Queen Street Reinstatement and the Dam
The full council meeting was held on 31 March 2016. Apologies were received from Crs King, Bouillir and Sangster for lateness. All other councillors were present.
The agenda included: (1) Tasman speed management plan, (2) Development contributions policy review, (3) Richmond infrastructure – Queen Street reinstatement project, (4) Special grants funding, (5) Waimea Community Dam – project status report including council response to WCDL funding proposal, (6) Mayor’s report, (7) Chief executive’s activity report, (8) Machinery resolutions, and (9) Action items from previous council meetings. In-committee (confidential) items included: (1) Land and access in the Lee Valley for the purposes of the Waimea Community Dam Project, and (2) Procurement and tendering process. I will highlight the main issues for me.
Presentations were received from Maxwell Clarke and Murray Dawson.
Mr Clark spoke about the Waimea Dam. He was concerned that decisions taken today were being made without informed public consultation. He believed it was not the ratepayers’ responsibility to fund the dam – it was the responsibility of the irrigators. He was concerned that the council was undertaking decisions that would have huge financial consequences on ratepayers beyond this term of council. Waimea East Irrigation company was a large extractor of water (extracting directly from the river), who sold that water to irrigators. He suggested that the environmental flow was not really councils problem – it was the irrigators problem.
Mr Dawson spoke about the environmental flow provided for with the proposed Waimea Dam. He also spoke about the provision for future demand with the dam model. Mr Dawson suggested that council cannot justify the current level of expenditure based on urban supply detracting from river. This was because the urban extractions were minor, in comparison to irrigators, and had very little environmental impact. He asked that council pause and reconsidered weirs as an option. He asked for a workshop on the issue.
Tasman speed management plan
The New Zealand Transport Agency (NZTA) made a submission to the Council on the draft Speed Limit Bylaw in October 2015. NZTA staff were concerned that the Council’s process for reviewing and setting speed limits may not be in harmony with NZTA’s new Draft Speed Management Guide (Guide) which was released on 1 September 2015.
The draft Guide provides a framework and a toolbox to help manage speed on road networks. It will help Road Controlling Authorities identify where the risks are, where effort should be prioritised, and exactly what interventions (if any), are needed on what roads.
On 18 February 2016, the Council agreed to develop a Tasman Speed Management Plan (Plan) together with NZTA. Council and NZTA staff consider that the Tasman Regional Transport Committee is an appropriate governance body to oversee and consult on the development of the Plan.
Development contributions policy review
Council received the report and instructed staff to commence a full review of the development contributions policy.
In 2015, the Development Contributions Policy was reviewed as part of the Long Term Plan (LTP) 2015-2025. Council also received a number of submissions on the issue. Unfortunately, it was not considered practical, due to time and resource constraints, to undertake a full review of the catchment approach used in the Policy. Consequently, the Council maintained the single catchment approach to calculating development contribution charges.
In 2015, Mapua Joint Ventures (MJV) lodged an objection to the development contributions notice issued by the Council for wastewater and stormwater. Most of their objection related to the Council’s Interim Development Contributions Policy. This was the first such Development Contributions objection heard by commissioners under the new legislation.
The commissioners’ decision upheld the Council’s assessment of development contributions, finding that none of the objection grounds were met. However, in their decision, the commissioners also made observations on the Council’s Interim Development Contributions Policy, as they are permitted to do so under clause 9 (5) of Schedule 13A of the LGA. Specifically, they were critical of the single catchment approach, noting that the LGA explicitly stated that “the district-wide approach for grouping assets should be avoided”; that it was odd that “vastly disconnected spatial communities should be somehow connected through a financial mechanism”; and that on this matter the Development Contributions Policy “fell short of expectations”.
Following the commissioners’ ruling, staff sought legal advice from Simpson Grierson concerning the Council’s approach to catchments. Simpson Grierson shared the commissioners’ concerns with the district-wide approach to catchments and they advised that the Council consider moving to a multi catchment approach in future.
Staff intend to seek legal and professional advice during the review and preparation of a new Policy. Staff estimate this cost to be in the order of $20,000. Staff propose to consult on the revised Policy concurrent with the Annual Plan 2017-2018.
Staff also intend to review the way growth expenditure and revenue are accounted for in our systems. This will ensure the Council can properly attribute development contribution revenue to growth costs, ensuring the Council knows when growth projects have been paid for, and when they should no longer be listed in the Development Contribution Policy.
Richmond infrastructure – Queen Street reinstatement project
The upgrade of Queen Street is part of the 5-year Richmond Central Infrastructure programme to replace pipework and improve stormwater management around Richmond. This work on Queen Street will renew aging infrastructure and improve stormwater management. The above picture is what Queen Street looks like now. And the following picture illustrates what it would look like after reinstatement.
The concept design promotes a slow-speed environment where pedestrians have more space to sit, shop, linger and meet. A narrower road (3-metre wide traffic lanes) will assist in moving through traffic onto the ring road and change driver behavior to encourage lower vehicle speeds.
The wider footpath allows a 2-metre wide route of travel with no obstacles and improves accessibility for all. The continuous asphalt surface is a low cost material, easy to maintain, providing a very smooth surface for accessibility. Some colouring may be considered during detailed design to enhance the aesthetic of the street.
Overall the design provides for the needs identified by the community without extravagance and can be achieved within the existing budget. The budget for the Queen Street upgrade is $9.8 million which includes: replacement of stormwater, wastewater and water pipes, lowering and replacement of the road, and renewal of the footpath.
Key features of the designed street include:
- Road profile: The road profile will be changed (from concave to convex), and the street layout from shop front-to-shop front will be a continuous surface, with no kerb and channel. Asphalt will be used to provide a smooth surface, with the exception of a 700mm wide buffer zone. The 700mm wide buffer zone will be exposed aggregate to clearly delineate the footpath and carriageway. Street lighting, traffic signs and other street furniture will be placed here, keeping the footpath clear of obstacles.
- Footpaths: A 4-metre wide footpath will ensure a 2-metre wide continuous accessible route of travel along Queen Street can be provided. The additional space in the footpath area will enable people to have space to stop without obstructing the line of pedestrian travel, provide seating and other requirements for the community.
- Parking: Parallel parking will be on both sides of the street. The car park width will be increased to 2.3 metres. This will provide more space to park and enter/exit the vehicle. This results in a loss of around 5 car parks from 112 spaces available today. By design, the car park spaces can easily and cost-effectively be converted to provide flexibility of their use (such as car or bike parking, outdoor seating or other business or community purpose).
- Pedestrian crossings: The current raised crossings will be replaced with two zebra (legal) crossings located at the Mall entrance and Sundial Square. Crossings facilities will remain at the roundabouts. The change to the road geometry along the length (narrower road) will make it safer for crossing at any point along Queen Street as a result of the lower speed environment.
- Bus routes: These will change. The current bus stop will be removed from Sundial Square to the mall entrance. There will be one or two stops, subject to the final agreed bus route which will be confirmed in detailed design.
- Landscaping: More shade, trees and greenery has been requested from the community. Trees and seating will be used to provide areas with shade for pedestrians to stop and rest at intervals across the length of Queen Street.
I raised a question about the location of cyclists on the narrowed road. As vehicles would not be able to pass cyclists, and nor would cyclists have much room to allow cars to pass.
|Development of detailed design for reinstatement||April – May 2016|
|Planning and discussions with businesses on construction methods and timing, prior to work||April – July 2016|
|Report back to the Council with final detailed design||June 2016|
|Construction works commence on Queen Street||August 2016|
|Construction works expected to be completed||August 2017|
Special grants funding
Council approved (with the mayor making a casting vote), the allocation of $50,000 towards a Special Grants Fund. The fund would be a one-off cost to council and would carry-over to the following year if not used. It would be used to fund large one-off community projects that the current community grants fund was unable to grant sufficient funds. Only applications for a minimum of $10,000 would be accepted. This was to clearly differentiate the fund from the community grants fund, and convey the message that it was primarily to support large events.
Criteria for the new special grants fund are:
- align with Council’s community outcomes,
- raise the national/international profile of Tasman District,
- deliver an economic return to the Tasman District,
- professionally develop the local event sector,
- utilise facilities that Council has invested in, and/or build on the unique natural environment of Tasman District, and
- address an identified community need.
My concern with the proposal was two fold. First, I held concerns that the community grants fund was not a sufficient check on the merits of allocating such a large sum of funds. In my opinion, full council should be deciding on the merits of such an application. Accordingly, I put forward an amendment (Cr Canton seconding) that read:
3b. that the Full Council make final decisions on recommendations from the Community Grants Subcommittee on applications made to the Fund.
Unfortunately, on a show of hands, the vote was 3/9 against my amendment.
Secondly, while I appreciated that attracting large events to the region was beneficial, I considered that council had more pressing need for $50,000 (ie stormwater). Surely it was more important to protect peoples homes first, before entertaining them. Further, TDC already funded the EDA, and that organisation already had capacity to fund large events. I voted against the fund.
Waimea Community Dam – project status report including council response to WCDL funding proposal
This was a significant report that updated council on progress and also invited the council to pass resolutions that: “confirms its commitment to fund up to $25M towards the project costs while noting that Council’s contribution (50%) to the sunk costs remains in addition to the $25M”. And also resolved “confirms that its position on funding the environmental capacity in the dam remains unchanged”
I took issue with both these resolutions (which I discuss in more detail below). First, I saw no reason to pass the resolutions, unless the purpose was to lift councils contribution from $25 million, to $28 million (ie $25 million plus $3 million of sunk costs). Secondly, I considered that an an extractor pays approach to the environmental benefit portion would result in council reducing its financial commitment (not increasing it) – and that given the opportunity, we should revise the environmental capacity funding model, rather than confirm it. In my opinion, the earlier council indicated a different approach, the fairer it was on those irrigators who were seeking funding for the dam.
Council also resolved to confirm its earlier advice to Waimea Community Dam Limited (WCDL) that the WCDL funding model was not acceptable to the council for the reasons set out previously.
Council’s preference was a model that:
- allocates costs to beneficiaries in proportion to design capacity,
- limits debt at p95 (95% price certainty) in the JV to around $10 million (this being consistent with the council’s funding commitment),
- places the balance of the debt to fund the design capacity for the beneficiaries with the proposed joint venture partner(s), and
- is based on p95 cost estimates and provides for equitable allocation of project cost over or under runs.
Following on from the Council’s December 2014 consultation, and decision that the project could not be fully funded from rates, WCDL undertook to try to raise the money to fund the irrigator capacity in the dam and to develop an initial investment proposal for consideration by Council.
That proposal looked something like this:
WCDL and Council representatives met on 2 December 2015. That meeting was to discuss WCDL’s proposed funding model and the assumptions they had made about the appropriate project cost estimate to use and about the additional debt that would need to be held in the JV vehicle. Some limited work had been done by WCDL to address the concerns raised by Council in September 2015 over their funding model as originally proposed.
The Council’s concerns with the WCDL proposal were about:
- the robustness of the numbers proposed,
- WCDL’s ability to meet its obligation to the proposed joint venture, and
- the fairness and equity in how capital and operating costs are allocated and funded.
WCDL and Council representatives agreed that:
- the overall CCO structure for the JV was acceptable,
- irrigators and related extractive users (WCDL) would accept a structure where they do not hold 50% or more of the JV shares, and
- council negotiators would prepare a modified proposal that identified issues for presentation to WCDL in January 2016.
On 20 January 2016, a modified funding model was presented to the Project Steering Group (PSG). As a result of discussions at the PSG and as requested, staff developed a revised proposal. The key changes from the original proposal were:
- debt above $10 million being held in WCDL with interest costs met by irrigators,
- industrial water users and high-use industries (“wet industries”) having Water Supply Agreements (WSAs) with Council, as this demand is included within the 1400 hectare equivalent of dam capacity assigned to urban water supplies, and
- the balancing item for the higher project cost was NCC/Central Government funding. That has increased to $11 million.
In my opinion, leaving some debt in the Dam company (that is jointly owned) is sensible move as it allows any interest costs to be deducted against any potential revenue. Its a tax thing. As long as the debt is shared equally there is minimal risk for council (unless the other shareholders evaporate). Hence why I also did not want to see the Dam company completely debt loaded by the irrigators. Any irrigator debt should be held in an irrigator controlled investment holding vehicle.
On 18 February 2016, council held a workshop that considered a background paper on “Council’s Response to the Waimea Community Dam Ltd Funding Model”. A copy of the workshop paper was provided to WCDL and following that workshop, the Mayor communicated council’s concerns and position to the WCDL directors.
Subsequently, WCDL advised council that certain high level elements of the model were agreed, but it was also clear that there were affordability challenges, and a lot of detail to resolve before the model could be agreed.
The proposed model has the following characteristics:
- retains the 50/50 JV structure (voting rights) but provides for an unequal capital contribution (TDC 34.4%, NCC 5.3% WCDL 60.3%),
- is a CCO therefore has access to the Council’s Public Works Act (PWA) powers,
- allocates costs to beneficiaries in proportion to design capacity,
- assumes that NCC will be an “extractive user” and fund the design capacity and operating costs assigned to the regional supply,
- limits debt at p95 in the JV to around $10M (this being consistent with the Council’s funding commitment),
- places the balance of the debt to fund the design capacity for the beneficiaries with the JV partner, and
- overcomes the unfairness in operating cost allocation.
The proposed structure and funding model for a $82.4 million Dam is illustrated below:
The revised structure is preferred because it allocates dam project costs based on the design capacity assigned to each stakeholder group. The former model merely divided costs based on an environmental benefit portion and current and future water supply need. In the revised approach the funding required to be raised by irrigators is $41M. This is considerably higher than that proposed in the original WCDL model.
By way of comparison, the funding model for a $74.6 million Dam is illustrated below:
Its quite evident in the above illustration, that the $3 million sunk cost was very much part of the $25 million contribution towards a $74.6 million dam. In my opinion, treating the sunk cost as additional to the $25 million in the revised funding model, subtly increased council’s funding to $28 million (and incidentally maintained the magic 1/3rd funding of the Dam by ratepayers).
The revised design capacity approach also allocates operating costs (including finance costs) in the Joint Venture to extractive users, based on the design capacity, not on the initial uptake. This is a positive of the model and reduces ratepayer exposure to ongoing operational costs – which in my opinion are likely to be around $600,000 per year based on similar sized Dam operations down south.
The proposed dam at 13.4 million m3 (or 7,765 ha of designed irrigation capacity) provides more capacity than is need to meet current and expected demand out 100 years. While Council can fund its 100-year requirement for industrial and urban water supplies (1400 ha), the irrigators, based on the WCDL proposal, only proposed funding 4,500 ha, out of the 5,850ha of designed irrigation capacity, allocated to irrigation.
If irrigators subscribed to 4,500 ha the funding gap is around $22 million ($18 million if NCC purchase 515 ha). However, at the time of the report, it appeared irrigators had only secured funding for around around 2,700 ha. On this basis there appearers to be a substantial funding gap for irrigators. Clearly the government would need to be contributing more than $8 million in loans.
The funding model approved under the Long Term Plan (LTP) provided $25 million in total funding for the $74.6 million project. That funding model allocated $3 million for a CCO (and its work streams), $14 million for two thirds of the environmental benefit/public good capacity, and $8 million for the urban water supply capacity.
No reference was made to sunk costs, and many councillors had rightly assumed that the $25 million contribution, included all (investigative) sunk costs. However, based on a revised project cost of $82.4 million and a revised funding model (based on design capacity) the allocation of total project costs (of $28 million) would change to $11.9 million for the urban water supply, and $16.5 million for the environmental benefit (less $3 million for the already funded sunk costs).
Interestingly, the report notes that in the LTP, the Dam project already caused council debt to peak, and servicing the funding costs would also put a lot of pressure on the 3% pa limit on rates increases. Therefore, in my opinion, its been no surprise that the mayor has been very motivated in the last 3 years to get debt down – so that he has the head room to spend it.
The Project Steering Group (PSG) meet on 16 March 2015. John Palmer attended (as Nick Patterson’s replacement) and WCDL’s project director. Murray Gribben who is the Chair of Crown Irrigation Investments Ltd also attended. John Palmer and Mike Drummond met again on 22 March to discuss some WCDL thoughts on the Council’s proposed model that they verbally commented on at the PSG meeting.
The PSG also agreed that the procurement process must be carried out jointly. The procurement process has three stages. The first stage is to invite expressions of interests (EOI) from the market; the second stage is to invite proposals from shortlisted contractors and the third stage is to select the preferred contractor. Stage one was scheduled to begin at the end of March or early April.
Because the JV can’t be constituted as a CCO until after a proposal to do that is consulted on (assuming that is the outcome of the consultation) some form of interim contractual arrangements between the council and WCDL were needed to jointly run the procurement process. What was contemplated (and approved by council) was a formal agreement to jointly carry out this work, to jointly fund it and to jointly share the risks and benefits. It is likely that the cost of the process including finalising the design will be around $1 million. It was considered imprudent for council to carry this funding obligation and the risks alone.
As at February 2016, council had $2.015 million in outstanding loans in relation to the project. Of these loans $684,000 is held by the Urban Water account and relates to expenditure from 2008 to 2011. The balance of $1.33 million relates to current work streams and is part of the $25 million budgeted in the LTP. In addition to these costs that have been loan funded, there are costs related to the project that have been charged to other operational budgets. These total an additional $431,000 including $161,000 charged in the current financial year.
As at the end of February 2016, the council write off should the project not proceed for outstanding loans used to fund the work streams since 2008 is $2.015 million. This write off will quickly escalate as the procurement and land acquisition work streams are ramped up.
Councillors queried whether Council would meet the control tests required under the Public Works Act if the Council was only funding around 34% of the project. The CEO said what was important was that council had the construction under its control – either through Council or through the CCO. Legal advice that he had received confirmed that the funding and structural model the Council proposed met the control tests.
A second test was the obligation to be ‘financially responsible’ for the project. He said that there was no legal precedent for ‘financially responsible’, but by having at least a 50% shareholding in the CCO the council would be financially in control, even if the council was not funding the majority of the cost of the project. It was also important that council not disclaim financial responsibility.
Councillors also discussed the irrigators commitment to the project (ie how much skin they had in the project). Councillors noted that the estimate hectarage paid for by irrigators had dropped back from the original estimate. This gap immediately created a funding gap. They also expressed concern that the irrigators’ uptake may not increase over time. Mr Drummond confirmed that this would result in an increased cost to the other irrigators.
I was generally supportive of the revised design capacity funding model as it showed a much clearer picture of the amount of water (1400 ha or 18% of total dam supply), council was asking for and the very clear disconnect between what council was getting (18% of water) and the amount it was paying (34% of dam cost).
However, I did not support treating the $3 million as a prior sunk cost. In my opinion (and given the reaction of councillors around the table to what was being proposed), the $3 million was always considered to be part of the $25 million (not that I supported that figure either).
Accordingly, I moved an amendment to resolution 2 to remove the words “while noting that Council’s contribution (50%) to the sunk costs remains in addition to the $25M”. Effectively excluding the sunk costs from the $25 million contribution. Unfortunately the amendment was defeated, with only Cr Canton, Bouillir and myself supporting the amendment.
I also raised the question about the heavy loading on ratepayers. Around 70% of the environmental benefit portion of Dam funding is being paid for by ratepayers. In my opinion, this is inequitable and unfair. At present, 30% of the dam cost is funded by the environmental benefit portion (around $24.75 million of an $82.4 million Dam). One-third (33%) of the environmental benefit portion is calculated on an extractor pays basis (TDC extracts 15% of allocated water, so the funding portion would be around 15% of 8.25 million = $1.24 million) and the remaining 2/3rds is fully (100%) funded by TDC (around $16.4 million). Thus ratepayers are being asked to fund a total of around $17.7 million ($16.4 million + $1.24 million) for the environmental benefit portion of the Dam cost.
In my opinion, if the whole (100%) of environmental benefit portion was funded on an extractor pays approach, TDC would only be paying 18% (roughly $15 million) of the Dam cost, not 34% (or $28 million). The loading of the environmental benefit portion on ratepayers, is what is inflating the ratepayers contribution. That’s not a fair deal in my book.
If TDC only paid for what it consumed (18%) we’d probably only pay $15 million (+ $3 million already spent). A total of $18 million (rather than $28 million). This is my preference. It is also a similar price for what we would pay for a Plan B option.
During the debate, I put it to councillors that this was an opportunity to revisit how the environmental benefit portion was allocated.That this was an opportunity not to increase the ratepayers level of contribution from $25 million to effectively $28 million (ie $25 million + the $3 million sunk cost). But instead take it down. After all many councillors had stated in the papers that they did not support any increase of the $25 million contribution to the Dam. In my opinion, it was also better to review funding now, rather than further down the track. Those irrigators seeking funding would want certainty over how much they needed to raise now. Leaving it till later was also not fair on them.
As an alternative, I also suggested that if councillors did not accept an extractor pays approach to the environmental benefit portion, then it could consider reversing the 2/3 (100%) loading on TDC, so that only 1/3 is fully funded. If this was done the net result would be that TDC would then only be funding $21.15 million (rather than $25 million). Thus, if council wanted to treat the sunk cost of $3 million as separate from the $25 million contribution, this revised calculation would result in a a total contribution to the Dam of $24.15 million (ie $21.5 million + $3 million).
Interestingly (at para 6.4 of the report, at page 51 of the agenda), it is noted that “the current council commitment to fund up to $25M may need to increase”.
I put all of these numbers to the council. Unfortunately, none were prepared to listen (although I could see some were looking rather uncomfortable with what they were hearing). In response to my argument, the mayor suggested it was to late to change now. And a few other councillors chipped in with similar comments, suggesting council had already decided how the environmental benefit portion would be carved up.
I disagree. In my opinion, council could change its mind. It was never to late to change direction. In my mind, council had to change now (if it wanted too), so that irrigators supporting the Dam knew what funds they needed to raise. Clearly the task would be bigger, if ratepayers would not providing as much of the funding. However, none of the other councillors were prepared to enter into debate on the issue. Nor was anyone prepared to second my intention to put a motion to change the environmental benefit portion.
Due to the ongoing uncertainty over whether the irrigators could raise the necessary funding, Cr Bouillir and myself put forward a motion that read: “That the Full Council requests staff to limit future Waimea Water Augmentation Project spending pending the funding gap issue being resolved.” This resolution was unanimously supported.
Finally, while I was supportive of the new funding methodology (design capacity), I could not support lifting the contribution to effectively $28 million. I called for a division (recorded vote) so that residents could see what councillors voted for in comparison to what they had said in the papers. Only Cr Bouillir, Cr Canton, and myself voted against the resolution. Everyone else supported what was an effective $28 million contribution to the overall Dam project.
I strongly advise readers of this blog to read the Morrison report (page 53 of the agenda).
Chief executive’s activity report
Highlights from the CEO’s report included:
- Financials. Council had an accounting surplus of $8.5 million, an operating surplus of $1.6 million, and capital expenditure was $24 million below budget. External debt was $142 million (against a budget of $168 million) – with external debt forecast to reach $155 million by year end (June 2016).
- Golden bay recreation centre. A large soft spot was found under the proposed site of the recreation centre. Work had stopped to assess the problem. Subsequently, a solution was found and work recommenced.
At the end of the mayor’s report councillors are asked if they have any issues. I raised the following questions. First, I asked if the mayor would be following up with residents at James Place in Richmond over their stormwater concerns. Apparently it had been several years since they had last heard from the mayor and they had been reassured at that time he would be keeping them informed. Given the planned improvements I felt it proper for the mayor to again make contact with those residents and reassure them something was being done. He agreed.
Secondly, I disagreed that council should get involved in the local government excellence programme. In my opinion, LGNZ would be looking to establish credibility about its objectivity and TDC was not yet in a good state of health. I also thought the $20,000 fee could be better spent on other issues.
Thirdly, I asked about what was happening with the Takaka Hill road issue (ie access to homes on a DoC road that was proposed to be closed). The mayor advised that residents did not appear interested in resolving the issue (ie part funding a solution) and it had not progressed any further. Finally, I noted that Barcelona had declared that it would no longer use Glyphosate spray in public parks, and perhaps it was time for TDC to consider a similar stance?
Agenda and minutes
The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/full-council-meetings/?path=/EDMS/Public/Meetings/FullCouncil/2016/2016-03-31.
My new books
I thought I would take this opportunity to promote my new book – Tax Administration Law Made Easy, together with two other books in the series that I have also been involved with – namely, Goods and Services Law Made Easy and Income Tax Law Made Easy.
All books can be purchased online from LexisNexis in hardcopy or eBook format.