Tagged: Debt

Corporate services committee meeting (5 May)

The corporate services committee meeting was held on 5 May 2016. Apologies were received from Cr Mirfin and Cr Dowler for absence, and Cr Ensor for lateness. All other councillors were present.

The agenda (requiring no decisions of council, other than to receive reports) included: (1) Treasury presentation from PWC, (2) Treasury report, and (3) Corporate services activity report. A confidential (in-committee) report in relation to the proposed sale of 11 Fittal Street in Richmond was discussed.

Treasury presentations

Brett Johanson and Jason Bligh from PricewaterhouseCoopers (PWC) gave a presentation on treasury matters. This included responding to questions presented by councillors.

Cr Bouillir and myself submitted several questions on behalf of some concerned residents of Golden Bay – much to the frustration of the chair (apparently this was not normal practice). In my opinion, one of the roles of a councillor is to ensure residents concerns are adequately addressed and answered – even if they may disagree with the outcome.

Unfortunately, Cr Norris took the opportunity throughout the rest of the day (as a bit of a running joke) to ask councillors if they were asking questions on behalf of someone else. While I could see the amusing side, some people might suggest this is a form of bullying or intimidation (ie, don’t ask questions on behalf of others, otherwise I will make fun of you all day).

My three questions on behalf of a Golden Bay resident were:

1. Why is our local authority paying an interest rate higher than I could obtain by walking into my local building society? At the time of the question was submitted, TDC was paying around 5.331% in interest.

2. Could the TDC provide factual examples of local authorities that have derived significant financial benefit from dealing in interest rate swaps?

3. If interest rates were to fall to say 1% for the remaining duration of existing swap contracts, what would the financial impact on TDC’s finances be at that time?


Before jumping into PWC’s responses, its useful to understand how council borrows money and what “swaps” are.

At present, council continues to carry a large amount of debt. However, this total debt is actually made up of much smaller parcels of debt that have been entered into at different times, have different durations and end dates, and have different interest rate obligations. It’s also why council often talks in terms of “average” interest rates.

So what is a “swap”? A swap is a derivative contract whereby two parties exchange financial instruments (containing specified obligations). The swap agreement defines the dates when cash flows are to be paid and the way they are accrued and calculated. Swaps do not trade on exchanges.

Swaps can be used to: (1) hedge certain risks such as interest rate risk (which is what TDC is doing), or (2) speculate on changes in the expected direction of underlying prices or interest rates, in order to make money.

This later (revenue earning) type of swap is common in America, where local government might have their income (or total rates take) capped. In order to raise additional revenue above their cap (perhaps for an unexpected infrastructural expense), they use their capacity to service debt to raise income (by underwriting the interest rate risk of the other parties).

In the UK, the Hammersmith council entered into such an arrangement, and while making money at first (when interest rates were low), subsequently made substantial losses, when it had to underwrite the rising interest rate obligations of the other party. The TDC is “not” engaged in these type of swap arrangements. Rather, the TDC has entered into swaps to reduce exposure to interest rate risk, not make money.

The most common type of swap is an interest rate swap that has the effect of transforming a fixed rate loan into a floating rate loan (or vice versa). TDC has a number of floating rate loans. In order to obtain interest rate certainty and mitigate risk, TDC has entered into a number of swap contracts. Council also has the the opportunity to blend (and\or extend) SWAP agreements where they provide TDC financial advantage (ie as interest rates lower).

Is TDC paying to higher an interest rate?

PWC advised that TDC borrows at commercial rates, not domestic mortgage rates. TDC also borrows funds on longer terms than the average domestic mortgage. Most domestic mortgages will be on a short term 1-year floating rate, or fixed for short durations (perhaps 1-3 years, before they are reviewed). The approach of PWC is to borrow funds on the 5 year interest rate market. This is because most TDC assets will have a life expectancy of at least 5 years (or more). At present, TDC’s borrowing costs are tracking well below the 5-year mortgage rate.


Does TDC (or PWC) have evidence of swaps benefiting local authorities?

PWC advised that they did not have an immediate answer to this question (as they were not given these questions in advance of this meeting, but were open to providing this information from their global network of resources). At this point, the chair intervened, and suggested the question was not an invitation for PWC to charge TDC for making further investigations. The chair, then asked if I had any other questions.

In answer to the question, over the past 10 years, TDC has consistently achieved a lower interest rate than either budget or the 5-year mortgage rate (see above graph). Further, between 1999 and 2008, as interest rates were climbing, significant financial benefits accrued to TDC.

It is also widely acknowledged that some councils have benefited from swaps. Significantly, the following observation comes from a website (www.debtresistance.uk/the-ghosts-of-hammersmith-fulham-the-return-of-toxic-council-derivatives-debt/) that criticises some forms of swaps. It states:

… some councils had “guessed right” with their interest rate bets, and were profiting handsomely from the trades, whilst others, such as Hammersmith taxpayers faced a potential bill …

Importantly (and to avoid any confusion) the Hammersmith scenario was a different type of swap arrangement to the type TDC has entered into. Hammersmith was benefiting from rates going down (effectively covering others from rates going up), rather than hedging against rates going up.

TDC is not entering swaps to make money, nor is it covering other parties from interest rate increases. Rather it is using swaps to consolidate a mixture of different interest rates and debt parcels, as well as mitigate the risk of 5-year interest rates going up. Effectively, swaps are being used as a risk management tool.

In my opinion, the above information supports the proposition that some councils have benefited from swaps.

What happens if interest rates drop?

PWC advised that they are continually reviewing the swap market to take advantage of any downward movements. Unlike a domestic mortgage, TDC has a large number of loan arrangements that have different start and end dates. TDC does not have one single loan arrangement. Similarly there are a number of separate swap arrangements that cover those loans. As arrangements come up for renewal, there is an opportunity to take advantage of a lowering market. This is why TDC’s average interest rate has been falling over the last year or two.

In reality the Council acts within the overall strategy of keeping rates down, as interest rates move. When interest rates drop the Council uses tools such as “forward starts”, or “blends and extends”, to take advantage of the movement at the time and to capture the low rates, as swaps come due.

Council’s ability to manage the forward risk in interest rate movements is greater than the person who goes into their local building society and borrows say $100,000 for 2 years at a fixed interest rate of 4.99%. If interest rates fall to say 1% for the remaining duration of their loan agreement they are faced with a break fee or toughing it out until their mortgage matures. TDC has more options than that.

More information

These questions were again answered in more detail in the Golden Bay Community Board meeting (which I also attended), see the Agenda (from page 11) at: www.tasman.govt.nz/council/council-meetings/community-boards-meetings/golden-bay-community-board-meetings/?path=/EDMS/Public/Meetings/GoldenBayCommunityBoard/2016/2016-05-10. See also the Golden Bay Weekly (27 May 2016, page 6) at www.gbweekly.co.nz/uncategorized/27-may-2016/#27-may-16/page1. For NZ swap rates, see: www.interest.co.nz/charts/interest-rates/swap-rates.

Treasury report

Council’s debt at 31 March 2016 stood at $134.5 million, with an average interest rate of 5.417% (contrasted to June 2015 when it was 5.166%).

Council’s actual weighted average cost of funds at 31 March 2016, including interest rate swaps, bank margins, and line fees at 5.464% against a budgeted rate of 5.7%. The gradual decrease is from more favourable terms resulting from the refinancing of the bank facilities and favourable 2 to 4-year term swap rates. The ‘spike’ in the weighted average cost of funds for September and December 2015 and March 2016 are due to a lower debt position. This has meant that the Council’s debt is currently over covered by interest rate swaps which are at a higher rate than current floating debt rates.

At 31 March 2016, the Council had $147.78 million of interest rate swaps in place, including some “forward start” swaps. After adjusting for the forward start swaps, $144.78 million is “live” which is equal to 108% cover over existing debt and 87% over forecast 31 March 2017 net debt (ie 12-month debt). I asked staff when the debt levels and swap coverage would realign. Staff advised that they anticipated alignment by the end of June 2016.

Existing committed bank facility expiry dates and term debt maturity dates are spread based on defined maturity band limits of 0-3 years, 3-5 years and 5 years plus. Minimum and maximum percentage limits within each time band ensure a spread of maturities and reduce the risk of maturity concentrations.

The Council currently has $30 million in private placements. The private placements allow the Council to place longer term debt in the years between the Local Government Funding Agency (LGFA) issues. The Council also has $90 million of debt placed with the LGFA.

Bank Cash/Cash Investments $Million Notional Swaps $Million Credit Exposure $Million Compliance
Westpac $1.21 $63.05 $13.67 Within Policy
ASB $2.37 $41.73 $13.28 Within Policy
ANZ Nil $43.00 $11.11 Within Policy

The objective is to have a mix of 80% debt capital markets (such as the LGFA, private placements and commercial paper) and 20% committed bank facilities. The current mix is as follows:

Funding Source

Amount $Million


Bank Debt



Private Placement









Corporate services activity report

Highlights from the manager’s report included:

  • Finances. The department will end the year with a surplus, mostly driven by the treasury function. Tight and active management of treasury combined with benign external factors have reduced loan costs and high cash balances have increased interest income above budgeted levels. It is intended that part of the surplus will be used to repay outstanding treasury loans in relation to the LGFA share purchase.
  • Commerce commission. Work on port charges (and valuation) by PricewaterhouseCoopers and Simpson Grierson is drawing to a conclusion and a response to the Commerce Commission from council should be made within the next 6 weeks (ie June 2016).
  • Property. The Property section continues to operate at reduced capacity. A replacement for the Property Officer has been appointed and started on 2 May.
  • Aerodromes. Aerodrome landing charges are set to increase by $1 from 1 July 2016. The Motueka road sealing (hangar access) is currently on hold and likely to be cancelled.
  • Campgrounds. Overall campground income is up and expenditure down slightly on budgeted levels. The overall profit is $156,000 which confirms a good season and tight financial management. Infrastructure failures at Collingwood campground have stabilised.
  • Mapua. The tail end of the works related to the Shed 4 build and improvements to the public areas is underway. A report on the budget over-run is being prepared and is subject of a separate report to this Committee. Council officers are arranging for an additional temporary resource to assist in developing a Strategic Plan for the wider Mapua area (including the wharf, waterfront park, Grossi Point and remediated land). This strategic plan will assist in managing the competing interests in the area and ensure that agreed outcomes are met. The prospective purchaser of the Mapua causeway has advised that they no longer wish to pursue the purchase option. They have a right of renewal for five years under the current license to occupy.
  • Forestry. The forestry management tender process has been completed with PF Olsen Ltd being the successful tenderer. Income in forestry is forecast to be up on budget for the year due to higher market prices and increased cutting volumes. The current underspend on maintenance will correct by year end due to roading work in the Sherry and Borlase forests as we prepare for upcoming harvesting at those sites.
  • Port Tarakohe. Volumes over the wharf are good. The marina occupancy is stable. The YTD profit (for February) is $20,000, against a budgeted loss of $78,000.
  • Port Nelson. Port Nelson Ltd has declared an interim 2016 dividend of $1.5 million, of which $750,000 comes to TDC. Cr King is currently a director on the Port Board and is due to retire at the AGM on Friday 23 September 2016. His appointment was extended until March 2017 to allow a newly formed council to make the next appointment. It should be noted that council policy prohibits the reappointment of a director for a fourth successive term, unless there are special circumstances. Given the experience of other directors already on the board (see http://www.portnelson.co.nz/about-the-port/directors/), I cannot see why a any re-appointment of Cr King would be required.
  • Legal. The Council sought legal advice around the ability to ban (wicked camper vans) from the Council’s campsites, the summary being: (1) Any ban needs to be around the offensive slogans or images, not around specific provider, (2) Leased sites are not able to be controlled by the Council, unless our leases specifically permit it (which they currently do not) or each lessee agrees to it. It would not be commercially prudent to exert this control over our lessees’ businesses. However, discussions with the lessees has indicated a willingness to work with the Council. Collingwood campground is the only current operated site that can be controlled via an immediate Council policy. All four Council-owned commercial campgrounds, regardless of being leased or operated, are insisting on those slogans being covered before entry into our campgrounds. Staff recommended that no formal action is required, as the matter is being dealt with effectively at each campground.
  • Information technology. Digital Strategy interviews and staff workshops have been completed and the findings and proposed strategic priorities will go to a Councillor workshop on 28 April 2016. The new Council file structure is being tested across all departments between April and July 2016. Once testing has been completed and signed off, the new structure will be installed into our document management system and the process of moving departmental documents and records across will begin. This will involve document process reviews and training of staff to ensure the transition is successful. It is planned for all departments to be working within the system by the end of 2016. The final upgrade of the Confirm Enterprise asset management system took place during the weekend of 16 April 2016. Additional security cameras are being added to the Customer Services area of the Main Office. Information Services are now managing the security camera infrastructure.
  • Nelson Airport. The airport half yearly report and draft 2016-17 Statement of intent were considered by the Joint Shareholders Committee (comprising the mayor, deputy mayor, committee chairs, and audit subcommittee chair) on 15 April 2016.
  • Action items. Mapua land (vacant corner site) – Mike Drummond to report back within 12 weeks on potential alternate uses of this land.

Agenda and minutes

The agenda and minutes are located at: www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2016/2016-05-05.

Full council (31 March)

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.

Public forum

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.



Action Timeline
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
Procurement June 2016
Construction works commence on Queen Street August 2016
Construction works expected to be completed August 2017

See also TDC’s webpage on the Queen Street Reinstatement Project and the You Tube video.

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.

Update report

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.

Mayor’s report

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.

Corporate services committee meeting (24 March)

The corporate services committee meeting was held on 24 March 2016. Apologies were received from Crs Mirfin, Bouillir, Sangster and Ensor for absence, and Cr Dowler and the Mayor for lateness. The agenda included: (1) presentation from ASB Bank Economist, (2) remission application – policy on remission of excess metered water rate, (3) corporate services activity report, and (4) treasury report. I will summarise the main highlights.

Public forum

Public forum included presentations from Maxwell Clark who spoke about the water usage charge for a Murchison commercial property, which had been subject to a leak. He believed that the remission policy was out of date and that the water charges were excessive. He also spoke about freedom camping. He considered freedom campers added value to the regional economy and should be welcomed.

Remission application

A small business in Murchison sought a remission from water charge issued to them in December 2015 which was unusually high ($5,252.40) due to a water leak on the property. The business’s previous bill issued in June 2015 was for $1,194.90 and council records indicated that a letter had been sent to the customer stating their account was high.

The Council’s Policy on Remission of Excess Metered Water Rates states that the policy applies “to applications from ratepayers who have excess water rates due to a leak in the property’s internal reticulation.” The policy further defines internal reticulation as going “directly to the dwelling”, and states how the dwelling must be used only or mainly for residential purposes.

Cr Edgar argued that remissions came at a cost to budgets, and therefore other ratepayers would effectively subsidise the remissions.

In this instance the applicant was a business and they had been given prior notice of a potential leak. Accordingly, council (Cr Edgar moving the resolution) declined to issue the applicant a rates remission. Cr Bryant opposed this decision.

In my opinion it would be useful if an “over time” graph of water usage was presented on the invoice (ideally comparing earlier years) – so that unusual water consumption (ie leakage) could be easily identified by consumers. Digitisation (and on-demand printing of invoices, rather than using pre-printed invoices) would enable this kind of modification to invoices.

I am also of the opinion that there is the potential to do an end of year mop up in the water account and to pro-rata any surplus between valid remission applications submitted during the year. After all, the additional water consumption would not be planned and its likely the water account would have a corresponding surplus.

Corporate services activity report

Council received the corporate services manager’s report. Highlights included:

  • Financials. Year-to-date expenditure was favourable against forecast by $147,000 with favourable variances across most budget lines. The forecast year-end position compared to the budget is a net overhead deficit of $50,000 once the impact of treasury interest costs (down on budget by 0.45%) and depreciation is removed. The driver of the forecast deficit is additional professional fees (ie programmed investment valuations as part of our ongoing review of assets for potential sale). There is a high level of activity with ongoing work on reporting and improved debtor management.
  • Property. The revised Best Island land valuation was received at the start of March. Discussions were occurring with the Property Group and the Ashtons.
  • Information Services. The Confirm Enterprise asset management system was updated to the latest version. Cameras for staff Skype calling, video conferencing and Webinar participation have now been added into the Heaphy, Wangapeka and Sabine rooms. The electronic document and records managements systems project continues with the new Council file structure being installed into the test system in late March. A workshop on the strategy was planned for early April. The Strategy will ensure a more externally-focused strategy with an emphasis on using technology and digitisation to improve functions and processes, providing improved service options and a better customer experience with council.

Council also instructed staff to place on hold the current disposal process for surplus land at Mapua pending a review and report back to council on potential alternate uses of this land.

Treasury report

Council’s debt (at 29 February 2016) totalled $139 million, with an average interest rate of 5.274% (June 2015 was 5.166%). The weighted average interest rate on borrowings is 5.274%. The Council’s cost of funds including interest rate swaps, bank margins and line fees being taken into account is 5.321%, compared to a budget of 5.70%.


At 29 February 2016 the Council had $147.78 million of interest rate swaps in place, including some “forward start” swaps. After adjusting for the forward start swaps, $144.78 million is ‘live’ which is equal to 104% cover over existing debt and 87% over forecast 29 February 2017 net debt (ie 12 month debt). The swap over-hang is due to debt being retired faster than forecast. The over-hang is expected to return to 100% within the next quarter as council takes on new debt.

Debt (funding) source

Bank Debt $19.0 M 13.7%
Private Placement $30.0 M 21.6%
LGFA Debt $90.0 M 64.7%
Total $139.0 M 100.00%

Credit exposure

Bank Cash/Cash Investments $m Notional Swaps $million Credit Exposure $million Compliance
Westpac $1.2 M $63.05 M $13.86 M Within Policy
ASB $10.7 M $41.73 M $21.82 M Within Policy
ANZ Nil $43 M $11.25 M Within Policy

Council’s cash investments total $11.9 million dollars with an average interest rate of 2.85% (June 2015 was 4.43%).

Agenda and minutes

The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2016/2016-03-24.

Full council (3 March)

A full council meeting was held on 3 March 2016. Apologies were received from Crs Edgar, Dowler and Mirfin for absence and myself for being 10 minutes late. Cr King departed halfway through the meeting.

The agenda was rather brief and included: (1) 2016-17 annual plan briefing and engagement material, (2) Regional landfill joint venture proposal, (3) December 2015 quarterly financial update, and (4) Plan Change 59 – late machinery resolution. No public forum presentations were received.

2016-17 annual plan briefing and engagement material

Council approved the release of the engagement material contained in Attachment 1 of the agenda. Overall, the budgets for the 2016-17 financial year are not significantly or materially different to those outlined in the Long Term Plan (LTP) for 2015-25. Changes that have occurred have improved council’s financial position and reduced rates income rises. Rates income rises are now 1%, well below the forecast of 2.96% in the LTP for the 2016-17 year. Capital and operational budgets and programmes remain largely unchanged from that set out in the LTP for 2015-25.

Council intends to spend $32.5 million on capital projects and $105.9 million on operational activities throughout the District during 2016-17. These figures do not include funds that may be carried over from the 2015-16 budgets.

2016-17 Annual Plan – Comparison with 2015-25 LTP

2015 LTP AP 2016-17 Var Inc/Dec
000’s 000’s
Rates increase 2016-17 2.96% 0.97% -1.99% Decrease
Net Debt 2016-17 $178,593.00 $166,423.00 -12,1700 Decrease
Net Debt Peak (in 2018-19) $197,518.00 $185,428.00 -12090 Decrease
Capital Spend 2016-17 $32,524.00 $32,550.00 26 Increase
Debt to Equity ratio 13.78% 12.74% -1.04% Decrease
Net Debt/Operating – (Limit 225%) 165.13% 155.98% -9.16% Decrease
Net Interest Expense to Annual Rates Income (up to 25%) 13.86% 13.58% -0.30% Decrease
Net Interest Expense to Revenue (Policy limit is 15%) 9.06% 8.82% -0.25% Decrease

Regional landfill joint venture proposal

In early 2014, council agreed that the optimum solution for the region’s waste was to enter into a shared services arrangement with Nelson council’s York Valley landfill (until it reached capacity in around 15 years) and to retain the Eves Valley site for future operations. Such an approach would defer substantial capital investment into Eves Valley in the short term – and reduce pressure on councils unsustainable debt position. A shared services approach also offered opportunities for scale efficiencies and reduced operational costs for both councils.

In August 2014, the two Councils signed a Memorandum of Understanding (MoU). The MoU outlined a “contract-for-service” approach, where Nelson City Council would own and operate York Valley and TDC would pay commercial disposal fees, but receive an annual lump sum and a share of the operating surplus of the landfill. In December 2014, following public consultation by Nelson council, the councils considered a modified MoU and in April 2015 the MoU was signed by the councils.

Unfortunately agreement was not reached on the “contract for service” approach due to differing interpretations of the service contract. In order to avoid the proposal being derailed, council pursued a joint venture approach, using an NRSBU model of governance. One familiar with both councils. Under this revised joint venture approach, a valuation of each councils assets was required. The Deloitte valuation report (at page 49) and peer review by Morrison Law (at page 73) was attached to the agenda. The reports concluded that if both councils were to make an equal contribution to the joint venture, TDC would have to top-up the arrangement by paying Nelson council $4.2 million.

Council resolved to enter into a joint venture with Nelson council to start on 1 July 2017, with a one-off top-up payment of $4.2 million.

December 2015 quarterly financial update

The report sets out council’s financial performance and position for the 6 months ended 31 December 2015, as well as a re-forecast to the end of the current financial year. The report forecasted a year-end operating surplus of $2.852 million.

Year End Forecast Revised Budget Variance
Accounting Surplus/(Deficit) $9.16 M $5.67 M $3.49 M Favourable
Operating Surplus/(Deficit) $1.674 M -$1.178 M $2.852 M Favourable
Total Net Debt $155.2 M $173.63 M -$20.427 M Favourable
Expenditure $99.79 M $101.63 M -$1.84 M Favourable
Income $108.95 M $107.3 M $1.65 M Favourable
Capital Expenditure $45.34 M $50.4 M -$5.07 M

The positive result is compared against the revised budget, which is a total of year 1 (2015-16) of the LTP 2015-25, plus carry overs from 2014-15, approved as part of the 10 September 2015 carry over report to council.

Staff anticipated that approximately $5 million will be carried forward into the 2016-17 financial year for capital projects that have not been able to progress this financial year (2015-16). Staff also advised that that the $4.2 million payable to Nelson City Council on 1 July 2017 for the difference in the price for the landfill joint venture would affect the net debt figure (ie $159.4 million, being $155.2 million + $4.2 million).

During the general debate, questions were also asked about overspending on the Mapua development. Staff were unable to provide any figures, but advised that the overspend would be reported in full to the next commercial sub-committee meeting (on 24 June 2016).

Increased building coverage

Plan Change 59 allowed for increased building coverage in the residential zone in Richmond, Motueka, Wakefield and Brightwater. It was notified on 28 November 2015 and submissions closed on 2 February 2016. No submissions were received. I have expressed my opinion on building coverage in earlier posts (see greeningtasman.wordpress.com/2015/10/15/environment-and-planning-committee-meeting-8-october/ and greeningtasman.wordpress.com/2013/08/03/high-density-housing-a-sensible-approach/).

Council resolved to approve Plan Change 59 to commence as an operative change from 12 March 2016.

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/2016/2016-03-03.

Corporate services meeting (11 February)

The corporate services committee meeting was held on 11 February 2016. A workshop on the Rabbit Island Management plan followed. As well as a discussion of Richmond’s RFC (reserve financial contributions) spending. Apologies were received from Cr Mirfin, with the mayor appearing late. Some councillors subsequently left early.

The agenda comprised two items: (1) corporate services activity report, and (2) treasury report. Three presentations were received in public forum.

Public forum

Tim Hawthorne (accompanied by John and Alana) spoke about their concerns over the disposal of the Mapua causeway. An information pack accompanied their presentation including: a letter from the Mapua & District Community Association (MDCA) dated 16 December 2015 outlining their concerns, an article by David Mitchel on the causeway that appeared in the Mapua & Ruby Bay Coastal News, and a summary memo on public access issues by Nelson lawyer Kate Mitchell. A copy of the information pack and memo can be obtained by emailing <wetland@mapua.gen.nz>.

Council were advised that a number of issues were being examined and that this had caused a delay in actioning the Councils earlier resolution to enter into public consultation over disposal of the causeway. Staff anticipated a report would be coming back, updating council on the issues.

Corporate services activity report

The manager’s report included:

  • Department finances. While IT spending is above budget this is considered to be a timing issue that should be within budget by year end. Bank charges are under budget. Budgeted capital expenditure is lower than expected due to reduced (and delayed) earthquake strengthening work.
  • Property services. Best Island access discussions are anticipated to continue after valuation analysis is completed. Earthquake strengthening work projects (including Richmond town hall, Motueka Memorial hall, and Bainham hall) have come under budget, due to a change in the legislation (ie now 34% of building standard, rather than 67%). Planning for the Takaka service centre strengthening and refurbishment has started. The Waimea community dam project focus is on provision of alternative legal and practical access to properties. Staff advised that negotiations are progressing (within one ongoing). A full briefing will be provided to full council. The Golden bay community facility has finalised the design. The Golden Bay A&P Assoc has donated land for the new netball courts. The Motueka aerodrome has received a request to erect an additional hangar at the southern end.
  • Information services. The strategic plan will be updated in March. It will focus on using technology and digitisation to improve functions and processes for better customer experiences. TDC’s online submissions system (developed in-house) for the Long Term Plan will be shared with Nelson council from February (live March) – at no cost to TDC. In my opinion, this is a big endorsement of the system by another council. And the team should be congratulated for outstanding work. Hopefully this is also the beginning of more shared IT services between both councils (and perhaps with other councils, as part of a wider Local Government shared IT services initiative).
  • Nelson seafood cluster. This group is being wound up and the remaining funds ($10,253) will be dispersed to a Marine museum and education centre initiative. TDC contributed 1.9% of the start up funds.
  • Service requests. Generally these peak around quarterly rates invoicing. Cr Edgar reinforced the need to post FAQ’s (frequently asked questions) online – to reduce service requests. Something I have been pushing with all service requests, since coming onboard.
  • Commercial property. The $1.4 million Shed 4 development was opened in Mapua. In my opinion, it is disappointing that the development (and landscaping) has taken up so much open space – that might have been used for night or day markets. Something that has proved extremely popular in Wellington. New parking initiatives in the Mapua precinct are expected to come online around mid-2016. I still believe a container development would have not only been cheaper (and more affordable for tenants), but would have provided more open space for seating and walking – as well as being a more exciting destination.
  • Forestry. Tendering for forestry management has begun. Olsen’s is the current provider. Health and Safety issues for recreational activities near forestry are ongoing. In my opinion, council need to acknowledge that some forestry areas will be used for both commercial and recreational activities – which requires smart management of the areas as use changes.
  • Port Tarakohe. Freight volumes are now being measured (see table below). Storage occupancy is averaging at 73%.


Treasury report

As at 21 January 2016, council debt was $142 million, with an average interest rate of 5.261%. The council’s total cost of funds (including swaps and bank charges) is 5.307% (compared to budgeted interest of 5.70%). Debt is forecast to be $164 million by 31 December 2016.

Council have $144.78 million held in interest rate swaps (or 102% debt coverage), with an additional $3 million of forward swaps yet to start. The slight over-coverage of debt is due to council retiring debt faster than forecasted at this time. Swaps are expected to equal 100% of debt by March 2016.

Council’s cash investments total $4.52 million held at an average interest rate of 3.01%.

Funding mix

Bank debt $22 million 15.50%
Private placement $30 million 21.10%
LGFA debt $90 million 63.40%
Total $142 million 100.00%

Treasury compliance

Bank Cash Swaps Credit exposure Compliance
Westpac $1.20M $63.05M $14.09M Within policy
ASB $3.77M $41.73M $13.59M Within policy
ANZ $0.00M $43.00M $11.44M Within policy

RFC spending

The reserve financial contributions (RFC) account for Richmond had budgeted spending on a number of projects within the Richmond ward’s parks and reserves. The amounts listed below took into account funds brought forward from earlier years and reflected the amount actually available to be spent (rather than the funds staff wanted to spend). For example, the Long term plan (LTP) had budgeted $115,000 be spent on the Ben Cooper park toilets, yet the funds available in the RFC account had only reached $112,530 by the end of the 2015-16 year. This is because of the new regime of allocating RFC funds (ie the previous year’s income becomes the budget allocated to projects).

Richmond Ward Projects

Budget 2015-16 (available funds)

Richmond – Waimea River Park


Transfer to District fund


Richmond – Security Cam


Richmond – Playground Equipment


Saxton Velodrome


Toilets Ben Cooper


Gardens General Capital


Loan principal repaid


Loan ASB Aquatic Centre


Loan Sutton Land


Loan Avery Land Development


Loan Cycle Trail 2012


Loan Sutton Land




Importantly, all debt within the account had now been repaid, about to be repaid, or removed to its proper account. When I first joined council I ensured all loans still operating within this budget were paid off first, and funds not related to the Richmond ward were transferred out to the correct accounts (hence some transfers). Before this, the accounts were a bit of a muddle and spending was based on forecasted income, rather than income received.

A debate then occurred over spending some of the budgeted funds on the lane next to the Richmond Library. Essentially Cr Edgar wanted to replace the lane with a garden walk way. Her argument, was the project had been put on hold, but given the funds were now available, council should finish the job. All very pretty, but in my opinion, unnecessary at this time. The lane was not unpleasant and still provided access. And I had received no mention of this need from my walk-about visits to the general public in Richmond. Remaining as it was also allowed council to contemplate reopening the lane for parking or access should it need it in the future. Digging it up for a walk-way garden would remove these options.

In my opinion, funds could be better spent on other activities if they had to be spent at all. Rather than frittering away funds on small “gardening” projects, councillors should be thinking about building up funds for larger strategic assets that provided more substantial benefits to the community.

For example, exercise equipment (rather than just more children’s playground equipment), possibly in Wilkes reserve, a large destination playground (similar to one in Masterton’s Queens gardens), a decent sized skateboard park (similar to the one in Nelson visible from Queens drive), or a bmx track. Unfortunately, funds have to be used in the Richmond ward, which rules out use on Saxons field. However, land near the aquatic centre might be a viable site for any of the above suggestions.

In the end, Cr Higgins supported Cr Edgar in a compromise. Whereby some funds were spent on a library lane garden ($5,000), and some funds were spent on public exercise equipment for the not so young ($5,000) – as a trial. As they say, the art of politics is compromise?

I also raised some other suggestions from the public, including using RFC funds for: (1) fencing toddler playgrounds, and (2) fencing areas for dogs to roam freely (ie dog exercise areas). Dog exercise areas have been quite successful in Wellington.

I also suggested that council explore using low cost containers for toilets, rather than spend the budgeted $115,000 on a separate toilet facility in Ben Cooper park. In my opinion, a container toilet could be purchased for $15-25,000 from Boxman (see www.boxman.co.nz/_boxman/Library/Modification/07_Modification_ScarbroCons.pdf). These can be clad in timber, steel mesh for climbing foliage, or painted. Alternatively, the council could work with the existing Darts club at Ben Cooper park and develop a shared public toilet facility. A shared facility would be much cheaper than building a new separate toilet building and would enable the club to benefit also. A win-win option in my opinion. Any remaining savings could then be used for additional toilets or saved towards a larger project.

[Update. Given my concern that the $115,000 budget might be authorised by other councillors I began subsequent discussions with the Morepork Dart’s club. The end result is that TDC has decided to work with the club on a shared public toilet, at a substantially lower cost than the budgeted $115,000.]

Agenda and minutes

The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2016/2016-02-11.

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.

Extra Full council meeting (17 December)

An extraordinary full council meeting was held on 17 December 2015. The last meeting of the year. Apologies were received from Cr King and Cr Bouillir, with Cr Mirfin and Cr Sangster arriving late.

The meeting was called to discuss one item: engagement and consultation on the 2016-17 Annual Plan. A late confidential item reviewing the council’s banking facilities was also discussed.

Annual Plan 2016-17

Council resolved not to release an Annual Plan consultation document for 2016-17, but instead prepare a communication process for public engagement. This was because council agreed that there were no material changes from the fiscal plan for 2016-17 as contained in Long Term Plan (LTP).

Effectively, the cost of consultation (roughly $100,000) was not justified, given the small overall net change in fiscal outlook. Basically, council were holding the line on plans contained in the LTP. A first for this council for sometime!

Key changes from the LTP for the 2016-17 period are:

  • capital expenditure: proposed to be $32.55 million in 2016-17, compared to the LTP forecast of $32.524 (a $250,000 increase),
  • debt: proposed net debt is proposed to be $166 million, compared to the LTP forecast of $178 million (a $12 million reduction),
  • operating expenditure: proposed to be $105.9 million, compared to the LTP forecast of $106.3m (a $400,000 reduction),
  • rates: proposed to be a 1% increase, compared to LTP forecast of 2.96% (a reduced increase),

Service levels remain unchanged from those forecast in the LTP. Although, I hope that in the next LTP council will take a harder look at some services (for example, publications, communications, education services). These are ll nice to have services for an affluent council. But in the short term, need to be shelved, until such time as we can afford them.

To ensure ratepayers were kept informed of 2016-17 activities, council released a brief document outlining key activities (see http://www.tasman.govt.nz/policy/plans/annual-plans/annual-plan-2016-2017/).

Agenda and minutes

The agenda and minutes are located at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/full-council-meetings/?path=/EDMS/Public/Meetings/FullCouncil/2015/2015-12-17.





Full council meeting (3 December)

The full council meeting was held on 3 December 2015. Apologies were received from Cr Mirfin and Cr Inglis (with Cr Bouillir arriving late from her drive over the Takaka hill). All other councillors were present.

The agenda included: (1) September quarterly financial update, (2) Waimea community dam project update, (3) velodrome easement, (5) chief executive’s activity report, (6) mayor’s report, (6) action items, (7) machinery resolutions. Council also considered a confidential item (in-committee) in relation to the public release of the 10 September 2015 in-committee report.

Public forum had two speakers. My general observation for this meeting was that council moved rapidly through the agenda with very little debate. Perhaps a reflection that this was another meeting of information updates and simple machinery decisions.

Public forum

Maxwell Clarke complimented council on its quarterly financial report which he said was clear and precise. He also noted an improvement in communication from the engineering department over storm water work. However, Maxwell raised concerns over the limited time to speak (currently 3 minutes). He asked council to be more flexible. There was no reason why it could not be extended to 5 minutes. After all, Christchurch council provided 5 minutes. He also asked that council begin considering Plan B initiatives for water augmentation, given it was becoming very apparent that there was insufficient support for the Dam. He noted that 2700 ha (which was WCDL’s target) was 70% of all irrigators. He would be surprised if this was met at an $83 million funding level.

Martyn Barlow spoke about the concerns of the Mapua Boat Club and the restricted access to the boat ramp. He noted that TDC had now banned vehicles accessing the boat ramp between the hours of 10am and 7pm, due to “health and safety concerns”. This severely limits use for boat users who are dependent on the tide. Martyn noted that the commercialisation of the wharf precinct was done for businesses, tourists and visitors to Mapua – but not for the local community.

Martyn also stressed that boat use was on the increase and a boat ramp in the Mapua area was a necessity. One only had to see what was happening in Nelson. He noted that building the new Shed 4 had also compounded the parking and traffic management issues. In a circulated copy of his speech he stated that “… TDC has failed to meet their own objectives in the case of the local Mapua community’s use of coastal assets and we want to know why – and we expect our elected councillor’s to put it right! In the words of the late Alan Martin it’s the putting right that counts!”. I agree.

Unfortunately, council’s commercial aspirations in attempting to cover the entire site with the Shed 4 building (to maximise revenues), has meant access to the boat ramp is severely limited. In my opinion, a container development would have been less intrusive and met the aspirations of the council, businesses, and the community. The lack of vision and foresight by those councillors who supported this development has been exposed.

In my opinion, council may have to explore placing boat ramp access along the southern boundary of the reserve and allow boat users to share the carpark (which might have to be extended). If that can come in at around $80,000 then it would seem the most logical solution.

Waimea community dam project update

This was the fourth update report on the Waimea Community Dam Project. The report covers the period following the Council’s decision to transfer a joint interest in the resource consents for the dam to Waimea Community Dam Limited (WCDL) company.

Key points included:

  • Resource consents. The resource consents are now jointly held by council and WCDL. The Deed terms were satisfied by agreement.
  • Project Steering Group (PSG). The CEO has since withdrawn from direct involvement with the PSG in order to maintain independence and safeguard objectivity when providing advice to council. This leaves the PSG membership with: the Mayor, Cr King, Cr Edgar, and Cr Higgins.
  • Structure. WCDL undertook to begin seeking preliminary expressions of interest based on its proposed corporate structure and P50 pricing model. WCDL were advised that Council did not agree with WCDL’s proposed structure or pricing model. WCDL were advised that any consultation using the WCDL proposal was a risky assumption.
  • Procurement. An approach to procurement had been agreed. It was intended to issue a request for interest (ROI) in December. That time line has since slipped given the uncertainty on funding.
  • Land. Draft agreements were sent to the private land owners at the end of October 2015. All parties had confirmed receipt by 6 November 2015. Department of Conservation (DOC)/Crown acquisitions are to track alongside the private landowner agreements. The LINZ land comprises part of the dam footprint. The proposal is to resume the paper road under the dam and preferentially allocate it to Council under the Land Act. A meeting was held with Frank Hippolite (Ngati Koata) to discuss the purchase (or other treatment) of Ngati Koata land.
  • Plan change. A Plan change (two tier water allocation system) was notified on 19 September 2015, receiving 32 submissions.
  • Project costs. Total direct project costs (capital and operational costs) for 2014-15 year (up to 30 June 2015) was $1.582 million ($1.483 million plus $99,000). An additional $250,000 was spent up to October 2015, bringing the total direct project cost (as at October 2015) to $1.832 million (see page 31 of the agenda for detailed costings).

Much of the discussion focused on procurement advice which was expected in 2016. This advice was preliminary in nature and low cost. The CEO stressed the need to ensure funding streams have been secured before any tenders started. He also stressed that any consultation would need to respond to issues raised by communities. I agree. I also asked that “write down” costs (which is the cost to council if it walked away from the project) are highlighted in any future update reports.

Project Expenditure


YTD October 2015

Direct operational costs



Project capital costs



Indirect operational costs







Project Funding sources
Existing operational



Waimea levy


Targeted rates


WWAC opening balance


Loan funded balance







September quarterly financial update

Council agreed to quarterly reporting to full council as part of a workshop held on 3 September 2015. The September 2015 quarterly financial report provides a snapshot of the financial highlights of the first quarter.

Year end Forecast

Annual budget


Accounting Surplus




Operating Surplus




Total Net Debt












Capital Expenditure





Overall the financial position of Council remains extremely strong and in line with year end budget expectations. The notable exception being the debtors balance.

Total net debt

The forecast year end net debt position for 2015-16 is now $159 million ($14 million lower than forecast in the LTP).

Opening Net Debt 2015 July $140,318 million
Net Debt 2015 September $142,513 million
Forecast Net Debt 2016 June $158,982 million
Net Debt 2016 June (per LTP) $173,267 million



Income is above budget by $734,000 with a forecast excess of $1.164 million at the end of the 2015-16 financial year.


Expenditure is below budget by $2.089 million with a forecast underspend of $2.126m at the end of the 2015-16 financial year.

Debtors balance

The total debt ledger is up $1,843,076, and 3-month overdue ledger up $1,221,463, from September 2014.


Chief executive’s activity report

Highlights from the CEO’s report include:

  • Finances. For the period ended October 2015 the Council had a surplus of $3.83 million above the budget. External debt is $144 million compared to a budget of $168 million. Capital expenditure is $18.47 million lower then budget on a year-to-date basis (subject to capital carryovers of $15.59 million).
  • Health and Safety. Council have been invited to participate in a Safety Star Rating Scheme (SSRS), a new WorkSafe pilot scheme which is expected to replace the current ACC Workplace Safety Management Practices scheme (WSMP).
  • Economic Development. The Economic Development Services Review Group met on 9 November 2015. The areas of focus for the new entity were agreed. And are aligned with council’s outcomes as prescribed in the funding agreement with Nelson council.
  • Landfill. The basis for asset valuations of a joint landfill proposal with Nelson council has been agreed. In my opinion, this is an important step towards more shared services between both councils, and will be a win-win for ratepayers.
  • Pre-election report. This is required to be produced prior to 1 July in the year that local elections are held. The purpose of a pre-election report is to provide information to promote public discussion about the issues facing the local authority. The financial information and the text will be prepared in April and May with the final version ready for sign off in mid- June.

Velodrome easement

Council resolved to grant an easement to Network Tasman to convey electricity to the new velodrome on Saxton field. The new power supply is expected to be substantially less intrusive than the old supply. The new power supply requires only one power pole and associated stays in a location where there is already an existing power pole. The rest of the supply is by way of underground cabling.

Mayors report

During the mayor’s report I asked mayor about what progress had been made over a request by residents for TDC to do a road swap with DoC on the Takaka Hill. According to reports, Doc had threatened to stop the public and property owners from using a reserve road on the top of Takaka Hill which was used to access private properties. The mayor advised that he would be facilitating a solution between residents, DoC, and TDC. I will be watching this space with interest.

I also advised councillors that I spoke on behalf of the council at the Inaugral Trans-Tasman Golf-Croquet Test series, which New Zealand had won. I have reported my speech in an earlier post.

Machinery resolutions

These resolutions confirms documents signed under delegated authority and council seal. They included: a partial surrender of easement and alteration of easement in gross; and a forest management agreement with PF Olsen to manage the council’s forest estates for a term of 12 months (from 1 July 2015 to 30 June 2016).

In-committee report

This item arose from my request to release a confidential report to council on the Waimea Community Dam (dated September 2015). The mayor anticipating my request put a motion to council (recorded below) outlining his reasons why the report should not be released. While I am unable to summarise the discussion, I am able to report the voting. Although I am unable to report who supported making the voting public (and who did not).

Unfortunately, I did not secure support from the majority of council to make this report publicly available. Nor am I able to explain the arguments I made or the argument’s the mayor (and others) made. All I can say is that in my opinion the mayor’s argument made no sense and was quite ridiculous given some material would have been redacted. Clearly old habits are hard to break. The official minutes record the following resolution and outcome:

1. Receives the Request to Release 10 September In Committee Report report RCN15-12-08; and

2. Declines to publicly release RCN15-09-13 (Supplementary Report – Waimea Water Augmentation Project).

Cr Greening called for a division.

Bouillir Against

Bryant For

Canton Against

Dowler For

Edgar For

Ensor For

Greening Against

Higgins Against

Kempthorne For

King For

Norriss For

Sangster For


Agenda and minutes

The agenda and minutes are located at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/full-council-meetings/?path=/EDMS/Public/Meetings/FullCouncil/2015/2015-12-03.

Corporate services meeting (26 November)

The corporate services committee meeting was held on 26 November 2015. Apologies were received from Crs Bouillir, Dowler, and myself.

The agenda comprised: (1) treasury report, (2) corporate services activity report, and (3) Mapua causeway report. I will highlight the main points of interest. A workshop followed this meeting.


As at 31 October 2015, council debt was $144 million with an average interest rate of 5.240% (June 2015: 5.166%). The weighted average interest rate on borrowings was 5.240%. Council’s cost of funds (including interest rate swaps, bank margins and line fees being taken into account) was 5.331%, compared to a budget of 5.70%. The decrease is from refinancing of the bank facilities and favourable 2-4 year term swap rates.

A review of council banking facilities concluded that a reduced total bank facility amount of $42 million was appropriate (down from $70 million).

Standard and Poor’s Ratings Services completed their annual review of the Council’s credit rating and affirmed TDC’s “AA-” (long-term) and “A-1+” (short-term) credit ratings – with a “stable” outlook. This is a lower rating than Nelson City (“AA-” with a “positive” outlook). Amongst the positive comments for recent improvements there is comment on council’s very high debt levels and the negative financial impact that the Waimea Dam (as a large debt-funded capital project) will have on council debt.

As at 31 October 2015, the Council had $147.78 million of interest rate swaps in place, including some “forward start” swaps (yet to be begin) which is equal to 101% cover over existing debt, and 86% over forecast 31 October 2016 net debt (ie 12 month debt).


Cash/Cash Investments
$ million

Notional Swaps
$ million

Credit Exposure
$ million






Within Policy





Within Policy





Within Policy

Funding Source

$ million


Bank Debt



Private Placement









Corporate services activity

The managers report included the following items:

  • Department performance. Overall the department had an adverse variance to budget of $21,000 (7%). The 2 big drivers for this were general operating costs and depreciation. The over spend in general operating related to a payment of $20,000 for a major water tank upgrade at Awaroa. This project used $15,000 of the surplus in the closed account. Depreciation was under budget in Information Technology (IT) as less capital was spent in 2014-15 than planned, and this has lowered depreciation costs in the following year (ie 2015-16). This is also a good example of cascading savings when costs are reduced earlier and upfront.
  • Property. Best Island access discussions are now focused on valuation issues. Its expected that the matter will come back to council in early 2016 for consideration. Seismic repairs have been completed at the Richmond Town Hall. A preliminary design has been received for the Takaka Service Centre refurbishment. Depending on costs and budget, the work is expected to be undertaken in the early part of 2016 and the building will be reoccupied by July 2016. The incidence of cracked and broken tiles at the competition pool at the Richmond Aquatic Centre is increasing.
  • Delegated authority. A number of documents were entered into, including: a partial surrender of easements for Greenacres Golf Club.
  • Commercial activity. Shed 4 rebuild expected to be completed on 27 November 2015. A draft landscaping concept for the commercial precinct was presented to the Mapua Waterfront Advisory group for community feedback on 4 November 2015. The Forestry Management Contract tender process is expected to conclude consideration of the 3 accepted tenders (4 applications were made) by December 2015, with a recommendation to council expected in early 2016. Port Tarakohe cargo has shown a seasonal lift, but total volumes are still below last year’s figures. Dolomite is down 3.3 tonne on last year, wetfish is even, and mussels are up. Occupancy has dropped by 5% in the marina and 5% in pile berths during the past month/6 weeks to an average occupancy of 73% (comprising: moorings 100% (20 of 20) occupied; marina 73% (30 of 41) occupied; and pile berths 45% (9 of 20) occupied. The storage compound remains only 30% full.
  • Information services. Council has successfully upgraded to Microsoft Office 2016 while maintaining integration with the NCS local government system, InfoCouncil, and SilentOne. Council’s local government computer system, NCS had a server upgrade on 5 November 2015. The old server was decommissioned and the system was moved into the main virtual server environment. This environment lowers risks of hardware failure and improves the system backup process, including the capability to back up the system out of region to our Auckland backup provider.

Mapua Causeway

Adventure Properties Limited (also known as Mapua Leisure Park) has asked the council to consider selling the Mapua causeway to them, and offered council easements to protect the public access to the coastline (but not vehicles) and to protect the infrastructure (water and sewerage) and the culverts which drain the estuary.

At present, the Mapua causeway is licensed to the owners of the Mapua Leisure Park (Adventure Properties Limited) until 2021. The license is not exclusive. and provides for public access and contractors to maintain the causeway and infrastructure. The license also provides that the road surface of the causeway is maintained by Adventure Properties Limited.

The Mapua causeway was originally constructed by a private landowner and subsequently legalised as a reclamation and vested in council (on Nelson Harbour Board) where it is held in freehold title.

The sale of land is not signaled in the Long Term Plan. Accordingly, public consultation would have to be undertaken with the Mapua community before any sale could take place.

Council resolved to consult with the public before any disposal was considered.

In my opinion, the only reasons for disposal would be raising capital for reducing debt, or mitigating any maintenance costs for council. Given the licensee (Adventure Properties Limited) is already obliged to maintain the road, there do not appear to be any immediate cost savings for ratepayers from this proposal. Thus the issue is whether the costs of disposal (ie public consultation and legal costs) would significantly offset debt servicing savings. And whether council have confidence in the easements being offered (ie walking (and cycling?), but no vehicles).

At first glance, the proposal looks appealing. But like all good looking deals, the devil is in the detail. I will be watching this space with interest.

Agenda and minutes

The agenda and minutes are located at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2015/2015-11-26.

If minutes are not displayed at the above location, please request a copy of the draft minutes from council.

Corporate services committee (15 October)

The corporate services committee meeting was held on 15 October 2015. Apologies were received from Cr Mirfin and myself (also apologies for lateness from Crs Dowler and Bryant). All other councillors were present.

The agenda included: (1) Local government funding agency (LGFA) appointments, (2) rates remission application, (3) corporate services activity report, (4) financial report, and (5) treasury report.

Local government funding agency

The annual general meeting (AGM) for the local government funding agency (LGFA) is set for November. Nominations for the appointment of new board members was received by the LGFA. There were two nominations for two positions. TDC will likely be supporting those two nominations (although, it could vote against them).

The LGFA shareholder council is recommending an increase in the number of directors (from 5 to 6 directors) and a 15% increase in directors fees (spread over two years), as a result of a recent remuneration review. Apparently the boards current remuneration is 23% below the market for similar directorships. This translates to total board remuneration in 2015-16 of $324,000, and $348,000 in 2016-17. The board meets (no less than) 6 times a year.

TDC’s representative on the LGFA shareholder council is corporate services manager, Mike Drummond.

Rates remission application

The committee was asked to consider a rates remission application.

The owners of a property applied for remission of rates arising from a council initiated zone change for the 2015-16 year. The application was submitted two weeks after the due date, due to a family bereavement. Council had already granted a 100% remission (of $4,409) for the 2014-15 year on 20 November 2014. And 100% remissions for the 2012-13 and 2013-14 years.

I was not involved in considering the original application (in August 2013), but the subsequent applications had for consistency, carried over the earlier decision to allow 100% remissions, as there had apparently been no material change to the original facts.

On 4 October 2013, a resource consent was issued to operate a holiday park and construct a kitchen\laundry ablution block. The amenity building received consent on 15 August 2014 and according to the holiday park’s website, construction has been completed. The holiday park’s website (see http://www.holidayparknelson.co.nz/index.php/about-us) states (emphasis added):

The idea for Queen Street Holiday Park came about in early 2013 when Rod & Linda applied for planning permission to start a holiday park. Things have moved quite quickly since then with the introduction of a one bedroom fully self contained holiday unit. Then came the insertion of a roading system throughout the park, along with power and water access to over 58 powered and unpowered sites. The ablution block has recently been finished which gives campers a communal laundry and kitchen along with toilets and showers which offer separate facilities for wheelchair access.

Although, in their application they have stated that the ablution block is “not quite finished”. Council staff have also made phone calls to the applicant seeking clarification. The owners have confirmed that the ablution block is unfinished. At present, the holiday park caters to the self contained type of motorhome/caravan, and later in the year it is expected that they will open for those who don’t have self-contained toilet facilities.

The holiday park also has a cottage and holds 58 powered and unpowered camp sites. The holiday park advertises its cottage on trade me (see www.holidayhouses.co.nz/properties/59617.asp). The web page states:

This very comfortable self contained cottage is nestled in a corner of our ongoing newly developed Holiday Park situated just over 1 km from the Richmond CBD. With its own hedged in area, parking for two cars or maybe car and boat, relaxing lounge/dining/kitchenette with two single beds, separate bedroom with Queen size bed, bathroom, laundry, veranda with outdoor furniture and BBQ looking out to the lovely Richmond Hills this all makes for a relaxing holiday home away from home with an added advantage of maybe a friend with a caravan or motorhome parking up close by.


Wonderful view of Richmond Hills and the lights at night looking over Stoke & Nelson. Situated on a newly developed Holiday Park (ongoing development), on the front of the property we operate a Caravan & Motorhome sales yard

The owners also operate a caravan and motorhome sales yard (0.2ha of the 2.8965 ha property) at the front of the property. This business was present before the zone change (from residential to commercial). The commercial services committee on hearing the original application (in August 2013) for the first time, determined that no reduction in remission would be made for commercial activities, where the area used for that activity and the extent of the activity was unchanged from the period prior to the zone change.

In my opinion, this was a very generous concession in not excluding the caravan sales yard from the remission (as it potentially locks this land up for remissions in perpetuity). Whether it should be considered to be a precedent for future remission determinations might well be up for reconsideration.

Finally, the holiday park’s facebook page (see www.facebook.com/Queen-Street-Holiday-Park-437063009778241/, on 24 January 2015) stated:

Stage one now open! Self contained motorhomes and Caravan sites available with power and water. Also “Cottage in the Park” sleeps 4, fully self contained including laundry, kitchenette, separate double bedroom tv lounge/dining area, bathroom shower and toilet.

The facebook page also presents photo’s of customers using the park. As well as glowing endorsements from happy customers.

The remission policy

The councils remission policy (located at http://www.tasman.govt.nz/policy/policies/property-rates-policies/remission-policies/policy-on-rates-remission-for-land-subject-to-council-initiated-zone-changes/) states:

This Policy is to allow Council, at its discretion, to remit rates charged on any rating unit used for residential purposes that is rezoned as a result of a Council initiated zone change. The aim of this Policy is to allow the Council to consider remitting rates for those ratepayers most adversely affected by an increase in rates when the land value of their rating unit increases as a result of a Council initiated zone change. The Council’s preference is to allow a transition period before affected ratepayers are required to pay the increased rates in full. It is accepted that the rates remitted will be paid by other ratepayers.

Application to facts

First, in my opinion, council should allow the application to be considered even though it was late by two weeks. This is because of the following reasons. The lateness provides no advantage to the applicant. In fact, quite the opposite. It allows the council to consider other facts that might have appeared after the application was suppose to have been submitted. Further, given this is a remission application, the financial advantage is with the council, as without the remission being approved, the owner would have to pay the increased rates. I consider a bereavement to be a valid reason to waive any lateness. Finally, as noted earlier, the application is only two weeks late, which is not substantial.

In my opinion, the council has made a generous concession in not taking into account the caravan sales yard business in earlier remission applications. This is an activity that is consistent with the rezoning (ie commercial use). In my opinion, the concession should not have been made, as the logical conclusion of that concession is to provide a remission for that part of the land in perpetuity. That in my mind is not the purpose of the remission policy. In my opinion, the 0.2 ha should have been excluded, so that the original remissions were 94%, not 100%. I reach a figure of 94% by apportioning the excluded land (ie 0.2/2.9 ha = 6% used for business activity – 100% = 94% remission).

As I understand it, the purpose of the remission policy is to provide owners a transitional period to either undertake an activity consistent with the new zoning (so they can afford the rates increase from the zone change), or provide the owners enough time to dispose of the land, without being forced off their land or to sell at a lower than fair market price.

In my opinion, council should acknowledge that they made a mistake, but not seek to retrospectively claw back the concession. This would remove this treatment as a precedent for future remission applications.

The question then becomes whether the owner of the land has made the transition from a residential or rural activity (consistent with the original zone) to a business activity (consistent with the new zone). Where land has not been applied to a business use, some apportionment might be necessary, thus allowing for some remission.

In my opinion, no single fact should be determinative. Rather all the facts must be weighed together to determine if there is a business activity being operated on the land. While the holiday park webpage shows the owners are marketing a business, it is not absolutely clear if the webpage is still in development. It might be the business is still being established. For example, the webpage states the ablution block is finished, yet the owner states it is not.

However, the presence of other marketing initiatives on facebook and trade me would suggest that the there is now a business activity being operated from the land (consistent with the new commercial zoning). Subsequent enquiries have also confirmed that they are operating a business, although not at this stage for people requiring toilet facilities. The single ablution block, not being “quite” finished, should also not be determinative of whether a business exists (or not). All business operations will have ongoing development issues. This is one of them. The question to answer is whether there is a business activity now operating on the land consistent with the zone.

The residential home is described on the webpage as the manager’s onsite residence and should now be considered part of the overall business activity. Only a small portion of land at the end of the property appears to be unused. However, it is obvious, that this land is also earmarked for commercial development at a later stage and could be considered to be part of the overall holiday park activity.

Taking into consideration all of the evidence, I would decline the application. In my opinion, all of the land is being applied for a business activity consistent with the zone change. The owner is now using the commercial zone to operate both a caravan sales yard and holiday park. I suspect that the owners will be claiming their rates bill as a business expense and claiming tax deductions.

The committee unanimously resolved to decline the application.

Corporate services activity report

Highlights from the manager’s information update report are outlined below.


Overall, financial performance is good, with a strong positive variance on all budgeted activities. This has been driven in part by timing issues for information services expenditure, together with lower than budgeted interest costs (from good treasury management).

Annual report

This was a significant milestone for the finance team. Improvements in the audit process ensured a smoother audit this year. Departmental overheads were under budget (due to cost containment and deferred work). Overhead surpluses were allocated across departments as a reduced charge.

The team is also revising reporting templates and input processes for budget managers, to ensure more accurate and timely data for the 2016-17 year.

A project to enable digital invoicing is progressing well. The project has provided an additional benefit of moving away from pre-printed invoices, which will provide the council greater flexibility.

In my opinion, a culture of continuous improvement appears to be establishing itself – and this is very welcome. Long may it continue.

Information services

Council has begun rolling out a new document management system (SilentOne), as well as upgrades to microsoft office (which is expected to be completed in early December 2015).

Out-of-region weekly data back ups (stored in Auckland) has begun. Nightly backups within Richmond continue.

IT has also tightened up user configurations in response to recent ransomware (where IT systems are locked up) and whaling attacks (where senior staff are targeted to approve financial transfers).

Commercial activities

Mapua development (Shed 4) is now fully let (7 leases), with construction expected to be completed in mid-October and handover to council in November.

Shed 5 (Golden Bear building) will also undergoing re-development with the previous corner tenant (Hamish’s cafe) having departed and the Golden Bear taking over the lease from November.

Forestry management tenders have begun. A panel has been established to review the tenders. Recommendations will come back to council for approval. Co-sharing of recreational and forestry activities continues to create tensions for health and safety. Key areas for improvements involve greater separation, security, enforcement, and better communication.

The Motueka campgrounds repurchase of assets by council is planned for 9 October 2015. Work on building cabins started in August and will be completed by November 2015. Repurchase negotiations are continuing in Pohara. The urgent maintenance work in the Collingwood campground continues to take priority, with urgent works having been completed. One of the older cabins (at 3 William Street) is for sale to enable reinvestment in the campgrounds.

Port Tarakohe cargo volumes were up by 12% in September. Weigh bridge users are receiving weekly reports and are billed monthly. Talley’s have now accepted the councils methodology for weigh bridge billing, but disputed the treatment of TARE weights. A meeting was held to discuss a way forward. Their bills remain unpaid. A health and safety work plan has been developed. No serious incidences were reported for the past quarter. Recreational boating occupancy has remained stable at 77% and the storage compound at 30%.

A commerce commission complaint was made by the mussel farmers. The commission advised no action was being undertaken and advised the parties to reach a commercial resolution. Council has engaged PWC to review the charging methodology (including asset valuation and depreciation). This work is expected to be completed in January 2016.

Port Nelson will be updating its company constitution to enable the appointment of new directors without falling below its minimum number of directors.

The LGFA has declared a dividend of 6.43% for 2014-15. This amounts to $119,982 for TDC’s shareholding.

Financial report

This was an information update report (no decision required).

For the 2 month period, ended August 2015, the councils financial performance has been good, with an operational surplus of $137,000 (against a budgeted deficit of $3.395 million) for this period. This represents a positive variance against budget of $3.532 million (excluding: development contributions, vested assets, interest rate swap movements).

The net accounting position shows income was down ($1.632 million below budget) and expenses also down ($2.208 million below budget). The net result shows the budgeted deficit of $631,000 for this period, is actually $56,000 – a positive variance (or saving) of $575,000 (I note that the spreadsheet refers to $576,000, which I suspect is due to rounding up within the spreadsheet). Key drivers were: write downs on interest rate swaps (-$2.823 million), reduced operating expenditure (+$1.718 million), and lower finance costs (+$0.377 million).

Capital expenditure for the year is $2.093 million (against an annual budget of $34.301 million). This figure excludes the capital carry forward of $14.853 million from the 2014-15 year into the 2015-16 year.

Total debt is $145 million. Projected (budgeted) debt for year end (June 2016) is expected to be $168 million. A revised forecast will be undertaken in October 2015.

The total amount owing from debtors reduced from $6.439 million in July to $5.456 million in August. However, this is higher than the $4.652 million owing at the same time last year. In my opinion, better management of debtors needs to be an area of focus for council. I would like to see some aspirational targets set. Why can’t we get this down to $3 million over the next year or two?

Treasury report

This was an information update report (no decision required). The report confirms council is complying with its treasury management policy.

As at 30 September 2015, total borrowings were $140 million (as excess cashflow from the first rates instalment was used to repay debt). The total cost of funds is 5.385% (compared to the budgeted cost of funds rate of 5.7%). The weighted average interest rate (cost of funds) on borrowings is 5.294% (compared to 5.166% in June 2015).

As at 30 September 2015, council had $147.78 million of interest rate swaps in place (including some forward swaps). Adjusting for forward swaps, council has 103% coverage for existing debt, and 87% coverage over forecasted (June 2016) debt. Remembering that council forecasts debt to be $168 million by June 2016.

Councils current debt mix is roughly: (1) bank debt, $21 million (15%), (2) private funds, $30 million (21%), and (3) LGFA debt, $90 million (64%).

Agenda and minutes

The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2015/2015-10-15.





Audit subcommittee meeting (16 September)

The audit sub-committee meeting was held on 16 September 2015. All subcommittee members (Crs Higgins, King, Sangster, Inglis, and myself) were present, including the newly appointed independent advisory member, Graham Naylor.

The agenda included two items: (1) internal audit programme update, and (2) draft annual report. As might be expected with two agenda items the meeting was relatively brief.

At the conclusion of the meeting we took the opportunity to speak with the auditor, without the presence of staff. We had done this with the 2014 annual audit report and it had proved a good exercise. Generally, the audit process had substantially improved on the previous year. This was put down to better staff preparation and planning. Although, I suspect it had to also do with increasing the resourcing for the finance team.

Internal audit programme

This item was an update (information only) report. Crowe Horwath have been engaged to provide internal audit services. This includes undertaking a review of councils processes and procedures for leasing and licensing arrangements. The review will also examine contract terms and conditions, pricing, billing, and collection). A list of relevant issues that will be examined are outlined on page 21 of the agenda.

Mr Naylor suggested this amount of detail was not necessary to present to the audit subcommittee. I disagree. I thought it was very useful for governance (especially for inexperienced members) to know what was being addressed in the review (and what was not). Knowing this provided me confidence that the review would be specifically examining some issues that had arisen in the past. For example (question 3.13), does the lease agreement include council approval clauses for subletting arrangements? The overall budget for this activity will be around $10,000. In addition, Crowe Horwath will provide some staff training.

Annual report

The draft annual report for the financial year ended 30 June 2015 was presented to the subcommittee for comment, before its presentation to council. This is the financial report that outlines the performance of council for the 2014-15 year and is reviewed by the auditor general (which is a legislative requirement).

Feedback from the auditor has been very positive and the council has received another unmodified audit report. In my opinion, both the financials and the audit process have seen a marked improvement on the previous year.

For an explanation of what is an “unmodified audit report” as well as a summary of last years audit report, see my earlier post at www.greeningtasman.wordpress.com/2015/03/28/audit-sub-committee-meeting-19-march/.

Generally, there were few comments from the subcommittee – with most being minor typographical changes. A confidential discussion (without staff being present) was held with the auditor after the meeting closed. The discussion was good and the confirmed that the financial team are doing a good job with the audit visit being smoother than earlier years. No doubt this is a reflection of better resourcing of the finance team (both inn terms of people and technology).

In summary, non-financial performance for the 2014-15 year was good. Overall, 82% of non financial measured targets were achieved and 12% not achieved. Council also ended the 2014-15 financial stronger than previous years.

Debt levels were lower than budgeted for year end. Rather than the projected $172 million, debt came in at $145 million. Total rates income (general rates and targeted rates) was $65.4 million. Other income (development contributions, subsidies and grants, fees and charges, other revenue) totaled $57.4 million. General rates increased $310,000 as a direct result of growth (ie, more ratepayers). Assets under council control totaled $1.26 billion. The accounting position records a $21.1 million surplus, compared to a budgeted surplus of $9.1 million. Effectively, an improved performance (positive variance) of $12 million above budget (the forecasted outcome).

In my opinion, council need to use any surplus to further reduce existing debt levels (and thus further reduce interest repayments), address the communities desire to further reduce storm water risks that have still not been addressed in residential Richmond, and provide for future potential natural disasters.

The annual report will now be presented to full council for approval.

Agenda and minutes

The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/subcommittee-meetings/audit-subcommittee-meetings/?path=/EDMS/Public/Meetings/AuditSubcommittee/2015/2015-09-16.