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.
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.
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|
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:
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.
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 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.
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.
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%|
|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.
The corporate services committee meeting was held on 19 March 2015. Crs King, Mirfin, and Ensor gave their apologies for their absence, and Cr Dowler for appearing late.
The agenda for the meeting included the following items: (1) corporate services departmental financial performance update, (2) information services update, (3) commercial activities update (forestry, campgrounds, property disposals, Port Tarakoe), and (4) finance and treasury updates.
Council also considered under confidence: (1) the local government funding agency (LGFA) performance report update, and (2) the economic development work plan.
The report on the economic development plan was subsequently made public, although the frank discussion held with a senior Nelson Council staff member remained confidential. The economic development plan effectively consolidated earlier plans for both tourism and economic development outcomes into a single document that would form the basis of contracting such services from Nelson council.
The financial results for the 7 month period ended 31 January 2015 show a saving (or positive variance) of $220,000 below the $4,132,203 budget. This was mainly driven by the lower than expected external interest costs and reduced borrowing (a saving of $323,992) and reduced maintenance costs (a saving of $25,850).
However, the positive variance could have been larger had it not been for larger than expected staff costs ($13,880 above the $1,711,780 budget) and larger general operating costs ($85,923 above the $840,816 budget). The increase in staff costs was mainly due to extra un-budgeted work on the Dam and less than expected staff movement (this is when there is a gap between staff leaving and roles being filled).
Capital expenditure is also lower than the forecast budget. This is mainly a timing issue due to delays in earthquake strengthening work, but is expected to translate to a firmer saving as budgeted expenditure of $500,000 is now expected to cost only $100,000. The IT capital spend is down both in software and hardware and the full budget is not expected to be spent.
It is worth noting that IT expenditure in the long term plan (LTP) has not been inflation adjusted over the 10 years of planned expenditure as software and hardware costs reduce over time.
The new digital LIM process will go live in April 2015. The process will provide greater integration between LIMs and GIS, document management, and local government systems, and should result in improved processing times. A new electronic submissions process has also gone live as part of the long term plan process, now underway. The system is expected to substantially reduce staff time in manually processing submissions.
Quotable value has advised that just over 400 objections have been received to the recent property revaluations and hope to resolve all of them by 30 June 2015.
Initial seismic testing has been received for a number of council buildings. These include: (1) Golden Bay museum (old part, 60% compliant, extension, 100% compliant), (2) Collingwood museum (60%), Ngatimoti hall (55%), Murchison service centre (60%), Brightwater hall (60%), Spring grove hall (50%), and Hope hall (35%). A more detailed report has been sought for Hope hall.
The 6-monthly reports for Port Nelson, Tasman Bays Heritage Trust (the museum), and Nelson Airport were presented at the Joint Nelson-Tasman Councils meeting on 3 March 2015 (which I attended). Generally, the Port and Airport are performing well. The airport has some challenges in terms of the accounting treatment of depreciating assets (such as the runway on reserve land). However, I would expect the main area of focus for both councils will be the future performance and strategic direction of the Nelson museum.
Concerns have been raised about mountain bikes accessing forestry areas and how this will be managed. The new Health and Safety Act places greater risks (both financial and criminal penalties) on council and other organisations. Accordingly, a policy review has begun.
Port Tarakoe cargo volume is expected to grow by 30%, with 13,189 tonne already landed. Billing in December 2014 and January 2015 has been delayed due to data issues from weigh bridge system misuse. This is expected to be resolved by the end of March. The port is now fully secure. No health and safety issues have been reported. And external health and safety audit of port activities has been contracted.
The underlying operational result for the period ended 31 January 2015, has provided a saving (positive variance) of $3.112 million against forecast budget. This figure removes the impact of development contributions and swap movements which cloud a proper assessment of council performance.
The net position is an accounting deficit of $1.227 million against a surplus of $4 million. Income was $8.7 million below budget and expenditure was also $3.476 million below budget. Key drivers included reduced roading subsidies from NZ Transport ($1 million), and accounting market write downs from swaps ($8.9 million). Offset by increased development contributions ($941,000), reduced road maintenance costs ($2.6 million), and reduced finance costs ($1.2 million).
Capital expenditure is $17.989 million. The forecast end of financial year budget is $48.435 million.
Total debt is $149.1 million (as expected) and is still projected to be $174.3 million by the end of the financial year, provided the capital programme is completed (and not carried over).
Council’s working capital position at 31 January 2015 was $8.8 million compared to year-end projection of $9.616 million.
As at 28 February 2015, council borrowing was $142 million. The weighted average interest rate was 5.236%. Council’s cost of funds was 5.345% when interest rate swaps, bank margins, and line fees are included.
As at 28 February 2015, council had $147.78 million of interest rate swaps in place to cover current and future debt. Swap rates are currently below 5%. Swap rates have remained lower than expected and are not expected to move upwards for sometime.
It is noted that the swaps council acquire are paid off (interest and principal) during the swap term, so that there is no outstanding liability at the end of the swap term. For a discussion on swaps, see my earlier post.
Agenda and minutes
The agenda and minutes for the meeting are located at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2015/2015-03-19.
The regular full council meeting was held on 5 March 2015. All councillors were in attendance with apologies from Cr Mirfin.
The agenda included the following items: (1) Gowan river east bank access, (2) Best island public road access, (3) rates remission policy for rezoned land, (4) LTP and consultation document approval for public release, (5) chief executive’s report, (6) mayor’s report, and (7) machinery resolutions.
In this post I will focus on the main issues.
Gowan river access
Access to the Gowan river has been a long standing issue. Essentially it concerns the padlocking of a dirt road that is considered on paper to be a public road (ie, the legal road).
By way of background, a public road leads up to the locked gate. Nothing prevents people driving up to the locked gate. Beyond the gate is a dirt road. On either side of this dirt road is farm land. The dirt road is not fenced off from the surrounding farm land.
The dirt road does not always follow the path of the legal road and in some parts it crosses private land (to avoid going into the river). This means that at several “pinch” points, public road access temporarily ceases, either because the legal road enters the river, or the actual dirt road crosses private land. The first pinch point is only 1.7km from the locked gate.
In 2007, an application was made to place a gate across the road. That application did not seek to lock the gate. The lock appears sometime after that application.
In 2009, the council entered an agreement with the owner of the farm land. This agreement allowed the gate to be locked to protect the owners stock, while allowing people to continue to walk or cycle along the dirt road.
The owner also undertook to provide a key to the gate for vehicles requiring access. This was to allow the owner to know who might be in close proximity to stock. Unfortunately there are people about who steal stock.
A sign was also installed explaining the restrictions and process for vehicle access.
In my opinion, this is a very pragmatic solution, that is open to review when the 2009 agreement comes up for renewal or expires.
At all times, the public have access to the legal road. Either from walking, cycling, or (upon request) with a vehicle. The public also have the benefit of using parts of the dirt road that are on private land, rather than having to use the river. The use of private land is clearly a benefit that the public could not otherwise expect.
Council unanimously supported the CEO’s recommendation that the current arrangement remain and not to issue a notice to remove the lock on the gate.
I imagine, that when the agreement comes up for renewal the locked gate could be moved 1.7km further up the dirt road to where the first pinch point is located. This would probably also require the owner to correspondingly fence off the dirt road from their land.
Best island public road
When I first stood for election, I visited all the residents of Best Island (as well as many other ratepayers). At that time, it was apparent to me that a solution to a long standing road access dispute was required, so that everyone could move forward.
Council has since made some headway that involves an initiative to purchase land off residents and formally develop an unsealed public road for the benefit of all ratepayers (as illustrated below). This solution may not necessarily provide restitution for all the complex web of wrongs or mistakes of the past, but it is a positive decision to move forward.
Unfortunately, progress has stalled over land valuations and it is now felt that council may need to use the Public Works Act. Ideally, the landowners will re-engage with Council to reach a private negotiated settlement. However, if the matter is dealt with through the Environment Court, it is likely to take up to 2 years to reach a conclusion.
The estimated project cost is $335,000. This includes: survey costs, valuation expenses, land purchase, Reserves Act processes (if required), registration of easements, road improvements, and legal expenses for the Council, and the respective Ashton and Irvine families.
Staff expect $35,000 to be spent before 30 June 2015, and the balance, of $300,000 to be funded from existing Long Term Plan roading budgets. In addition, a land owner contribution of around $5,000 per property will be levied to offset the costs and recognise any private benefit from the road.
Council resolved to authorise the chief executive to issue a “notice of desire to acquire land” at Best Island for road and walkways under the Public Works Act. The proposed road will require both the Irvine and Ashton land, but does not provide road frontage to all properties.
Public access to a boat ramp and various beach front walkways will provide benefits for the wider community. While the boat ramp has not had major use in the past and is dependent on the tide, improved road access will enable greater public use. And that must be a good thing.
In my mind the parties need to work on the best solution going forward and not dwell on trying to address the past. It happened and nothing can now change that. I am hopeful that all parties will reach a fair agreement and avoids any future problems, without incurring the additional expense of lawyers. Because the only winners (financially), will be the lawyers.
Rates remission for rezoned land
As discussed in an earlier post, the community development committee considered whether the council’s policy on “rates remission for rezoned land” should include a sunset clause.
The current policy recognises a tension between enabling land to be developed (for residential or commercial property purposes) versus not forcing people off their land. These tensions came to ahead during the Headingly Lane saga, where rural land was rezoned as residential, resulting in an unaffordable 400% rates increase for several ratepayers.
A trade-off between these two tensions was the development of a council discretion to award remissions on these rates increases on an annual basis.
The problem with an annual discretion, is that there is no guarantee or certainty that the discretion will be provided each year. Therefore the ratepayer could never plan ahead and always had hanging over their heads the threat of a dramatic rates increase.
A sunset clause would provide certainty for ratepayers, developers, and council, about how long the remissions would be extended and when the land could be expected to begin development.
A 10 year sunset period was considered a sufficiently long enough time period for the ratepayer to get their affairs in order and develop, or dispose of their land (or part of it) at a fair price, and with dignity.
I supported a 10 year period, comprising a 100% remission of the increase in rates for the first 6 years, and a stepped down remission (of 20%) for each of the next 4 years (eg, 6+4 year remission policy). I moved this motion as an amendment to the current policy, supported by Cr Bouillir.
No other councillors supported this motion, as they favoured a shorter period – either: 4+2 years (with the last 2 years remitted at 33%), or 1+3 years (with the last 3 years remitted at 25%).
The two alternative 6 and 4 year sunset periods were expected to be considered at this meeting. However, Mayor Kempthorne proposed a compromise, 5 year (3+2) sunset period. This was moved by Cr Higgins and seconded by Cr Ensor.
To mitigate the damage of such a short remission period, I proposed an amendment (seconded by Cr Bouillir) – removing the 2 year step down period, so that the 100% remission period would be for the full 5 years. However, I also indicated that I would not support any sunset period less than 10 years.
Without my amendment, the 100% remission period would only be for 2 years. In my opinion, 2 years was far too short and was not in keeping with the spirit of the compromise reached with residents on the current remission policy.
Using the Headingly Lane example, this would mean that the rates would double from year 2 to year 3 (a 100% increase), as they headed towards a 400% increase by year 6 (when there would be no remission allowed).
Cr King then questioned whether this was the time to be curbing the scope of the remission policy when the council had a great message in the LTP to convey to the public. His concern was that this message would be lost in the negativity that would arise from the proposed change to the remission policy.
On this basis he asked Cr Higgins whether he would withdraw his motion to change the remission policy – which he then did. Effectively, the resolution was lost unless someone else moved the same motion.
At this point in the meeting the mayor called for a short adjournment as various councillors discussed what they should do next. Fortunately, none sought to move the motion. Thus, the status quo was held.
The chief executive then proposed an alternative resolution, which sought to place the current remission policy (rather than the proposed policy) before the public, for public consultation. This was unanimously supported by councillors.
Chief executives report
The chief executive issued a report, as a late item, under a separate cover to the agenda. The report covered a number of items including: (1) a review of several strategy and planning issues, (2) a drive to use technology to reduce staff costs (and where feasible increase public participation), (3) an update from the regional sector group and CEO forum, in particular reforms to the RMA and importance of risk management, (4) a financial update, (5) a health and safety update and new initiatives, and (6) the Murchison visitor information centre function being delivered by the local museum.
As well as a reminder that private emails and texts sent by councillors (in that capacity) are official information.
The finance update for the period ended January 2015 showed an accounting deficit of $1.227 million compared with the budgeted surplus of $4 million. A negative variance of $5.232 million. A significant portion due to a book entry loss on interest swap revaluations.
When the loss on interest rate swaps is removed, the council has a positive variance of $3.112 million. With expenditure currently tracking below budget by $3.476 million.
Savings mainly came from: reduced interest costs ($1.2 million), reduced emergency works ($0.144 million), and reduced maintenance costs ($2.582 million).
The balance sheet remains in a strong position. External debt is $149.1 million (forecast to be $174.3 million at the end of the fiancial year in June). The capital expenditure budget is $48.4 million (including carryovers of $17.4 million from previous financial years). Capital expenditure is currently around $18 million compared to the forecast expenditure of $36 million.
The long term plan (LTP) and consultation documents will have been released to the public (see http://www.tasman.govt.nz/policy/public-consultation/2015-2025-long-term-plan/). Submissions close on 20 April 2015.
I hope to provide a summary of the key messages (and my opinions) on the LTP in a subsequent post. Generally, its a good document and our efforts in meeting the new format requirements has received very positive comment from the auditor general.
However, there were items that were added by staff late in the process and which could not be removed before the draft plan was released to the public, due to the finance team being stretched to recalibrate the finances if removed. Such was the pressure to get the plan out on time.
For example, the late addition of two new sets of traffic lights on Salisbury Road (one at the Queen Street intersection and one at the William Street T-junction). In my opinion, these additions are not required, and the money could be better spent minimising storm water risk in Richmond South, Bateup Road, Wensely Road, and other spots in Richmond where homes flooded.
I would advise the public to read the activity management plans. These are the extra documents. These plans outline what work will be done (or not done) and when.
Agenda and minutes
The agenda and minutes can be found at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/full-council-meetings/?path=/EDMS/Public/Meetings/FullCouncil/2015/2015-03-05.
The full council met on 19 February 2015. This meeting was not part of the normal cycle of full council meetings as it was dedicated to the long term plan (LTP) for 2015-25 and associated consultation document. Cr Mirfin submitted his apologies, otherwise all councillors were present.
The agenda considered the following items: (1) CEO briefing, (2) Waimea community dam, (3) rates remissions policy review, (4) commercial subcommittee terms of reference, (5) maori consultation processes, (6) other supporting documents for the LTP.
This meeting was then followed by a workshop on the content and layout of the consultation document.
In relation to the full council meeting the main areas of interest for me were the first three items and I intend to concentrate on these items.
The maori consultation process was confirmed, as was the publication of supporting documents for the LTP. Although I continue to have issues with a number of spending proposals in these documents (eg, William Street traffic lights proposal costing $1 million, and the timing of storm water work in the Richmond South area – more urgency is required).
Council were given a brief update on the following items:
- Finance: For the 6 month period, ended 31 December 2014, council produced an accounting adjusted surplus of $2.6 million (after adjusting for capital income, vested assets, development contributions and interest rate swap revaluations) against budget. Interestingly, revaluation of interest rate swaps (which total $147.78 million) provided an accounting loss of $1.8 million. By way of background, interest rate swaps are a hedge against higher interest rates (a bit like fixing your mortgage). This month our swap rate was higher than the market. Which is surprising given our average interest rate for swaps is 5.288%. So, if we had sold our interest rate swaps back to the bank at the current market rate this month, we would have made a loss. Conversely, if our swap rate is lower than the market then we would make a theoretical gain, although we would have to refinance our debt at higher rate. This fluctuation does not cost council any cash, as we are not selling them (although it might be a good time to buy more swaps, if we were in the market) – rather its done for accounting purposes, which we are required to report on. It’s likely that as current interest rates hold up (above our swap rate) council will continue to build up an accounting loss, until such time as the market interest rate trends back up.
- Jackett Island: the claim for future costs has been settled by agreement ending the environment court proceedings – the insurers are managing any civil claim.
- Building control: last year the IANZ accreditation audit identified an issue with TDC’s tracking system for responding to building consents approaching the 20 day limit. In the last month, no building consent application exceeded the 20 day limit, the backlog had been reduced, and compliance was now over 90%.
- Restructure: A new building control manager (tier three) position had been created which has taken over management of the building compliance function and will operate within the regulatory section of TDC.
- Port Tarakohe: The mussel industry has made a pricing compliant to the commerce commission alleging TDC is making super profits from its new commercial charges regime. In my opinion, the new weigh bridge and more timely and accurate billing is clearly having an impact on some operations bottom line.
- Best island access: Several meetings have been held with affected residents on a proposal for council to acquire land for a public road in order to address access issues for those residents.
- Nelson tourism and economic development agency: Meetings have been held to discuss work plans for both organisations. In my opinion, strategic activities (including more actively supporting the international education sector) and measurable performance outcomes need to be agreed.
The council wage bill
Council staff were also asked to provide information on council’s wage budget (currently round 18% of total expenditure) and how it compares to other authorities. Cr Inglis, Higgins, and myself have been pursuing this issue for sometime.
While there are few unitary councils to make comparisons with, and unitary council functions are broader than district or regional councils, the councils wage bill is still a percentage (or ratio) of its overall cost of performing its functions. If a council has more functions it will have more income and more expenditure, but wage expenditure should still be comparable.
In my opinion, benchmarking the councils operational activities and costs is important. Given unitary councils comprise both district and regional council functions, some detailed analysis separating out those separate functions, could be undertaken with a little effort (with shared services apportioned), to provide direct comparison with district or regional councils.
I understand the local government association (LGA), have on its agenda, the provision of benchmarking tools for council governance. If the government want to see local government costs come down, I would have thought they would have been a keen supporter (and potential funder) of such tools.
Note! As pointed out by one reader, Local authorities must disclose their performance in relation to identified statutory benchmarks (see section 9 of the Local Government (Financial Reporting and Prudence) Regulations 2014). I agree. However, these statutory benchmarks are very different to the type of benchmarking I am suggesting. I am talking about benchmarking “between” councils on information not currently required by statute to be benchmarked. The statutory benchmarks listed in section 10 of the Local Government (Financial Reporting and Prudence) Regulations 2014 are: rates affordability (reg 17), debt affordability (reg 18), balanced budget (reg 19), essential services (reg 20), debt servicing (reg 21), debt control (reg 22), and operations control (reg 23). These benchmarks are generally a high level comparison against quantified limits set by council or statute. For example, comparing the council’s planned rates increase with a quantified limit on rates increases contained in the council’s financial strategy.
I also believe its about time council was subject to an independent organisational review. As a governance body, council should regularly review if the council is operating efficiently. An independent review will either confirm the organisation is right sized and operating efficiently, or make suggestions for improvements.
Either way ratepayers would have greater confidence in the organisation of council and that their money is being spent wisely. Unfortunately, there appears to very little support around the council table (including the mayor) for such a review. Hopefully a wage comparison, might push them towards a much needed review.
Waimea community dam
There were two issues to be considered: (1) a revised structure of the arrangement, and (2) funding of a new private entity.
The suggested re-structure was not a surprise as we had been briefed at an earlier workshop. These days I tend to find the workshops more informative (and useful) than the actual committee meetings (that formally present the staff paper and recommendations).
This is because, much of the debate and councillors positions on the issue, have been worked through at the workshop. This means much of the debate around the table is often making a last argument for not supporting (or supporting) the staff recommendation.
A revised structure
In essence, the proposed arrangements confirmed at the earlier council meeting of 9 December 2014 has changed. At the December meeting it was proposed (and supported by the majority of council) that a CCO would be formed and it would co-ordinate external funding (amongst other tasks). That structure is outlined below.
Ironically, my opposition to forming a CCO and allowing the irrigators to form their own investment holding company (Waimea Community Dam Ltd, or “WCDL”) has now been taken up by the irrigators. They now proposed a revised structure whereby WCDL secures funding from the Crown and irrigators. This new structure is illustrated below.
This new structure reflects the fact that irrigators will now be the major financial contributors to the dam, as they look to secure funding from the Crown and irrigators.
By way of background, the council’s contribution to a dam is limited to $25 million – made up of urban water ($8 million) and environmental ($14 million), with the remaining $3 million for administration costs. This would suggest that WCDL has to secure the remainder ($50 million) from irrigators and the Crown.
I agree with this structure. Its very similar to what I suggested in my dissenting opinion in December. However, I maintain that a CCO does not yet need to be established, until a decision on whether we proceed with a dam (or not), is decided. If a dam is agreed, then the reasons for forming a CCO need to be considered at that time.
In my opinion, the cost of establishing and maintaining a CCO does not warrant its formation at this time. During the consultation phase on governance formation of a CCO was estimated to cost about $100,000 (plus ongoing costs, like directors fees). Establishing a company also invites tax, accounting, and company compliance costs that a “council” does not need to bother itself with. Council could quite easily enter into contractual negotiations with WCDL directly for the supply of water augmentation services. As it has done with NCC over the delivery of tourism services.
A reason to form a CCO is the benefit of skills and knowledge that directors could provide. However, in this instance, the CCO would not be managing the dam, unlike governance struture 1. Rather, it is a holding company for council investment. Furthermore, management and technical skills would be provided by TDC under contract. So there do not appear to be any benefits at this time in forming a CCO?
Given no government funding for urban or environmental contributions has been forthcoming, there seems little reason to form a CCO at this time. It might be that such funding is not contingent on a CCO being formed? Why jump the gun?
To date, the mayor has made no noise about securing government funding for the environmental contribution, or seeking government to underwrite any cost blow outs for the council’s contribution.
Having looked at a guide on when councils should form a CCO (see http://wellington.govt.nz/~/media/your-council/council-controlled-organisations/files/whatworks.pdf), I could find no compelling case for forming a CCO.
Given assurances during the consultation phase that cost blow outs were unlikely, I would have thought it would have been easy for the government to underwrite any cost blow outs above the $8 million urban water supply contribution. And given the broad public benefit of protecting the environment, the government should have come to the party on the environmental cost. Perhaps its time to write to Nick myself?
The other issue before council was the provision of “ongoing funding” for WCDL to engage with irrigators and the Crown. The source of this funding was proposed to come from the Waimea Water Augmentation Project surcharge which generates about $81,000 per year. This amount would be given to WCDL in the 2015-16 year.
I proposed loaning these funds (as an amendment to the resolution), rather than just handing them over to WCDL. Cr Canton seconded my motion, but no other councillors supported this change. In my mind, this was a private investment holding vehicle, not a council owned or controlled entity, and council had a duty to protect public funds.
Giving the money as a loan would provide security as a creditor should WCDL prove unsuccessful. Giving WCDL the money, provide no security at all. Further, when questioned, the CEO could see no reason why the funds could not be provided as a loan. Either way, WCDL would obtain funding. Although some councillors raised there own reasons for why it should not be a loaned during the debate.
Rates remissions policy review
At present, the council has a policy that remits rates on properties that have been subject to re-zoning. The policy provides the council a discretion in terms of how long the remission period will last.
To provide certainty (and transparent fairness) to the process it was raised during a workshop whether council should prescribe the length of the remission period. At that workshop it was suggested that a 10 year period be provided, with the last 3 years stepping down the remission towards the payment of the full rates bill. At that meeting other lengths of time were discussed, including 6 and 4 years. Some on council felt there should be no grace period, effectively rescinding the remission policy.
In my mind, a reasonable period of time should be provided. Through no fault of their own, but rather due to council’s actions of rezoning, they are placed in the very awkward financial position they find themselves in. Providing a reasonable period of time enables people to leave their land with dignity and without being pressured to sell for a low price. Alternatively, ratepayers should be given the opportunity to re-engineer their incomes so they can afford to stay or redevelop the land themselves. In my opinion, to do otherwise, only benefits the next purchaser.
The fundamental issue for me, is that council should not be in the business of forcing people off their land and out of their homes. This principle has strong support in the community – as evidenced by the submissions made on the governance and funding options for the proposed Waimea community dam.
This principle also had some support around the council table. Although there are a few councillors who adopt a more extreme utilitarian approach to the issue. That approach reared its head again during this debate.
Essentially the question before council was whether there should be a sunset clause added to the remission of rates on land that has increased in value due to re-zoning.
In such cases, re-zoning can exponentially increase the value of a property based on its new potential value. The Headingly Lane incident was apparently the driver for this remission policy. The increase in rates can be unsustainable for the property owner, and often they are forced to dispose of the land to a property developer or someone who can obtain more income from the land to afford the new rates bill.
Against this, is the need to ensure land is available for development. A key part of the housing shortage (and high values) is the supply of land. Although, whether this is a driver in the Tasman region, is a moot point.
I supported a 10 year period, comprising a 100% remission of the increase in rates for the first 6 years, and a stepped down remission (of 20%) for each of the next 4 years (eg, 6+4 year remission policy). I moved this motion as an amendment to the current policy, supported by Cr Bouillir.
No other councillors supported this motion, as they favoured a shorter period – either: 4+2 years (with the last 2 years remitted at 33%), or 1+3 years.
Cr Ensor questioned why I would support such a long time given the cost to council and given my drive to reduce costs for council. I explained, that my support of a longer remission period (the 6+4 year period) reflected the tension between saving costs and ensuring people were not force out of their homes. I also did not perceive there was any “real” cost to council. The increase in value did not affect the councils costs. In fact, remitting the rate just meant that council did not get an increase in income. Councils costs remained unchanged, whether the land increased in value or not.
On losing this amendment, I made it clear I could not support any shorter period as I considered it unfair and mean spirited, and would prefer council discretion (the current policy) to anything else.
Especially when placed in the context of the Tapu bay issue, where some councillors supported giving a life interest in a holiday bach (or crib if you are from the deep south) to the owner of the bach (that was not that person’s home), rather than enforce the councils policy of removing private bachs from public land, and yet were willing to force people out of their homes within a much shorter period.
On that basis I informed council I would be voting against both shorter remission periods.
Other councillors realising that a no vote on a 4+2 remission period, might force an even shorter period, asked to defer this item to the next full council meeting.
The full council meeting on 5 March will be deciding on the final state of this policy.
Agenda and minutes
The agenda and minutes for this meeting are located at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/full-council-meetings/?path=/EDMS/Public/Meetings/FullCouncil/2015/2015-02-19.
The corporate services committee meeting was held on 13 March 2014. Apologies were received from the Mayor, Cr Norris, and Cr Mirfin. All other councillors were in attendance.
The agenda comprised a number of reports. These included reports on: (1) the local government funding agency, (2) council controlled organisations (ie airport, port, Tasman Bays Heritage Trust, Nelson regional sewerage business unit), (3) a proposal for a revised financial strategy, (4) human resources (staff) update, and (5) treasury report and financial activities. In attendance were officers of PWC, who presented information on the councils treasury management.
The agenda also contains (by way of separate attachment) the December 3013 financial reports. If you want to know where your money was spent, have a wander through this document.
I intend to provide a short snap shot of the contents of the agenda. Much more detail is available in the agenda itself and I recommend readers with an interest in financial matters read the agenda (and attachments) in full.
The local authority protection programme (LAPP) provides 40% of the council’s insurance cover for infrastructural assets. The remaining 60% is covered by central government. A review of local body insurance was published in December 2013 by Local government NZ (LGNZ). That review has recommended the replacement of the LAPP with a local authority owned agency and the replacement of the current 60/40 natural disaster co-funding arrangement, with a tiered\mixed approach to insurance cover involving levels of self insurance, commercial insurance, and taxpayer support.
The council is a member and shareholder of the local government funding agency (LGFA) which provides financial funding for participant councils. For the 2013-14 year, council can expect a 7% return on its founding investment. The dividend will be used to cover interest and debt used to purchase the original shares in the LGFA. The advantage of being a participant in the LGFA is access to funds at a lower interest rate than charged by the major trading banks.
The council is a joint shareholder of several council controlled organisations (CCO’s) with Nelson council. These include: Nelson Airport, Port Nelson, Nelson Regional Sewerage Business Unit (NRSBU), and Tasman Bays Heritage Trust.
Staff recommended the NRSBU adopt a treasury policy in respect of its funding and management activities. Under the policy, treasury management will formally be the responsibility of Nelson council acting on behalf of both councils (which is current practice). Having an treasury policy will also improve our audit rating as the council can show the asset is being prudently managed.
As at 31 January 2014, there was a significant variance to forecasted budgets. Accounting income was $4.9 million ahead of budget and expenditure was $1.6 million above budget. The net position was a year-to-date surplus of 3.1 million and an underlying surplus of $6.3 million. While some of the variance can be attributed to timing, there were very large gains of $3.1 million made from interest rate swaps (ie the refinancing of debt at lower interest rates). Our ability to continue to get good interest rates is a reflection of our credit rating and involvement in the LGFA. Interest rate swaps are managed by PWC. Council received a very good presentation from PWC on their funding and liquidity management and strategy. Together with how they see the market trending. Needless to say the trend on interest rates is a rising one. Generally, council is funded by banks (58% or $92 million) and the LGFA (41% or $65 million). Part of the liquidity strategy is to reduce any finance facilities not being fully used. For example, a bank might provide the council a loan facility of $10 million. The council draw down $9 million and are charged interest on that $9 million. Leaving $1 million available for future drawing (this might be reserved for disaster funding). The availability of the $1 million incurs a bank charge. The bank charge might be higher than borrowing the money elsewhere or it might be cheaper to hold the $1 million in cash reserves? These decision will be based on the interest rates council is able to obtain. Overall, PWC appear to be doing a good job, given the savings council is making on interest rate swaps.
As at 31 December 2013 council had a total staff of 257 people.
|Environment & planning||75||15||1||1|
|Chief executive’s office||3||1||1|
Of course, staff numbers alone do not provide a great deal of insight. However, some benchmarking of staff numbers against other councils who process a similar number of resource consents might show greater insight into the productivity of our environment and planning team. The same comparisons could made for other departments too. If council intends to reduce service levels then that might also mean we may need less staff. The key point here is that productivity is the focus, not just how many staff we have. Although clearly less staff mean less cost, but it might also mean less income. Like any business, its a balancing act.
Revised financial strategy
To address reliance on debt funding staff have recommended a new financial strategy for the long term plan (LTP). This involves setting a fiscal envelope prior to engaging in a review of councils management plans for assets and activities. The focus will be on core infrastructure and debt repayment. This may mean that some projects and service level expectations from the community will have to change. For example, reducing our expenditure of community development initiatives such as upgrading recreational facilities in the short-term until we can get our books back into a healthier state. It might mean, we reduce our service levels of community facilities (parks and reserves) and instead engage with the community and volunteers to take ownership. This is not a new concept. In the past, the community (often Rotary or Lions) funded a number of community facilities or beautification projects in Richmond. Many residents would fund the purchase of a park bench for a favourite spot in a local reserve. As a council we need to enable the community to fund those projects it wants, rather than council trying to anticipate and fund what people may want. As I have said in earlier posts, we also need to contain our total rates bill below the consumer price index (CPI) if we are to make any headway on getting some parity with other councils.
Agenda and minutes
The agenda and minutes for this meeting can be found at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2014/2014-03-13.