
The Motueka harbour and coastal works account (the “Motueka works account”) was established in 2012. This followed the dis-establishment of the Motueka harbour endowment fund, following a December 2009 High Court decision, which resulted in the funds and assets (originally held under a closed account), becoming general funds of the council.
In 2012, the council resolved that the Motueka works account would be managed on a commercial basis and the 2012 policy document covering the fund’s management policy would be reviewed in 2013.
The revised 2013 policy proposed to reformat the former policy document so it was consistent in layout with other council policy documents, revise the title of the policy by adding the word “reserve”, include a definitions section (to clarify the fund is not a restricted reserve fund), and clarify any other points of confusion. In all other respects, the revisions were not intended to make any other changes to the meaning, scope, and application of the 2012 policy.
The 2012 policy provided that the assets or funds of the Motueka works account were to be utilised for a prioritised list of activities within the designated area of benefit, including other uses approved by council.
Use of the funds by council is subject to two conditions. First, the capital assets in the account must be considered surplus to the ability to meet the other three priorities, and secondly the Motueka Community Board has to be consulted on any such proposal from council.
In addition, the capital assets will be managed with the intention of increasing the value of the assets held in the reserve fund. For example, the funds might be held in a bank account or invested, until such time as they are required to be applied to the priority activities. Use of the funds, other than for maintaining the assets held in the Motueka works account will be subject to a separate business case that outlines the advantage of the investment. Again, the Motueka Community Board has to be consulted on any such business case.
The 2013 policy continues this approach.
The council resolved to accept the 2013 policy (as amended, during the meeting). The amendments sought to clarify: (1) the area of benefit (by including a map), (2) making consultation a standard paragraph to add greater weight for the need to consult with the Motueka Community Board (rather than a “note”), and (3) removing any confusion around the words “any use of the funds … other than for the costs of maintaining the assets” which could be interpreted very narrowly – and appeared contrary to the stated ability for council to apply the funds for other uses (eg investing the funds in a bank, or other investment).
I also raised questions about the ability for council staff to charge the fund for their time, give staff wages were already a sunk cost of council. In my mind “asset stripping” of this nature was outside the intended use (and restrictions) of the fund as outlined in the policy.
It is worth noting that funds from the Motueka works account are already earmarked for “investment” in the Mapua development. Had the Mapua development been less expensive (eg a container development), the commercial insurance payout would have met all its costs and the need for funds from the Motueka works account would not have been required.
The financial results for the half year period ending 31 December 2014 is a favourable variance of $157,000. Key contributors to this were an additional contribution from the treasury function, which was partly offset by higher staff costs and the timing of maintenance payments. The variance in maintenance costs is primarily a timing issue from the IT area. Staff costs are influenced by full staffing levels, additional unbudgeted costs in relation to the Waimea Community Dam project and managed exit costs.
Year to date, TDC have processed 1,241 Department of Internal Affairs (DIA) rates rebate applications worth $719,000 for the 2014-15 year. This compares with 1,733 applications worth $985,000 for the 2013-14 year.
The LIM process review project is progressing well and the new digital process is currently proposed to “go live” at the end of April 2015.
A major upgrade TDC’s internal webpage for staff only (also known as an “intranet”) will be launched over February-March 2015. This will bring together new applications such as the LIM processing tool as well as improved options for internal staff communications, initiatives and project planning.
As part of the 2014 telecommunications tender renegotiation, the Council network is adding diverse connections at the Main Office, Motueka and Takaka Services as well as the District Library. The main Richmond office second fibre connection is expected to be completed by the end of March 2015.
Maintenance work at the Motueka Library (to the value of $72,000, as budgeted in the annual plan) is expected to be completed by 30 June 2015.
The Local government fund (LGF) provided its quarterly financial report ended 31 December 2014 (see agenda pages 33 to 57). The fund is used by council for borrowing. Details about how council debt is managed can be found in the treasury report below.
Audit NZ has started their initial 3 week work programme.
At 31 December 2014, the net financial position of council is an accounting surplus of $1.085 million, against a budgeted surplus of $2.898 million. Income was $3.977 million below budget, and expenditure was $2.164 million below budget.
This variance has three key drivers: (1) the write down of interest rate swaps (-$5,001,000), (2) lower than budgeted income from subsidies and grants (-$677,000), and (3) lower than budgeted maintenance expenditure ($1,975,000).
The underlying operational result was a favourable variance of $2.649 million, once the impact of development contributions, vested assets and interest rate swap movements have been removed from the accounting result.
Capital expenditure for the year is $14.636 million against an overall budget of $48.435 million. A re-forecast of the capital expenditure programme is planned for February 2015.
Total debt is $149.1 million. This is in line with the projected year-end balance of $171.9 million provided the capital programme is completed.
Council’s working capital position at 31 December 2014 was ($3.737) million compared to the year-end projection of ($9.616) million. The major reason for this is a lower current debt balance at the end of December 2014.
At 31 December 2014, council’s debt stands at $149 million, with an average interest rate of 5.228% (June 2014 5.4%). Council’s actual weighted average cost of funds at 31 December 2014, including interest rate swaps, bank margins, and line fees at 5.337% against a budgeted rate of 6.10%. TDC’s cost of funds is illustrated below.
At 31 December 2014, Council had $147.78 million of interest rate swaps in place, equal to 99.2% cover over existing debt and 85% over forecast 30 June 2015 net debt. The recommendation from Council’s treasury advisors has been to increase the fixed rate percentage of the 12 month forecast debt to 85%.
Council’s funding maturity profile indicates how council has spread the risk of refinancing its facilities and loans. TDC’s funding and liquidity risk position is illustrated below.
Agenda and minutes
The agenda and minutes for this meeting can be found at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2015/2015-02-12.