11 May 2022
Max Shierlaw
[FYI request #19091 email]
Tēnā koe Max
Request for Information – Local Government Official Information and Meetings Act
(LGOIMA) 1987
We refer to your official information request dated 8 April 2022 for:
“… all correspondence, meeting notes and any other official information relating to the
Philip Jones report on pages 228-257 of the Council agenda papers of 7 May 2020.
Please include any draft reports or part of the full report, either in draft or final,
received by the Council preceding the published report, submitted by Philip Jones or
Philip Jones & Associates or by staff or colleagues of Philip Jones and any
correspondence, file notes, meeting notes or any other official information relating to
communication between Jones and the Council about those draft reports.
Please also include any internal emails within the Council about the Jones report, both
drafts and final report, including discussions about the preparation of the Council
agenda papers and officers' report pertaining to the Jones report.”
Attached is a copy of the
final report from Philip Jones and communications relating to it.
Private information has been withheld from these documents under section 7(2)(a) of the
LGOIMA. The final report can be located on the Hutt City Council’s websit
e here. Copies of the
draft reports and some associated communications are withheld under section
7(2)(f)(i) of the LGOIMA, to maintain the effective conduct of public affairs through the free
and frank expression of opinions.
You have the right to seek an investigation and review by the Ombudsman of this response.
Information about how to make a complaint is available at
www.ombudsman.parliament.nz or
freephone 0800 802 602.
Please note that this letter may be published on the Council’s website.
Nāku noa, nā
Susan Sales
Senior Advisor, Official Information and Privacy
4 May Mayor, DM, CE, Jarred, Caryn
Out of Scope
Budget - email to all staff going out, budget paper for review. Phillip Jones report. One
pager from Jo regarding the report. Requested by Mayor and subcommittee chairs. Touch
base before finalised. Phillip Jones to attend?
Out of Scope
under the Local Government Official Information and Meetings Act
Released
From: Bruce Robertson s7(2)(a)
Sent: Saturday, 2 May 2020 8:41 am
To: Jenny Livschitz <[email address]>
Cc: Philip Jones s7(2)(a)
Subject: Re: Hutt City report
Act
Hi Jenny
Please find attached the requested bio. Apologies for the slightly dramatic photo - any formal one
suggests I am younger, haha!
And well done on getting Phil’s engagement in to this area. From past involvement with Hutt, I think
the sort of review that Phil can provide has been really needed. To date I think Hutt has been
somewhat insular to broad developments in the sector - and Phil’s work will assist you as a
leadership team forge an upgraded path.
Kind regards
Bruce
Bruce Robertson
Director
RBRobertson Ltd
s7(2)(a)
Lo
On 1/05/2020, at 2:53 PM, Jenny Livschitz <[email address]> wrote:
under t
under the Local Government Official Information and Meetings Act
Hi Bruce
ed
A quick note to thank you for the work that you’re doing on this report with Philip. Really
appreciated!
I’m wondering if you have a brief bio about yourself. I would like to include this alongside the report
Released
when it goes to the Mayor.
Thanks again , and have a great weekend.
Jenny
s7(2)(f)(i)
under the Local Government Official Information and Meetings Act
Released
From: Jo Miller
Sent: Saturday, 2 May 2020 12:44 PM
To: Campbell Barry; CNB; Tui Lewis; Simon Edwards; Deborah Hislop
Subject: Fwd: Hutt City report
Please see attached , Bruce Robertson, former Assistant Auditor General’s biography as
promised . Bruce has peer reviewed the Philip Jones report which I have shared with you .
Philip Jones bio will come on seperate email . Thanks Jo
Act
Sent from my iPad
Ngā mihi nui
Jo Miller Chief Executive
Hutt City Council, 30 Laings Road Private Bag 31912, Lower Hutt 5010, New Zealand
T 04 570 6773
M 027 213 7550
W www.huttcity.govt.nz
Follow me on Twitter : @jomillernz
IMPORTANT: The information contained in this e-mail message may be legally privileged or confidential. The information is
intended only for the recipient named in the e-mail message. If the reader of this e-mail message is not the intended recipient,
you are notified that any use, copying or distribution of this e-mail message is prohibited. If you have received this e-mail
message in error, please notify the sender immediately. Thank you.
Begin forwarded message:
Date: 2 May 2020 at 8:40:51 AM NZST
To: Jenny Livschitz <[email address]>
Lo
Cc: Philip Jones s7(2)(a)
Subject: Re: Hutt City report
Hi Jenny
under t
under the Local Government Official Information and Meetings Act
ed
Please find attached the requested bio. Apologies for the slightly dramatic photo - any formal
one suggests I am younger, haha!
And well done on getting Phil’s engagement in to this area. From past involvement with
Released
Hutt, I think the sort of review that Phil can provide has been really needed. To date I think
Hutt has been somewhat insular to broad developments in the sector - and Phil’s work will
assist you as a leadership team forge an upgraded path.
Kind regards
Bruce
Bruce Robertson
Director RBRobertson Ltd
s7(2)(a)
Act
Lo
under t
under the Local Government Official Information and Meetings Act
ed
Released
Bruce Robertson
RBruce Robertson Ltd
Act
Bruce is an established governance and risk expert within the local government sector, with active
membership of audit and risk committees since leaving the Office of the Auditor-General in 2015. He
has been confirmed as an independent member of 12 Audit and Risk Committees1 including Auckland,
Hamilton City, Tauranga City and Bay of Plenty Regional Councils for the 2019-22 local body
triennium..
In most of these roles, as well as leading and participating in the work of the committees and
governance of the councils , his work has included a substantial development dimension in supporting
the growing understanding and maturity of risk management within the council itself. This work has
included workshops on risk (especially to establish a council’s highest level risks – the “top 10” –
through to seminars with a council’s risk management and ‘risk champions’).
Lo
As an independent member, he is required from time-to-time, to deal with sensitive issues in support
of council’s governance. Generally, these are confidential but have involved such matters as staff
conflicts of interests and sensitive ratepayer concerns.
Aligned to these roles, Bruce convened a series of risk and assurance seminars nationally in 2018 to
under t
under the Local Government Official Information and Meetings Act
develop elected member and senior management’s understanding of development of effective audit
and risk committees. In February 2020, he will contribute in SOLGM’s Risk Management Forum.
ed
Bruce also works as an independent reviewer of organisations and significant council activities. Recent
review roles include “health checks” on the overall capability and capacity of entities to “perform and
Released
deliver” (DIA, Review of Kaikoura and Hurunui District Councils, 2015; North Canterbury Fish and
1 Chair of Gisborne District Council, Invercargill City Council, Otorohanga District Council, Southland District
Council, Thames Coromandel District Council, Waipa District Council, Waitomo District Council; Deputy Chair of
Bay of Plenty Regional Council, Far North District Council, Hamilton City Council; independent member of
Auckland Council.
Game Council, Review of aspects of governance and management, 2018 and Central South Island Fish
and Game Council, Management of conflicts of interest; 2019) and review of the capability and
capacity of key functions (Hastings District Council, Water operations post-Havelock North, 2017 and
2018; Christchurch City Council, Loss of ‘secure’ status for its water supply, 2018).
Recently he completed reviews of Okara Park (Whangarei District Council/Northland Events Centre
Trust, 2019), events management issues (Tauranga City Council management of Soper Reserve, 2019)
Act
and commercial investments (Invercargill City Council, investment in the Don St premises, 2019).
Bruce is assisting with risk management of the refurbishment and rebuild of Yarrow Stadium (Taranaki
Regional Council) and has recently worked with Whakatane District Council on a review of their
internal management functions to ensure Council is fit for the future challenges it will face and can
help the community with capturing and maximizing the opportunities developing in the ‘Eastern Bay’.
His governance and management engagements have varied across maturity reviews of approaches to
risk (Porirua City Council, Risk Maturity Assessment, 2019), providing governance support to decision-
makers (Kaikoura District Council; 2018 and on-going), guiding and supporting financial management
reform and change management (Invercargill City Council, 2019), “Finance 101” seminars
(Whakatane District Council 2019; LGNZ’s finance module for new councillors, 2019) through to
facilitating strategic priorities seminar (Whangarei District Council, 2019).
Bruce is part of the assessors for Local Government New Zealand’s CouncilMARK assessment
programme, and he is a recognised facilitator, and presenter of governance and strategy workshops
Previously he was Assistant Auditor-General, Local Government in the Office of the Auditor-General.
Through his time in this role, he was heavily involved in the implementation of the planning, financial
management and accountability provisions of the Local Government Act 2002 as well as their
amendment.
He is a graduate of the University of Otago (Commerce and History) and is a Fellow Chartered
Accountant (FCA) of Chartered Accountants of Australia and New Zealand. He maintains an active
programme of self-development, as expected of a professional member of the Institute.
Bruce is Queenstown-based, where he lives with Pip, his wife. They have three adult children.
Lo
under t
under the Local Government Official Information and Meetings Act
ed
Released
Chief Executive’s statement to Council meeting 7 May 2020
Out of Scope
ct
RelOut of Scope
Out of Scope
t
I draw your attention to the 22 page report in your agenda today by Philip Jones from PJ &
Associates which has been peer-reviewed by Bruce Robertson, former Assistant Auditor
General. The Mayor requested that the report be commissioned and I am pleased that we
have done so. The report notes the following in respect of the proposed financial strategy we
have pressed pause on:
This is an improvement on the existing strategy and there are further improvements to be
made, in particular by defining the need for increased funding for renewal expenditure and
considering the impact of a balanced budget and noting the intention to increase revenues
over time to “balance the budget”.
In conclusion, the proposed financial strategy and the approach taken in the development of
the proposed amendment to the 2018-2028 Long term plan is a significant improvement.
The reason for this improvement from the existing strategy is by clearly explaining the need
to increase expenditure and move to a tighter balanced budget test consistent with good
practice. This wil assist in forming a sound and financially prudent approach for the
development of the 2021-2031 Long term plan.
under the Local Government Offi
Out of Scope
R
From: Jo Miller <[email address]>
Sent: Saturday, 2 May 2020 10:19 am
To: Jenny Livschitz <[email address]>
Cc: Philip Jones s7(2)(a)
Subject: Re: Final report
Fantastic , thanks both
Ngā mihi nui
Jo Miller Chief Executive
Hutt City Council, 30 Laings Road Private Bag 31912, Lower Hutt 5010, New Zealand
T 04 570 6773
M 027 213 7550
W www.huttcity.govt.nz
Follow me on Twitter : @jomillernz
IMPORTANT: The information contained in this e-mail message may be legally privileged or confidential. The information is
intended only for the recipient named in the e-mail message If the reader of this e-mail message is not the intended recipient,
you are notified that any use, copying or distribution of this e-mail message is prohibited. If you have received this e-mail
message in error, please notify the sender immediately. Thank you.
On 2/05/2020, at 10:04 AM, Jenny Livschitz <[email address]> wrote:
Thanks again Philip
Jo I have bios from Philip and Bruce which could go alongside these. I’ll forward these onto you next
ocal Government Official Information and Meetings Act
I can pull it together in these memo.
Sent from my iPhone
On 2/05/2020, at 9:44 AM, Jo Miller <[email address]> wrote:
u
Thank you so much Philip for doing this at speed .
Could I possibly trouble you to put in the exec summary that it has been prepared by you & peer
reviewed by Bruce with details of your joint stature ?
Many thanks . I really appreciate all that you have done . Jo
Released
Ngā mihi nui
Jo Miller Chief Executive
From: Deborah Hislop <[email address]>
Sent: Saturday, 2 May 2020 2:43 pm
To: Jo Miller <[email address]>; Campbell Barry <[email address]>;
Simon Edwards <[email address]>; Tui Lewis <[email address]>; CNB
<[email address]>
Cc: Jenny Livschitz <[email address]>; Caryn Ellis <[email address]>;
Jarred Griffiths <[email address]>
Subject: RE: Final report
Thank you Jo and Jenny for the bio and the financial report. Both very good reading.
Cheers
Deborah
From: Jo Miller
Sent: 02 May 2020 12:38
To: Campbell Barry; Simon Edwards; Tui Lewis; CNB; Deborah Hislop
Cc: Jenny Livschitz; Caryn Ellis; Jarred Griffiths
Subject: Fwd: Final report
Dear All
Please find attached independent financial report from Philip Jones , peer reviewed by Bruce
Stevenson . This accords with our conversations over the last couple of weeks. I will forward
Philip and Bruce bios under seperate email . Campbell we can discuss at our Monday
morning catch up the best way to get this into the wider council arena etc .
Thanks all , happy to discuss.
Jo
Sent from my iPad
Ngā mihi nui
Jo Miller Chief Executive
Hutt City Council, 30 Laings Road Private Bag 31912, Lower Hutt 5010, New Zealand
T 04 570 6773
M 027 213 7550
W www.huttcity govt.nz
Follow me on Twitter : @jomillernz
under the Local Government Official Information and Meetings Act
Released
IMPORTANT: The information contained in this e-mail message may be legally privileged or confidential. The information is
intended only for the recipient named in the e-mail message. If the reader of this e-mail message is not the intended recipient,
you are notified that any use, copying or distribution of this e-mail message is prohibited. If you have received this e-mail
message in error, please notify the sender immediately. Thank you.
Begin forwarded message:
From: Philip Jones s7(2)(a)
Date: 2 May 2020 at 9:39:10 AM NZST
To: Jenny Livschitz <[email address]>, Jo Miller
<[email address]>
Subject: Final report
Good morning
Attached is the final report. This has ben a challenge to ensure the right message is given without
seriously criticising the previous approach.
Bruce’s final comments are:
Professionally we say it will be more robust - and that is defendable simply on the grounds of the
tighter test (in line with good practice) and without us having actually say it is the right answer at
this point.
Kind regards Philip Jones
under the Local Government Official Information and Meetings Act
Released
From: Jenny Livschitz <[email address]>
Sent: Monday, 4 May 2020 2:11 pm
To: Jo Miller <[email address]>
Cc: Caryn Ellis <[email address]>
Subject: Extra report
This is what I have put together quickly – Ok?
under the Local Government Official Information and Meetings Act
Released
1
07 May 2020
Hutt City Council
04 May 2020
File: (20/388)
Report no:
Council financial strategy
DECISION MAKING
CHECKLIST
This checklist is designed to assist report writers and decision makers to more easily
understand and comply with the obligations of the Local Government Act, whilst providing
a legal record of how the process was followed.
There are specific obligations in the Local Government Act 2002 for Council to consider a
range of factors when making decisions. The Decision Making Checklist is applicable to
all reports
seeking a decision to SLT, Council, Community Committees or Community
Boards.
What is the decision you are seeking in your report? No decision. Noting report
only.
under the Local Government Official Information and Meetings Act
Who is responsible for making this decision? Finance & Performance Committee
Check Council’s
Terms of Reference the
Delegations Register and
Functions and
Delegations for Community Boards 2016-2019
Released
LEGISLATIVE REQUIREMENTS
Does this decision fit the purpose of local government by
enabling local decision-making and action by, and
on behalf of, the communities; and promoting the social, economic, environmental, and cultural well-
being of communities in the present and for the future ☒
DEM15-3-1 - 20/388 - Council financial strategy
Page 1
2
07 May 2020
Does your report show how this decision
Not applicable
yes
achieves this purpose (see above) in the most
cost efficient way?
Does your report state whether this is a
significant decision, and if so, on what basis it is Not applicable
yes
significan
t? Refer to significance policy
Does the report show that I have considered
how this decision will affect people in the
Not applicable
yes
community?
OPTIONS
Comments
Have I considered
all practicable options in my
Not applicable
yes
report?
Does the report show that I have assessed the
costs and benefits (or pros and cons) of each of Not applicable
yes
those options?
FINANCIAL CONSIDERATIONS
Comments
Does my report show how this decision would
be funded?
yes
(If you answer ‘existing budgets’ please specify
the budget year).
Have I considered the short term and long term
financial implications of this decision in my
Not applicable
yes
report?
Do I need to prepare a business case with my
no
Not applicable
report?
CONSISTENCY WITH OTHER COUNCIL PLANS
Comments
Does the report recommend a decision that
would substantially deviate from current plans
(including the Annual or Long Term Plan, The
Not applicable
no
District Plan, asset management plans or
under the Local Government Official Information and Meetings Act
policies or strategies); or
Does the report recommend a decision that
supplements or replaces any current plans or
Not applicable
yes
policies?
Released
CONSULTATION
Comments
Should this issue be consulted on?
Refer to the Not applicable
Yet to be determined
Community Engagement Strategy
DEM15-3-1 - 20/388 - Council financial strategy
Page 2
3
07 May 2020
If so, have I identified a consultation plan and
identified who I need to consult with?
Not applicable
no
Refer to the Community Engagement Strategy
Am I aware of any existing community views
(including the Youth Council) regarding this
Not applicable
no
decision?
Should I consult with Māori on this decision?
Refer to Community Engagement Strategy and
Not applicable
All community if required
Contact the Kaitakawaenga Kaupapa Maori
OTHER CONSIDERATIONS
Comments
Which other staff members within Hutt City
Yes
Legal, policy
Council should I talk about this decision with?
How would I communicate this decision?
N/A
(Consider both internally and externally)
Have I made a plan for the implementation of
Not applicable
yes
this decision?
Does this report require specialist input (for
example, advice from the legal team, the
Not applicable
yes
Communications team, Human Resources,
Finance, or Risk Management)?
Health and Safety: Are there any health & safety
implications or risks to others in making this
decision? If so have these risks been assessed Not applicable
no
in accordance with the Health & Safety at Work
Act 2015 and what actions may be taken to
reduce the risk of harm?
Purpose of Report
under the Local Government Official Information and Meetings Act
1. For Council receive the report and advice in relation to the Financial Strategy
developed for the proposed amendment to the 2028-2028 Long Term Plan.
Released
Recommendations
That Council:
(i) note the report on the Financial Strategy, attached as Appendix 1 to the
report;
DEM15-3-1 - 20/388 - Council financial strategy
Page 3
4
07 May 2020
Background
2.
At the request of the Mayor a report has been prepared on the proposal to
amend the 2018-2028 Long term plan and the existing financial strategy, refer
Appendix 1. The report was prepared independently by Phillip Jones of PJ &
Associates, and has been peer reviewed by Bruce Robertson of RBruce
Robertson Ltd. Their bios are attached as Appendix 2 and 3 to this report.
3. Extract from the report
In conclusion, the proposed financial strategy and the approach taken in the
development of the proposed amendment to the 2018-2028 Long Term Plan is a
significant improvement. The reason for this improvement from the existing strategy
is by clearly explaining the need to increase expenditure and move to a tighter
balanced budget rest consistent with good practice. This will assist in forming a sound
and financially prudent approach for the development of the 2021-2031 Long Term
Plan.
Legal Considerations
4. The relevant legislation is referenced in the report, attached as Appendix 1.
Financial Considerations
5. There are no further financial considerations apart from those referenced in
the report, attached as Appendix 1.
Appendices
No. Title
Page
1
Appendix 1 - Report on Council financial strategy
2
Appendix 2 - Philip Jones bio
3
Appendix 3 - Bruce Robertson bio
under the Local Government Official Information and Meetings Act
Author: Jenny Livschitz
Chief Financial Officer
Released
Approved By: Jo Miller
Chief Executive
DEM15-3-1 - 20/388 - Council financial strategy
Page 4
5
07 May 2020
under the Local Government Official Information and Meetings Act
Released
DEM15-3-1 - 20/388 - Council financial strategy
Page 5
From: Jo Miller <[email address]>
Sent: Wednesday, 15 April 2020 7:58 am
To: Jenny Livschitz <[email address]>
Subject: Re: LG depn requirements final after comments.doc
Helpful Jenny , thanks
Sent from my iPad
Ngā mihi nui
Jo Miller Chief Executive
Hutt City Council, 30 Laings Road Private Bag 31912, Lower Hutt 5010, New Zealand
T 04 570 6773
M 027 213 7550
W www.huttcity.govt.nz
Follow me on Twitter : @jomillernz
IMPORTANT: The information contained in this e-mail message may be legally privileged or confidential. The information is
intended only for the recipient named in the e-mail message. If the reader of this e-mail message is not the intended recipient,
you are notified that any use, copying or distribution of this e-mail message is prohibited. If you have received this e-mail
message in error, please notify the sender immediately. Thank you.
On 14/04/2020, at 5:05 PM, Jenny Livschitz <[email address]> wrote:
Hi
FYI a paper written by Philip in 2011 and published by LGNZ. OAG also reviewed paper ahead of
publication.
A few extracts
under the Local Government Official Information and Meetings Act
-
“
In the local authority context depreciation is especially important as it ensures that today’s
ratepayers pay their fair share of consumption of the assets. Depreciation is therefore a vital
component of the process of setting rates and charges.”
Released
-
The LGA provides local authorities with a set of exceptions where they may depart from the
requirements of the balanced budget. However, these exceptions do not provide a licence for
any local authority to depart at will from a balanced budget (e.g. the political decision to hold
back on amount of depreciation a council may “fund” to keep rates down in an election
year). They require careful thought and analysis of the funding needs and the overall financial
strategy to best deliver sustainable community services over the long term.
-
As a result of revaluing assets depreciation will increase. However, as the purpose of
depreciation is to charge the people who are using the asset their share of that asset, if the
value has increased, in theory the people using the asset should pay a greater share. If the
value has increased so do the future renewal costs.
Cheers
Jenny
From: Philip Jones [mailto:s7(2)(a)
]
Sent: Tuesday, 14 April 2020 4:06 PM
To: Jenny Livschitz
Subject: LG depn requirements final after comments.doc
<LG depn requirements final after comments.doc>
under the Local Government Official Information and Meetings Act
Released
Depreciation in the Local Government context
There has been much comment over the requirement for the local government sector to account for
and fund depreciation. The purpose of this paper is to put context around the requirements to
include depreciation in the accounts and budgets of local authorities.
The legislation and accounting standards
Section 100 subsection 1 of the Local Government Act 2002 (LGA) states:
A local authority must ensure that each year’s projected operating revenues are set at a level
sufficient to meet that year’s projected operating expenses.
The requirement to set operating revenues at a level sufficient to meet operating expenses includes
depreciation because section 1111 (LGA) obliges councils to follow generally accepted accounting
practice (GAAP), which defines ‘operating expenses’. As depreciation is an operational expense it
must be included with other operational costs including interest when a council sets its operating
revenue.
What the legislation requires is that councils ensure that projected revenues are at least equal to
projected operational expenditure including depreciation, unless it is prudent to do otherwise. The
cash or funding generated by the revenue may be used for present capital needs (including
renewals), debt reduction or set aside for future capital needs. This helps ensure sound asset
management practice and continuity of service to future generations.
Purpose of depreciation
There is confusion over the purpose of depreciation as many believe that the purpose of
depreciation is to provide for the replacement of an asset. In fact depreciation reflects the use or
consumption of the service potential implicit in as asset. GAAP defines depreciation as follows:
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful
life.
As depreciation reflects the consumption of the asset over its useful life, there are two critical
factors in determining the expense. The first is the cost or revalued amount, and the second is the
useful life. It is therefore not related to the physical wearing out, for example able to sit on a park
bench in year one (or flush toilet) is the same benefit to a ratepayer as being able to sit on park
bench in year 15, 16, and 17 ( or flush toilet).
under the Local Government Official Information and Meetings Act
The purpose of depreciation is not to provide for the replacement of the asset(s), however this may
be an intended or unintended consequence as many councils have assumed that depreciation is for
the replacement of an asset.
Released
The approach to depreciation in the local government context is no different than the commercial
sector when depreciation is accepted as a legitimate operating expense; the only real difference is
1 All information that is required by any provision of this Part or of Schedule 10 to be included in any plan, report, or other
document must be prepared in accordance with generally accepted accounting practice if that information is of a form or
nature for which generally accepted accounting practice has developed standards.
the useful lives of local government infrastructure assets are significantly longer than many assets
used in the commercial sector.
Funding or cash implications of depreciation
In the local authority context depreciation is especially important as it ensures that today’s
ratepayers pay their fair share of consumption of the assets. Depreciation is therefore a vital
component of the process of setting rates and charges.
As depreciation, is a non-cash item of expenditure, the inclusion of the depreciation expense with
the total operational expenditure will result in a funding surplus from operations. It is then a
council’s decision as to how that surplus funding should be allocated. Broadly there are four
options:
I.
Repay debt
II.
Pay for renewal expenditure
III.
Acquire new assets
IV.
Transfer to a reserve for the replacement or future renewal of an asset.
While these are the most common options, there is no reason why a council can not apply another
option if it believes that is a prudent2 use of council’s funds.
Generally a council should consider all options across its different activities and then that decision
should be made as part of its Financial Strategy.
Exceptions to the Balanced Budget Requirement
Much of the concern around section 100 has arisen from the notion that this section requires the
‘funding of depreciation’ which has been interpreted by many as the transfer of the depreciation
expense to a specific reserve or accumulation of cash to be used either for the replacement of an
asset or for the loan repayment associated with the acquisition of that asset. In fact, there is no
direct legal requirement to “fund depreciation” as many have assumed. However, there is a
requirement to be prudent in the setting of funding levels.
Prudence
What the Act does is create a rebuttable presumption that forecasting a surplus is financially
prudent.
Financial prudence is not defined in the Act. But the legislation provides some insight into what is
intended by this phrase. In the standard dictionary sense prudence means ‘careful’, ‘sensible’, or
under the Local Government Official Information and Meetings Act
‘habit of acting with careful deliberation’. A local authority that does not operate a balanced budget
and has been cavalier in its treatment of the above matters may well be acting imprudently.
There is one other statutory reference that provides an indication of Parliament's view of what is
considered financially prudent. Section 102 specifies certain financial policies which are required to
Released
be adopted by every council. The legislative rationale for requiring these policies is 'in order to
provide predictability and certainty about sources and levels of funding'. This can be seen as an
2 Section 101 requires a council to manage its revenues, expenses, assets, liabilities, investments, and general financial
dealings prudently and in a manner that promotes the current and future interests of the community
indication that predictability and certainty of funding levels and sources was seen as an element of
being financially prudent.
Application of the concept of prudence in relation to establishing the level of operating revenue for
the purposes of LTP forecasting/budgeting would require the local authority to set operating
revenue at such a level that applies an unbiased assessment in areas of judgement based on the best
available information. The most significant area of judgement that impacts the level of forecast
operating expense, and therefore the level of operating revenue needed to enable council to
adequately fund the level of service represented by the forecast operating expenses, is the useful
life of the numerous components comprising the infrastructure assets of the Council. Other
judgements included in the determination of operating revenue include the level of revenue sources
other than rates in any period.
under the Local Government Official Information and Meetings Act
Released
Section 100 Exemptions
Section 100 is in two parts, the first part relates to the requirement to have a balanced budget as
discussed above and the second part relates to the exemptions of where councils can decide not to
have a balanced budget and the criteria in which that decision is made.
(1) A local authority must ensure that each year’s projected operating revenues are set at a
level sufficient to meet that year’s projected operating expenses.
(2) Despite subsection (1), a local authority may set projected operating revenues at a different
level from that required by that subsection
if the local authority resolves that it is
financially prudent to do so, having regard to—
(a) the estimated expenses of achieving and maintaining the predicted levels of service
provision set out in the long-term plan, including the estimated expenses associated
with maintaining the service capacity and integrity of assets throughout their useful life;
and
(b) the projected revenue available to fund the estimated expenses associated with
maintaining the service capacity and integrity of assets throughout their useful life; and
(c) the equitable allocation of responsibility for funding the provision and maintenance of
assets and facilities throughout their useful life; and
(d) the funding and financial policies adopted under section 102.
The LGA provides local authorities with a set of exceptions where they may depart from the
requirements of the balanced budget. However, these exceptions do
not provide a licence for any
local authority to depart at will from a balanced budget (e.g. the political decision to hold back on
amount of depreciation a council may “fund” to keep rates down in an election year). They require
careful thought and analysis of the funding needs and the overall financial strategy to best deliver
sustainable community services over the long term.
The legislation requires council to consider all four criteria not just one of them. In summary the
subsections refer to:
i.
(a)the estimated expenses of achieving and maintaining the predicted levels of service;
ii.
(b)the projected revenue available to fund i.e. having the cash available at the right
time;
iii.
(b)maintaining the service capacity and integrity of assets throughout their useful life;
not just in the 10 years of the LTP, but for the whole life;
iv.
(c)the equitable allocation of responsibility for funding to ensure the revenue is fairly
charged; and
under the Local Government Official Information and Meetings Act
v.
(d)the funding and financial policies which ensures that there is certainty of the sources
of funding required.
Within the Act, the balanced budget test in section 100 focuses on deficits. While an operating
deficit may indicate that the local authority’s levels of service and/or financial operations are
unsustainable and result in current costs being shifted to future generations, a surplus does not
Released
necessarily mean that the LTP is financially prudent.
One method a number of councils are using to meet the provisions of section 100 is to use the
average of future renewal expenditure to set revenue rather than the forecast depreciation expense.
In these cases the depreciation is still recognised as an expense but not used for the setting of
revenue. This is sometimes known as the Long Run Average Renewal approach (LRARA). This
approach averages the renewal expenditure for the next 25-35 years and uses this in the calculation
of funding requirements. However, LRARA cannot be used to calculate the depreciation expense as
it is forward-looking and, this does not comply with the accounting concept of consumption. But
more importantly if depreciation is calculated correctly then over the life cycle of an asset (ignoring
the impacts of inflation and revaluation) the depreciation expense and LRARA based funding need
calculation would be of the same or similar values.
Basis of Depreciation
As depreciation reflects the consumption of the asset over its useful life, there are two critical
factors in determining the expense.
Cost or revalued amount
While the cost of an asset is relative easy to ascertain, because councils’ assets provide benefit for a
long period of time (50-100 years) councils revalue to reflect the fair value (book value) which for all
infrastructural assets is based on Depreciation Replacement Cost (DRC) This is the replacement cost
based on the replacement value of an equivalent asset, less the accumulated depreciation.
As a result of revaluing assets depreciation will increase. However, as the purpose of depreciation is
to charge the people who are using the asset their share of that asset, if the value has increased, in
theory the people using the asset should pay a greate share. If the value has increased so do the
future renewal costs.
Useful life
One of the most difficult tasks in assessing the depreciation expense is assessing the asset’s useful
life. While there are standard useful lives and often manufacturers give a minimum useful life, there
are a number of factors that dictate the ultimate useful life. However, these can be grouped into
either condition based or performance based. Condition relates to the physical attributes of the
asset, while performance relates to the ability of the asset to meet the level of service requirements.
The range of useful lives are reflected in each council's accounting policies which are included within
the financial statements and these can vary significantly from council to council. It is not uncommon
for one council to have a standard useful life of 80 years and another council to have a standard
useful life of 160 years for the same asset because of different aspects, including construction
methods, environmental constraints, topography and soil types. The change in useful lives results
appropriately in a different depreciation expense.
under the Local Government Official Information and Meetings Act
Summary
The core question when considering a forecast operating deficit is whether current ratepayers are
Released
paying an appropriate level of rates bearing in mind the services they are receiving. This will typically
involve deeper analysis of the apparent position to identify whether, for example, the deficit arises
from a mismatch between the period in which expenses and revenues are recognised in terms of
GAAP.
From: Philip Jones s7(2)(a)
Sent: Friday, 1 May 2020 3:40 pm
To: Jenny Livschitz <[email address]>
Subject: RE: Bio
Attached
Kind regards
Philip Jones
s7(2)(a)
From: Jenny Livschitz <[email address]>
Sent: Friday, 1 May 2020 14:57
To: Philip Jones s7(2)(a)
Subject: Bio
Hi Philip
I have to confess that I can’t remember where I filed your bio that you gave me previously. Could
you please resend.
thanks
Ngā mihi
Jenny Livschitz Chief Financial Officer
Hutt City Council, 30 Laings Road, Private Bag 31912, Lower Hutt 5040, New Zealand
T 04 570 6736,
M 027 238 5980,
W www.huttcity.govt.nz
under the Local Government Official Information and Meetings Act
Released
s7(2)(a)
Introducing Philip Jones CA of PJ & Associates
Philip Jones has been consulting to a variety of Local
Government related organizations since June 2007.
Philip specialises in financial management and
strategy, risk and asset management, financial
policies and financial governance. He sits as an
independent on a number of local authority’s Audit
and Risk committees both as a member and a chair.
Between 1993–2007 Philip was the Chief Financial Officer and Group
Manager Revenue and Finance for Western Bay of Plenty District Council
(WBOPDC), Tauranga.
Areas of expertise
Philip has a wide range of financial skills and because of his unique
understanding of both asset and financial management, he brings a unique
understanding of what can be complex issues. Key areas of expertise
include:
Facilitator in Financial Governance providing an understanding of
finance for elected members
Development and review of Funding & Financial policies including
Treasury, Revenue & financing, Rating and Development & Financial
contributions policies
Development and review of Financial Strategies which are unique
to each particular Council
Long Term Plans (LTP) development: from the planning stages to
the detailed knowledge of the financial & reporting requirements
under the Local Government Official Information and Meetings Act
Risk Management Strategies
Audit & Risk Committee - member and facilitator
Funding evaluations for various capital expenditure requirements
Released
Review of finance functions
Asset Management Plans (AMP): review of financial requirements of
asset management plans and the linkage to other processes and
documents.
Major work completed since June 2007
Auckland Council – Mayor’s Office
• Development of procurement strategy and policy
Association of Local Government Rating NZ Inc - (On Going)
• Facilitate and develop the annual seminar for rates officers
Bay of Plenty Regional Council
• Assistance with LTPs including Financial strategy
• Assistance with Development of long-term (50 years) funding
model for rivers and drainage
• Assistance with Funding Impact Statement and Rates resolution
compliance including Rotorua Lakes Targeted Rates
Carterton District Council – (On Going)
• Independent Chair of Audit & Risk Committee
Chatham Islands Council (On Going)
• Provision of external advice on reporting requirements and
assistance with LTPs including Financial strategy
Kaikoura District Council
•
Revenue Streams Health Check
•
Subsequent financial advice including updating of Treasury
policy and jointing Local Government Funding Agency
Kaipara District Council
•
Financial Health and Sustainability Audit
•
Subsequent financial advice
• Assistance with identifying options to resolve rating
irregularities
Kawerau District Council – (On Going)
•
Independent Chair of Audit & Risk Committee
Hawkes Bay Regional Council
•
Development of long-term (50 years) funding model for rivers
and drainage
under the Local Government Official Information and Meetings Act
•
Review of Delivery of service as required by section 17A LGA
•
Assistance with Funding Impact Statement and Rates resolution
compliance
Horowhenua District Council – (On Going)
Released • Independent Chair of Finance, Audit & Risk Committee
Local Government Commission
• Identify the impacts of uniform land value and capital rating for
the general rates across the three Wairarapa councils
Introducing Philip Jones Page 2 of 6
Local Government New Zealand
• Development and presenter for;
o
New Elected Members,
o
Financial Governance 101,
o
Financial Governance 201, and
o
Audit & Risk Committees - Roles & Functions
• Development of best practice guide for Audit & Risk Committees
• Development and review of specific financial reports and
requirements
•
Masterton District Council – (On Going)
•
Independent Chair of Audit & Risk Committee
•
NAMS (New Zealand Asset Management Support)
• Development and presenter of a variety of training courses on
asset management and levels of service.
Napier City Council – (On Going)
• Development of risk management strategy
• Assistance in developing LTP and associated policies including
Development & Financial contributions
• Provision of strategic financial advice
•
Society of Local Government Managers
• Development and presentation of financial integration for LTPs,
application of prudent financial management and balanced budget
principles
• Development of rewrite of “More Dollars & Sense” for 2015 –
2025 LTPs
• Presenter at a number of coursers and seminars
Ruapehu District Council – (On Going)
• Independent Chair of Audit & Risk Committee
under the Local Government Official Information and Meetings Act
South Taranaki District Council
• Assistance with LTPs including Financial strategy
• Assistance with completion of annual report
Released • Facilitator for the Revenue and Financing Policy Review
Thames Coromandel District Council
• External appointee to Audit & Risk Committee
Wairoa District Council
Introducing Philip Jones Page 3 of 6
• External appointee to Finance, Audit & Risk Committee
• Operational Review – Financial compliance
• Ongoing financial and risk advice
Wanganui District Council
• Facilitator for the Revenue and Financing Policy Review
Western Bay of Plenty District Council
• Completed financial contributions for Omokoroa structure plan
• Strategic financial advice
• Preparing revised financial contributions for District Plan review
for public consultation February 2009 including a review of
submissions and final planners report.
• Assistance with LTPs
Whakatane District Council
• Completed finance review
• Revenue and Financing Policy Review
• Assistance with LTPs including Financial strategy
• Assistance with completion of annual report and annual plans
• Assistance with funding options
Acting General Manager Finance – (Part time)
Whangarei District Council
• External appointee to Audit & Risk Committee
Other clients include:
• Canterbury Earthquake Recovery Authority
• Department of Internal Affairs
• Dunedin City Council
• Environment Canterbury
• Fiji Road Authority
• Hamilton City Council
under the Local Government Official Information and Meetings Act
• Hastings District Council
• Kapiti Coast District Council
• Matamata-Piako District Council
•
Released Nelson City Council
• Northland Regional Council
• New Plymouth District Council
• Rangitiki District Council
• Tasman District Council
Introducing Philip Jones Page 4 of 6
• Tauranga City Council
• Southland District Council
• South Wairarapa District Council
• Stratford District Council
• Tararua District Council
• Various Regional Councils - review of rate setting requirements
under the Local Government Official Information and Meetings Act
Released
Introducing Philip Jones Page 5 of 6
Details of experience prior to 2007
Since 1993, Western Bay of Plenty District Council has seen a considerable amount
of growth, (population increased from 28,000 to 42,000). During this time Philip
was the senior manager responsible for all finance functions. He was responsible
for the development of funding models to provide long term funding of four new or
upgraded sewage plants, and three water expansions. He provided advice on the
funding and accounting treatment for the first roading Performance-Based Contract
which included both operations & maintenance, together with any capital
expenditure, including renewals. During that time, WBOPDC external debt has
increased from $4 million to approximately $80 million. During that time, Philip was
instrumental in developing the Treasury policy and procedures to ensure one of the
lowest costs of interest in the country.
From 1997 to 2007 Philip has been a lead member of the
Society of Local
Government Managers (SOLGM) Financial Working Party. The working party
was set up to provide advice and develop best practice in New Zealand for Financial
Management. In this role he has spoken at a significant number of conferences and
seminars in both New Zealand and Australia, and was invited to present four
sessions to Financial Managers in South Africa run by Applied Fiscal Research Centre,
an adjunct of the University of Cape Town.
He was also SOLGM’s financial representative on
NAMS (Now
New Zealand Asset
Management Support previously
National Asset Management Steering
Group). Resulting from this, Philip has peer reviewed three manuals produced by
NAMS – International Infrastructure Management Manual (IIMM) 2000, the IIMM
Australia/New Zealand 2002 update and the Valuation & Depreciation Guidelines,
including the update for International Financial Reporting Standards (IFRS). He was
also on the executive for NAMS.
In 2005/2006, Philip was also the SOLGM representative on the
Joint Officials
Group on the review of funding for Local Authorities.
Also, in 2005/2006 he led the development of the JIGSAW guide on development of
Long Term Council Community Plan (LTCCP now Long Term Plan or LTP).
This guide which is best practice, was a joint venture between SOLGM & NAMS,
bringing together all the requirements of an LTCCP including asset management,
financial reporting and policy development.
New Zealand Local Authorities are required to comply with all General Accepted
Accounting Practice (GAAP). When the New Zealand Institute of Accountants issued a
new Accounting standard on Fixed Assets (Plant Property & Equipment), Philip
represented the public sector in reviewing submissions, and made recommendations
to the
Financial Reporting Standards Board (FRSB) as to any changes.
With the new Local Government Act 2002 he has been a member of the
Know How
Working Party on planning and reporting for the implementation of the new act.
Whilst working for WBOPDC, Philip has undertaken
funding policy review work for
other councils in New Zealand, and assisted a large council in South Australia with the
under the Local Government Official Information and Meetings Act
integration of financial and asset management.
Philip has been the Project Manager for the review and amendment of
Financial
Contributions under the Resource Management Act that were made operative in
2003 without challenge.
Released
Western Bay of Plenty was an early complier with the 1996 amendment to the Local
Government Act (known as the No 3 amendment). Philip was the Project Manager to
ensure Council’s compliance. This included development of Council’s first
Assets
Management Plans, Funding & result of this he has continued to develop
knowledge of the linkages between finance and asset management.
Introducing Philip Jones
Page 6 of 6
From: Philip Jones s7(2)(a)
Sent: Tuesday, 28 April 2020 11:04 am
To: Bruce Robertson s7(2)(a)
Cc: Jenny Livschitz <[email address]>
Subject: Hutt City report
Hi
Attached is my report for your peer review.
One you have read it, do you want to give me call to agree next steps?
Both Jo Miller (CEO) and Jenny Livschitz (CFO) have seen it.
Kind regards
Philip Jones
s7(2)(a)
under the Local Government Official Information and Meetings Act
Released
Kia ora all,
Just under three weeks ago I requested (through the Chief Executive) a report about our existing
financial strategy (adopted in 2018), and the changes proposed in the Long Term Plan Amendment
and how that proposed budget was put together.
I asked that an expert independent third party prepare a report on the different approaches. As you
will be aware, there have been suggestions that the proposed new way of setting our budget is
wrong, and was misleading Councillors.
I made this request after discussing the issue with the chairs of our standing committees, and
unanimous agreement that the issue needed to be settled so we could all focus on moving forward.
I have attached this report for your information. This will also be on the agenda for Thursday as a
noting report.
I also attached the bios of Philip Jones (author) and Bruce Robertson (peer reviewed) for your
information. I suspect you wouldn’t find many others in the Local Government financial
management sector who are more qualified.
Personally I found the report very reassuring that we are on the right path with what was in our
proposed LTP amendment, and it reinforces the quality of the advice given to us by Council Officers
around the setting of our budget.
Kind Regards,
Campbell
Mayor
under the Local Government Official Information and Meetings Act
Released
s7(2)(a)
1 May 2020
Report to Hutt City Council on the proposal to amend the 2018-2028 Long term plan and
existing financial strategy
Executive summary
In March the Council agreed to go out to the public to consult on a proposed 7 9 % rates
increase in order to invest in key infrastructure, and put the city on a more secure and
sustainable financial footing going forward.
This report considers the existing 2018-2028 Long term plan which includes the existing
financial strategy was adopted by Council in June 2018 and the proposed amendment to the
2018-2028 Long term plan which was considered in March 2020 together with the proposed
amended financial strategy.
Council, through its proposed amendment to the 2018-2028 Long term plan, has signalled
that there would be a total expenditure increase of $321,815K over the next ten years, of
which 58% relates to capital expenditure, and of which 49% will be incurred in the next four
years as demonstrated in the table below The proposed amendment and annual plan key
message included in the following comments:
Since the last LTP we have received new reports and information on what’s needed to
maintain and improve our Three Waters infrastructure and our transport network.
Annual Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
Total 10
Changes to expenditure
Plan
Years
Increase/(Decrease)
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
Increase (decrease) in
136,636
18,054
12,852
12,172
13,076
14,280
16,062
15,796
10,270
14,142
9,932
operational expenditure
Increase (decrease) n capital
185,179
(7,096) 24,277
48,090
35,070
22,698 (47,912) (23,824) 42,134
44,773
46,970
expenditure
Total Increase (decrease) in 321,815 10,958 37,129 60,262 48,146 36,978 (31,850) (8,028) 52,404 58,915 56,902
expenditure
This increase in expenditure has resulted in the Council amending its existing financial
strategy.
under the Local Government Official Information and Meetings Act
However, on the 9th April 2020 Council resolved not to progress the Long term plan
amendment and rather to develop a one year “emergency budget” Annual Plan 2020/21 at
3.8% rates increase as a result of COVID-19.
A financial strategy is required by section 101A of the Local Government Act 2002 (LGA) and
Released its purpose includes the facilitation of prudent financial management.
The existing financial strategy that is contained in the existing1 2018-2028 Long term plan
has three aims:
•
Strengthening Council’s financial position in anticipation of projects and
programmes that may need funding in the next 20-30 years.
•
Ensuring rates were affordable to our community and competitive when compared
to local authorities with a similar population and a significant urban centre.
•
Delivering services more efficiently than our peer local authorities.
The existing financial strategy is one of affordability i.e. keeping rates low, and building
capacity for future expenditure by reducing the borrowing limits. This in itself restricts both
operating and capital expenditure, without considering the longer-term impacts.
This existing strategy reflects restrained approach but does not document what the Council
considers as being prudent. As one of the purposes of a financial strategy is to facilitate
prudent financial management, the strategy should include a statement on how the Council
intends to manage its finances prudently.
A review of the last three years Annual reports confirms that the Council has a very
constrained approach to financing capital expenditure. By removing the non-cash gains and
losses from both the actual and budgeted operating results, this discloses accumulated
actual deficits of $22,849K (budgeted deficits of $20,095K). This approach is not financially
sustainable in the long-term and if not corrected this will ultimately result in a significant rise
in rates.
This then, questions whether that existing approach was prudent. The existing financial
strategy does not consider prudence nor does it consider the impact of having an
unbalanced budget in the first year of a long-term plan. The proposed deficits were
commented on briefly in the body of the Long term plan.
To be prudent, a local authority must consider at least the following:
•
Current financial position including debt levels and available head room to provide
for unanticipated events which require local authorities to undertake additional
borrowing.
•
Physical state of infrastructure including future needs, and also including
maintenance and the funding of asset replacement to meet the intend levels of
service.
•
Overall approach to funding including the use of depreciation.
•
The community’s appetite for increase in rates and debt.
The requirement to have a balanced budget is contained with the Local Government Act
2002 and requires all local authorities to set their budgeted revenues at a level meet that
under the Local Government Official Information and Meetings Act
year’s budgeted operating expenses, until the authority resolves it is not prudent to do so.
While the Financial statements2 supporting the proposed amendment to the 2018-2028
Long term plan disclose a significant deficit in the first year, there are surpluses in the
following years. However, this forecasted result includes capital revenue, which has been
excluded when Council has considered its proposed financial strategy. As the proposed
Released
1 See Appendix 1 for an extract of existing Financial strategy
2 See appendix 2 summary of Revenue and expenditure budgets for the proposed Annual & amendment
to LTP
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 2 of 22
amendment to the 2018-2028 Long term plan discloses surpluses after year 1, therefore
Council will have a balanced budget for the remaining periods.
The Council in considering the need for additional operational and capital expenditure has
amended3 the financial strategy as part of the proposed amendment to the Long term plan
and 2020/21 Annual plan to reflect the following key principles of:
•
Promoting the sustainable funding of services
•
Affordability of rates
•
Delivering services effectively and efficiently
•
Achieving intergenerational equity by spreading the costs between both present and
future ratepayers
•
Maintaining prudent debt levels
•
Strengthening Council’s financial position.
This is an improvement on the existing strategy and there are further improvements to be
made, in particular by defining the need for increased funding for renewal expenditure and
considering the impact of a balanced budget and noting the intention to increase revenues
over time to “balance the budget”.
In conclusion, the proposed financial strategy and the approach taken in the development of
the proposed amendment to the 2018-2028 Long term plan is a significant improvement.
The reason for this improvement from the existing strategy is by clearly explaining the need
to increase expenditure and move to a tighter balanced budget test consistent with good
practice. This will assist in forming a sound and financially prudent approach for the
development of the 2021-2031 Long term plan.
Philip Jones
Principal
under the Local Government Official Information and Meetings Act
Released
3 See appendix 3 an extract of proposed comments, strategy and principles supporting the proposed
Annual & amendment to LTP
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 3 of 22
Purpose of report
The following issues are considered in the report are:
1. The existing and proposed Financial strategies including how the principle of the
balanced budget test as set out in section 100 Local Government Act 2002 (LGA),
and consideration the Balanced budget benchmark as set in Local Government
(Financial Reporting and Prudence) Regulations 2014 have been considered.
2. How depreciation is calculated including the identification of assumptions and how
these change over time including why it is important to consider the revalued
amount, not the historical cost when meeting the balanced budget test.
3. Commentary on approach as set out in the 2018-2028 Long term plan for
achievement of balanced budget and the results in the Annual reports for the years
ended 30 June 2017, 2018 & 2019 focusing on Operating surpluses (deficits) and net
operating cash.
4. Commentary on the proposed approach as set out in the proposed amendment to
the 2018-2028 Long term plan including proposed amendment to the for financial
strategy achievement of balanced budget.
As the report is based on the initial proposal to amend the 2018-2028 Long term plan and
financial strategy, these are referred to in the report as proposed amendment to the 2018-
2028 Long term plan and the proposed Financial strategy. These are compared with the
existing 2018-2028 Long term plan and the existing Financial strategy contained within that
plan.
Consideration of prudence
There is a fundamental requirement for prudent financial management contained in section
101 Local Government Act 2002 (LGA) which requires all local authorities to manage its
revenues, expenses, assets, liabilities, investments, and general financial dealings prudently.
Section 100 subsection 1 of the LGA states:
A local authority must ensure that each year’s projected operating revenues are set at a
level sufficient to meet that year’s projected operating expenses.
However, section 100, then goes on to say:
2) Despite subsection (1), a local authority may set projected operating revenues at a
different level from that required by that subsection if the local authority resolves
that it is financially prudent to do so, having regard to—
under the Local Government Official Information and Meetings Act
(a) the estimated expenses of achieving and maintaining the predicted levels of service
provision set out in the long-term plan, including the estimated expenses
associated with maintaining the service capacity and integrity of assets
throughout their useful life; and
(b) the projected revenue available to fund the estimated expenses associated with
maintaining the service capacity and integrity of assets throughout their useful
Released
life; and
(c) the equitable allocation of responsibility for funding the provision and maintenance
of assets and facilities throughout their useful life; and
(d) the funding and financial policies adopted under section 102.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 4 of 22
What the Act does is create a rebuttable presumption that forecasting a surplus is financially
prudent.
Financial prudence is not defined in the Act. But the legislation provides some insight into
what is intended by this phrase. In the standard dictionary sense prudence means ‘careful’,
‘sensible’, or ‘habit of acting with careful deliberation’. A local authority that does not
operate a balanced budget and has been cavalier in its treatment of the above matters may
well be acting imprudently.
There is one other statutory reference that provides an indication of Parliament's view of
what is considered financially prudent. Section 102 specifies certain financial policies which
are required to be adopted by every council. The legislative rationale for requiring these
policies is 'in order to provide predictability and certainty about sources and levels of
funding'. This can be seen as an indication that predictability and certainty of funding levels
and sources is seen as an element of being financially prudent.
Application of the concept of prudence in relation to establishing the level of operating
revenue for the purposes of LTP forecasting/budgeting would require the local authority to
set operating revenue at such a level that applies an unbiased assessment in areas of
judgement based on the best available information. The most significant area of judgement
that impacts the level of forecast operating expense, and therefore the level of operating
revenue needed to enable council to adequately fund the level of service represented by the
forecast operating expenses, is the useful life of the numerous components comprising the
infrastructure assets of the Council. Other judgements included in the determination of
operating revenue include the level of revenue sources other than rates in any period.
The requirement to set operating revenues at a level sufficient to meet operating expenses
includes depreciation because section 111 (LGA)4 obliges all local authorities to follow
generally accepted accounting practice (GAAP), which defines ‘operating expenses’. As
depreciation is an operational expense it must be included with other operational costs
including interest when a local authority sets its operating revenue.
What the legislation requires is that a local authority ensure that projected revenues are at
least equal to projected operational expenditure including depreciation, unless it is prudent
to do otherwise. The cash or funding generated by the revenue may be used for present
capital needs (including renewals), debt reduction or set aside for future capital needs. This
helps ensure sound asset management practice and continuity of service to future
generations.
Purpose of depreciation
under the Local Government Official Information and Meetings Act
There is confusion over the purpose of depreciation as many believe that the purpose of
depreciation is to provide for the replacement of an asset. In fact, depreciation reflects the
use or consumption of the service potential implicit in an asset. GAAP defines depreciation
as follows:
Released
4 Section 111 States All information that is required by any provision of this Part or of Schedule 10 to be
included in any plan, report, or other document must be prepared in accordance with generally accepted
accounting practice if that information is of a form or nature for which generally accepted accounting
practice has developed standards.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 5 of 22
•
Depreciation is the systematic allocation of the depreciable amount of an asset over
its useful life.
•
As depreciation reflects the consumption of the asset over its useful life, there are two
critical factors in determining the expense. The first is the cost or revalued amount, and the
second is the useful life. It is therefore not related to the physical wearing out, for example
to be able to sit on a park bench in year one (or flush toilet) is the same benefit to a
ratepayer as being able to sit on park bench in year 15, 16, and 17 (or flush toilet).
The purpose of depreciation is not to provide for the replacement of the asset(s), however
this may be an intended or unintended consequence as many councils have assumed that
depreciation is for the replacement of an asset.
The approach to depreciation in the local government context is no different than the
commercial sector where depreciation is accepted as a legitimate operating expense; the
only real difference is the useful lives of local government infrastructure assets are
significantly longer than many assets used in the commercial sector.
As depreciation reflects the consumption of the asset over its useful life, there are two
critical factors in determining the expense. Both of these can change dramatically over the
life of the asset.
Cost or revalued amount
While the cost of an asset is relatively easy to ascertain, because councils’ assets provide
benefit for a long period of time (50-100 years), councils revalue to reflect the fair value
(book value) which for all infrastructural assets is based on Depreciation Replacement Cost
(DRC). This is the replacement cost based on the replacement value of an equivalent asset,
less the accumulated depreciation. It is important to note there is a requirement that an
entity annually considers the fair value of its assets and that at least every five years it
revalues its assets. Most local authorities revalue at least every three years.
As a result of revaluing assets depreciation will increase based on an equivalent replacement
cost. However, as the purpose of depreciation is to charge the people who are using the
asset their share of that asset, if the value has increased, in theory the people using the
asset should pay a greater share. If the value has increased so do the future renewal costs.
Useful life
One of the most difficult tasks in assessing the depreciation expense is assessing the asset’s
useful life. While there are standard useful lives and often manufacturers give a minimum
useful life, there are a number of factors that dictate the ultimate useful life. However,
these can be grouped into either condition based or performance based. Condition relates
under the Local Government Official Information and Meetings Act
to the physical attributes of the asset, while performance relates to the ability of the asset to
meet the level of service requirements.
The range of useful lives are reflected in each council's accounting policies which are
included within the financial statements and these can vary significantly from council to
Released council. It is not uncommon for one council to have a standard useful life of 80 years and
another council to have a standard useful life of 160 years for the same asset because of
different aspects, including construction methods, environmental constraints, topography
and soil types. The change in useful lives results appropriately in a different depreciation
expense.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 6 of 22
Furthermore, as more and better information becomes available, then the useful life of an
asset can increase or decrease.
Conclusion on depreciation
As depreciation is a significant expense for Hutt City Council (24% of operating expenditure),
therefore the calculation and how that expense is considered in setting its overall revenue is
an important component when defining if the Council is acting prudently.
Importance of the financial strategy as defined in section 101A5 LGA
The financial strategy is a key part of telling the story of both the long-term plan and also
considering how the local authority is intending to manage its finances in a prudent manner.
While there are two key pieces of legislation that require a local authority to consider
prudence, there is often other factors outside of the legislation that council must consider in
developing both its financial strategy and its view on prudence. Each Council must consider
its own factors including:
•
Current financial position including debt levels and available head room to provide
for unanticipated events which require local authorities to undertake additional
borrowing.
•
Physical state of infrastructure including future needs and also including
maintenance and the funding of asset replacement to meet the intend levels of
service.
•
Overall approach to funding including the use of depreciation.
•
The community’s appetite for increase in rates and debt.
•
The overall direction and desired end point for the financial status for the local
authority.
•
A synthesis of the financial issues and consequences arising from the policy and
service delivery decisions elsewhere in the LTP and how the local authority intends
to manage those consequences.
Taken together the financial and infrastructure strategy provide the reader with a sense of
the costs, risks and trade-offs that underpin the development of the expenditure
programmes in the LTP which informs the reader as to the appropriate issue or the “right
debate”.
Consideration of the Prudence regulations
under the Local Government Official Information and Meetings Act
5 Section 101A Financial strategy
(1) A local authority must, as part of its long-term plan, prepare and adopt a financial strategy for all
of the consecutive financial years covered by the long-term plan.
Released (2) The purpose of the financial strategy is to facilitate—
(a) prudent financial management by the local authority by providing a guide for the local
authority to consider proposals for funding and expenditure against; and
(b) consultation on the local authority’s proposals for funding and expenditure by making
transparent the overall effects of those proposals on the local authority’s services, rates, debt,
and investments.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 7 of 22
In 2014 the Government introduced the Local Government (Financial Reporting and
Prudence) Regulations 2014 (the Regulations) also known as the Prudence regulations. The
purpose of the Regulations was not to define what is prudent, nor is it a definitive measure,
however it is a test over a period of time that can be measured against other local
authorities. This is one of many other measures that local authorities are required to report
against both in long-term plans and annual reports. It is considered a useful guide rather
than the definitive answer.
The Regulations define a balanced budget as:
A local authority meets the benchmark for a year if its revenue (excluding development
contributions, financial contributions, vested assets, gains on derivative financial
instruments, and revaluations of property, plant, or equipment) for the year exceeds its
operating expenses (excluding losses on derivative financial instruments and revaluations of
property, plant, or equipment) for the year.
Council has used this as an appropriate tool in setting its proposed financial strategy,
however as noted above it must be considered against other measures of prudence.
Consideration of net cash operating surpluses
Cash operating surpluses are set out in the cashflow statements which are included both in
the Annual report and the forecasted financial statements in the Long term plans. These
surpluses are part of the consideration of prudence, but it must be remembered that these
surpluses are to be used for capital expenditure including renewals and loan repayments. In
addition, because Council can receive significant capital subsidies and these subsidies can
significantly distort the net cash operating surpluses, the expenditure that the subsidy was
received for is disclosed as capital expenditure.
An alternative to using a cash flow statement in which only cash transactions that occurred
in the year are reported, is to use a modified funding impact statement approach to reflect
cash transactions and then compare surplus with renewal expenditure. This modified
approach removes capital income from revenue and depreciation is removed from
expenditure.
Existing financial strategy and achievement of balanced budget
The existing financial strategy has the key messages:
•
Strengthening Council’s financial position in anticipation of projects and
programmes that may need funding in the next 20-30 years.
•
Ensuing rates were affordable to our community and competitive when compared to
local authorities with a similar population and a significant urban centre.
under the Local Government Official Information and Meetings Act
•
Delivering services more efficiently than our peer local authorities.
As noted above, one of the purposes of the financial strategy is to facilitate prudent financial
management by the local authority by providing a guide for the local authority to consider
proposals for funding and expenditure against. The existing infrastructure strategy states
that on average, it allows for $15m in capital replacements and $17m to improve and
upgrade this infrastructure per annum. It also states that this means we can spread the
Released costs to both present and future ratepayers who will benefit from these facilities. This
statement is not supported in the detail of the financial strategy.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 8 of 22
While the existing financial strategy does not detail what the Council considered as prudent,
by reference to the key messages, in my opinion the existing financial strategy is one of
affordability i.e. keeping rates low, and building capacity for future expenditure by reducing
the borrowing limits. This in itself restricts both operating and capital expenditure, without
considering the longer-term impacts. The existing strategy did not provide a rationale for
the debt limits to decrease over the period of the strategy.
A useful test to ensure that there is an adequate provision for renewal expenditure is to
compare the proposed renewal expenditure of a period of time as outlined in the
infrastructure strategy, and compare this with the proposed depreciation. While these two
figures will never agree, it is a useful test to understand why there are differences over a 30-
year period. Often depreciation can be based on incorrect useful lives, and renewal
expenditure is only based on current information. By undertaking this test and
understanding the differences between the two amounts, it can lead to a better
understanding of future renewal expenditure. The understanding of future renewal
expenditure is critical to the development of a robust financial strategy.
The existing financial strategy, while legally compliant, in my opinion does have some
deficiencies. The majority of these deficiencies have been addressed in the proposed
financial strategy. It must be remembered that this was the previous Council’s view and
therefore relevant to the views of that Council at the time.
Review of the last three years financial statements
A review of the three years Annual reports for the years ended 30 June 2017, 2018 and 2019
and the budgets and actual results provide confirmation that the Council has a very
constrained approach to financing capital expenditure. Appendix 4 is an extract of the
results from the three Annual reports.
As part of this report I have not considered the supporting assumptions including whether
the deficits in the first years of the Long term plan are solely due to grants being paid to the
Community Facilities Trust as noted in the existing financial strategy. Nor have I considered
the capital expenditure in the existing plan and that some expenditure has been reclassified
as operational in the proposed plan. However, the 2018/19 Annual Report noted that the
Council recorded a net deficit of $17.9M including a loss on revaluation of financial
instruments of $11.7M (compared to a budgeted net deficit of $2.1M), and the most
significant reason6 for the increase in the deficit was the additional costs of $4M which were
budgeted as capital expenditure and were transferred to operational expenditure as part of
the Annual reporting process.
Extract of Statement of comprehensive revenue and expenses
under the Local Government Official Information and Meetings Act
Budget
2017
2018
2019
Operating surplus (deficit)
(14,563)
(3,453)
(2,079)
Gains (losses) on property revaluations
72,313
Released Total comprehensive revenue and expenses (14,563) 68,860 (2,079)
6 Refer to page 10 2018/19 Annual report for further details.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 9 of 22
As noted above the reasons for the consistent deficits are not discussed in the financial
strategy, nor are the consequences. It has been argued that a Council should include gains
(or losses) on property revaluations as part of the balanced budget test. As noted above,
generally revaluation only occur every three years, and this is non cash associated gain or
loss, therefore it would be imprudent to include the value as part of the balanced budget
test. Furthermore, if there was a loss, then a local authority would be funding expenditure
for which there would be no related expenditure.
Therefore, the balanced budget test should be undertaken excluding non-cash gain or losses.
This is reinforced by Financial Regulations balanced budget benchmark which is defined as
“Council Revenue excluding development contributions, vested assets, gains on derivatives
and revaluations of property, plant and equipment as a proportion of operating expenses –
excluding losses on derivatives and revaluation.
Both these tests are a tighter test than the balances budget test based on total
comprehensive revenue and expenses required by Generally Accepted Accounting
Standards.
These figures include non-cash gains and
Actual
losses
2017
2018
2019
Operating surplus (deficit)
974
(11,203)
(17,937)
Gains (losses) on property revaluations
69,781
Impairment gain (losses) on revalued property
(9,358)
Total comprehensive revenue and expenses
974
58,578
(27,295)
The primary reasons for the differences between budget and actual are:
•
2017
Gain on revaluation of financial instruments (non-cash) $5M and reduced
operating expenses $10M
•
2018
Loss on revaluation of financial instruments $3M and reduced subsidies and
grants $4M
•
2019
Loss on revaluation of financial instruments $12M and increased operational
expenditure $9M (includes reclassification of capital expenditure to operating $4M).
If non-cash gains and losses are removed over the three years the actual operating deficits
amounted to $22,849K compared with a budget of $20,095K.
These figures include non-cash gains and
Budget
losses
2017
2018
2019
Operating surplus (deficit)
(14,563)
(3,453)
(2,079)
Actual
under the Local Government Official Information and Meetings Act
2017
2018
2019
Operating surplus (deficit)
(4,870)
(8,346)
(9,633))
This approach of $22.8M of actual deficit is not sustainable in the long-term and if not
Released corrected this will ultimately result a significant rise in rates to recover from this position.
A further test of sustainability is to consider the net surplus from operational expenditure,
having removed the capital income from revenue and the depreciation removed from
expenditure. This is set out in the last table in appendix 4
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 10 of 22
Rather than using a cash flow statement which only cash transactions that occurred in the
year are reported, a modified funding impact statement approach to reflect cash
transactions and then compare surplus with renewal expenditure could be used.
This provides an additional perspective as to Council’s Long-term funding replacement
strategy. It is generally expected to see the surplus figure to be equal or greater than the
costs of replacing existing assets. In the 3 years considered there was a consistent shortfall
between the amount of the surplus and the value of replacing existing assets, even after
allowing for a portion of a capital subsidies being available to replace existing assets. Again,
this supports the view that the approach as included in the 2018-2028 Long term plan is not
financially sustainable.
Review the proposed approach as set out in the 2020/21 Annual Plan & amendment to the
2018-2028
The following was noted in the proposed 2020/21 Annual Plan & amendment to the 2018-
2028 Long term plan:
Since the last LTP we have received new reports and information on what’s needed to
maintain and improve our Three Waters infrastructure and our transport network. In 2020
we are now set to reach the population figure we did not expect to reach until 2030.
Wellington Water has advised us we need to double our investment in our water network to
ensure a properly functioning water supply, waste and stormwater system. Our local roading,
walking and cycling networks also need investment to accommodate a growing population
and provide more options for people moving around our city
This financial statement supports this approach, but the proposed Revenues do not provide
sufficient income to equal the total operational expenditure, which results in a significant
deficit in the first year, and there are surpluses in the following years. However, this
forecasted result includes capital revenue, which has been excluded when Council has
considered its proposed financial strategy. As the proposed amendment to the 2018-2028
Long term plan discloses surpluses after year 1, therefore Council will have a balanced
budget for the remaining periods.
Because depreciation exceeds renewal in the proposed 2020/21 Annual Plan year, and
providing the Council progressively increase revenue over a period of time to ensure a
balance budget, and resolves that it has considered all the requirements of section 100 (2),
the Council could be considered as being prudent in its approach.
Proposed financial strategy
under the Local Government Official Information and Meetings Act
The proposed financial strategy was developed because the existing financial strategy was
breached in terms of rates revenue increase and debt increase and those increases would be
for a period of time. This is not the preferred method of developing a financial strategy.
However, within the financial strategy that has been developed, there are significant
Released
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 11 of 22
improvements to the existing financial strategy by defining the need for increased funding
for renewal expenditure and considering the impacts of non-cash7 items.
The proposed financial strategy considers the impact of a balanced budget mainly due to
revenues not covering the full cost of depreciation and notes its intention to increase all
revenue over time to “balance the budget”. It has also considered the impacts of the
financial regulations8 as a measure for a balanced budget. As noted above these are only a
measure, and not necessarily the only consideration.
Council could have noted that the financial strategy was breached and resolved to accept
the breach, noting that the financial strategy would be reviewed as part of the development
of the 2021-2031 Long term plan process. Council was of the opinion that amending the
financial strategy was the preferred option, and this should be acknowledged.
It should be noted that in the proposed financial strategy, the Council must review its
financial strategy prior to the beginning of the development of the next long-term plan. In
my opinion the strategy should be redeveloped, considering the items listed in the
paragraph titled “Importance of the financial strategy as defined in section 101A” above.
Conclusion
Within the existing approach including the 2018-2028 Long term plan and financial strategy,
which at the time the Council considered to be appropriate, there are risks and
consequences which were not articulated in either the Long-term plan or the financial
strategy. The strategy did not disclose why the existing approach was prudent.
A Long term plan is only a forecast which is based on the information provided at the time,
now there is information on what’s needed to maintain and improve the Three Waters
infrastructure and the transport network. This together with refinement of costings and
timing of major projects, and the proposed amendment to the 2018-2028 Long term plan,
signals that there would be a total expenditure increase of $321,815K over the next ten
years. A change of strategy must be considered and this is entirely appropriate. This then
requires an amendment to both the rates and debt requirements and therefore the financial
strategy.
This is an improvement on the existing strategy. In particular, defining the need for
increased funding for renewal expenditure and considering the impact of a balanced budget
and noting the intention to increase revenues over time to “balance the budget”.
7 The methodology or definition used above in the financial strategy section of the LTP 2018-2028 for
under the Local Government Official Information and Meetings Act
“net surplus/deficit” was the International Public Sector Accounting Standards (IPSAS) financial
statement results from the ‘Statement of Comprehensive Revenue and Expenses’ which were then
adjusted to exclude the accounting impact for asset revaluations and gains/losses for financial
instruments.
8 In 2014, Government introduced a number of amendments to the LGA, including the Local
Government 2014 Financial Regulations, which established eight benchmarks against which all councils
Released must report. One of these benchmarks is the balanced budget which is defined as “Council Revenue
excluding development contributions, vested assets, gains on derivatives and revaluations of property,
plant and equipment as a proportion of operating expenses – excluding losses on derivatives and
revaluations”.
This definition includes NZTA capital subsidies as revenue and assumes councils fully rate for
depreciation.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 12 of 22
The proposed financial strategy and the approach taken in the development of the proposed
amendment to the 2018-2028 Long term plan is a significant improvement from the existing
strategy as it has a tighter balanced budget test which is consistent with sector good practice
The approach will assist in the Council and community forming a view as to what is
financially prudent for Hutt City. This then enables a robust financial strategy to be
developed as part of the 2021-2031 Long term plan.
under the Local Government Official Information and Meetings Act
Released
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 13 of 22
Appendix 1
The existing financial strategy includes the following:
Council has adopted and followed consistent financial strategies for more than 10 years. The
financial strategies have had similar aims:
•
strengthening Council’s financial position in anticipation of projects and programmes
that may need funding in the next 20-30 years
•
ensuring rates were affordable to our community and competitive when compared to
local authorities with a similar population and a significant urban centre
•
delivering services more efficiently than our peer local authorities.
Our Financial Strategy promotes the sustainable funding of services. We maintain $1.4 billion
worth of assets from an annual income of $158 million - borrowing money to pay for new
facilities and infrastructure, and to maintain or upgrade existing facilities.
This means we can spread the costs to both present and future ratepayers who will benefit
from these facilities. At the same time, we recognise that affordability of rates is a major
issue for many people.
Our limits on rate increases and borrowing were most recently reviewed and agreed with the
community in June 2017. Changes were made to the Financial S rategy in order for the
programme of rejuvenation and revitalization that commenced in 2014, to continue and to
provide greater budgetary flexibility. A more sustainable debt strategy linked to affordability
was implemented. Changing the borrowing limits allowed rate increases to be held to the
level of inflation while retaining a AA credit rating.
Limits
Measure
Target
Overall
Surplus each year
Budgeted surplus
operating result
Limits on
Increase in rates
Maximum annual rates
revenue
revenue
income increase % and
dollars, with increase to be no
more than LGCI after allowing
for estimated average growth
of 1%
Limits on
Net interest to
Below 10%
borrowings
revenue
Net debt maxima
Year 1-3 <150% to revenue,
Years 4-6 < 130% to revenue,
Years 7 -12 < than 110%
Years 13+ < than 90% of total
under the Local Government Official Information and Meetings Act
revenue
Released
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 14 of 22
OVERALL OPERATING RESULT
Council’s strategy is to produce financial surpluses each year. The above graph shows a
deficit in 2017-2018 to 2019-2020. The deficits are due to grants being paid to the
Community Facilities Trust (CFT) that are required to be treated as operating expenditure
but are for capital works carried out by the CFT.
The peaks in 2025-2026 and 2026-2027 are due to additional subsidies for Roading Network
Improvements that are programmed for these years.
under the Local Government Official Information and Meetings Act
LIMITS ON BORROWING - NET DEBT TO REVENUE
Released Council’s financial strategy is to maintain debt within limits expressed as a percentage of
revenue. Debt is not to exceed; 150% of total revenue in years 1 to 3 of the plan, 130% of
total revenue in years 4 to 6, 110% of total revenue in years 7 to 12, and 90% of total
revenue in year 13 and beyond.
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 15 of 22
Rep
A
p
For the year ending 30 June
DRAFT ANNUAL PLAN 2020/2021
p
o
e
r
Annual Plan Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast
t
n
d
o
n
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
ix
p
2
r
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
o
D
p
e
REVENUE
o
ta
s
a
General rates & other rate
117,685
123,452
130,242
134,800
140,192
145,239
150,468
155,885
161,653
167,634
il
l
s
User charges
40,769
42,076
40,423
42,091
43,315
44,067
45,106
46,283
47,421
48,661
t
o
o
f
Operating Subsidies & Grants
4,503
4,619
4,704
4,811
4,927
5,045
5,166
5,295
5,428
5,565
a
c
m
h
Capital Subsidies
6,695
4,617
7,567
9,705
8,005
6,001
6,227
32,107
34,108
25,375
a
e
n
n
Upper Hutt CC Operating
2,113
2,160
2,209
2,260
2,314
2,370
2,427
2,487
2,549
2,613
g
d
e
Development & Financial
2,802
2,863
604
617
633
648
663
681
697
715
t
s
h
Interest earned
796
1,018
1,037
1,052
1,073
1,088
1,103
1,123
1,153
1,183
i
e
n
2
Dividends from LATEs
6
6
215
220
335
343
466
478
490
502
o
0
p
1
Gain/(loss) on Disposal of Assets
-
-
-
-
-
-
-
-
-
e
8
r
Vested Assets
858
878
899
917
940
962
988
1,011
1,035
1,063
a
-2
ti
0
Other revenue
4,901
4,948
4,135
3,936
4,031
4,392
4,230
4,340
4,729
4,561
o
2
n
8
Total revenue
181,128
186,637
192,035
200,409
205,765
210,155
216,844
249,690
259,263
257,872
a
l
L
e
o
x
n
EXPENDITURE
p
g
e
t
Employee costs
38,460
38,903
38,871
40,856
41,838
42,870
43,871
44,967
46,120
47,242
n
er
d
Operating costs
96,140
93,715
94,547
91,710
93,620
97,866
99,717
99,509
107,452
103,925
i
m
tu
Support costs/internal charges
-
-
-
-
-
-
-
-
-
-
r
p
e
la
Interest expenditure
8,598
8,726
10,029
11,289
11,899
12,159
11,111
10,376
10,188
10,675
n
Depreciation
44,441
44,949
46,072
49,603
50,257
50,715
53,219
53,103
53,804
57,569
a
n
Total expenditure
187,639
186,293
189,519
193,458
197,614
203,610
207,918
207,955
217,564
219,411
d
ex
SURPLUS/(DEFICIT)
(6,511)
344
2,516
6,951
8,151
6,545
8,926
41,735
41,699
38,461
is
ting finPaangceia 1l s6t roaft e2g2y
under the Local Government Official Information and Meetings Act
Released
Rep
Annual
o
Total 10 Yr
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
r
Changes to expenditure
Plan
t o
Increase/(Decrease)
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
n
p
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
ro
REVENUE
p
o
s
General rates & other rate
126,318
6,917
9,141
11,705
11,879
12,604
13,435
14,186
14,831
15,521
16,099
a
l
User charges
2,875
1,378
1,860
(875)
(116)
166
220
145
134
11
(48)
to
Operating Subsidies & Grants
2,460
222
244
234
239
249
255
255
257
254
251
a
Capital Subsidies
40,618
(2,316)
(756)
1,455
3,577
2,450
(19,416)
(18,082)
26,031
28,543
19,132
m
e
Upper Hutt CC Operating
(5,687)
(512)
(522)
(532)
(544)
(555)
(567)
(584)
(602)
(624)
(645)
n
d
Development & Financial
207
1,696
1,893
(388)
(398)
(404)
(415)
(425)
(437)
(451)
(464)
t
Interest earned
(199)
(199)
-
-
-
-
-
-
-
-
-
h
e
Dividends
(504)
6
(207)
(3)
(114)
(7)
(124)
(12)
(13)
(14)
(16)
2
Gain/(loss) on Disposal of Assets
-
-
-
-
-
-
-
-
-
-
-
0
1
Vested Assets
(211)
(20)
(18)
(17)
(21)
(20)
(20)
(18)
(22)
(27)
(28)
8
-2
Other revenue
(3,553)
(13)
691
(432)
(512)
(519)
(502)
(548)
(806)
(304)
(608)
0
Total revenue
162,324
7,159
12,326
11,147
13,990
13,964
(7,134)
(5,083)
39,373
42,909
33,673
2
8
L
EXPENDITURE
o
n
Employee costs
15,352
1,074
1,421
553
1,669
1,751
1,809
1,797
1,783
1,785
1,710
g
t
Operating costs
89,038
15,538
12,369
11,387
6,767
6,798
8,409
7,949
5,054
10,730
4,037
er
m
Interest expenditure
(14,227)
(1,880)
(2,678)
(1,929)
(656)
176
351
(1,191)
(2,179)
(2,479)
(1,762)
p
l
Depreciation
46,473
3 322
1,740
2,161
5,296
5,555
5,493
7,241
5,612
4,106
5,947
a
n
Total expenditure
136,636
18,054
12,852
12,172
13,076
14,280
16,062
15,796
10,270
14,142
9,932
and
FAVOURABLE / (UNFAVOURABLE)
ex
25,688
(10,895)
(526)
(1,025)
914
(316)
(23,196)
(20,879)
29,103
28,767
23,741
DIFFERENCE
is
ting finPaangceia 1l s7t roaft e2g2y
under the Local Government Official Information and Meetings Act
Released
Rep
A
Annual
p
Total 10 Yr
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
Forecast
Changes to expenditure
Plan
p
o
e
rt
Increase/(Decrease)
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
n
d
o
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
n
ix
DIFFERENCES
Negative means the budget has been reduced and a positive means it has been increased
p
4
r
Total Council
Replacements
(7,684)
1,956
(1,508)
(1,270)
(1,501)
(112)
(1,348)
(820)
(1,047)
(680)
(1,353)
o
D
p
Total Council
Improvements
192,863
(9,052)
25,785
49,360
36,571
22,810
(46,564)
(23,004)
43,181
45,453
48,323
e
o
Total Capital
TOTAL
185,179
(7,096)
24,277
48,090
35,070
22,698
(47,912)
(23,824)
42,134
44,773
46,970
ta
s
a
il
l
s
ACTIVITIES
t
o
o
01 -Integrated Community Services
55,249
(9,650)
24,585
25,991
7,560
4,166
880
239
588
845
46
f
a
02 -Parks & Reserves
2,101
793
619
377
(227)
(196)
(583)
1,178
(259)
(230)
630
c
m
h
03 -Community Facilities Development
(12,710)
(313)
-
-
-
-
(2,333)
-
(5,276)
(4,788)
-
a
e
04 -City Environment
27,952
2,190
892
8,221
11,097
6,316
(135)
(212)
(87)
(230)
(100)
n
n
g
d
05 -City Development
(13,579)
(1,645)
(541)
(787)
(640)
32
13
(204)
(3,681)
(6,139)
14
e
t
06 -City Resilience
250
250
-
-
-
-
-
-
-
-
s
h
07 -Consents & Regulatory Services
2,042
406
450
309
164
44
159
107
180
49
175
i
e
n
08 -Roads & Accessways
72,849
(5,296)
(2,119)
3,031
6,331
4,047
(46,416)
(28,776)
50,273
55,111
36,664
2
ca
0
09 -Water Supply
13,351
3,834
(243)
(219)
(246)
5,246
936
978
1,022
976
1,067
p
1
10 -Wastewater
28,553
(3 693)
(1,046)
10,158
10,389
2,768
(540)
3,145
(471)
(887)
8,730
i
8
t
-2
11 -Stormwater
(1,089)
472
(241)
(219)
(202)
(174)
(133)
(119)
(117)
(173)
(183)
a
l
12 -Solid Waste
1,111
362
(397)
24
576
364
37
(81)
(29)
277
(23)
0
e
2
14 -City Leadership
9 099
5,193
2,317
1,203
270
86
204
(77)
(10)
(37)
(50)
x
8
p
TOTAL
185,179
(7,096)
24,277
48,090
35,070
22,698
(47,912)
(23,824)
42,134
44,773
46,970
e
L
n
o
d
n
SIGNIFICANT PROJECTS
i
g
tu
01 -Integrated Community Services
Huia Pool Replace Moveable Floor
121
(990)
-
53
-
1,058
-
-
-
-
-
t
01 -Integrated Community Services
Naenae Community Facilities
9,646
500
1,022
1,255
2,674
2,738
1,458
-
-
-
-
r
er
e
01 -Integrated Community Services
Naenae Pool Major Refurbishment
43,111
(9,209)
23,544
24,100
4,676
-
-
-
-
-
-
m
02 -Parks & Reserves
Petone Wharf
2,384
-
818
-
-
-
763
-
-
-
804
p
03 -Community Facilities Development
Sportsville & Artificial Surface
(2,333)
-
-
-
-
-
(2,333)
-
-
-
-
la
03 -Community Facilities Development
Wainuiomata Hub
(9,686)
-
-
-
-
-
-
-
(5,276)
(4,410)
-
n
04 -City Environment
Strategic Property Purchases
21,376
-
-
7,319
7,487
6,571
-
-
-
-
-
a
05 -City Development
Urban Growth Strategy Improvements
(13,778)
(1,718)
(573)
(787)
(640)
-
-
(204)
(3,681)
(6,174)
-
n
d
08 -Roads & Accessways
Riverlink - East Access Route (Subsidy 51%)
95
(3,648)
-
-
3,743
-
-
-
-
-
-
ex
08 -Roads & Accessways
Cycleway/Shared Path Eastern Bays
6,886
(1,938)
(1,884)
2,410
2,821
5,476
-
-
-
-
-
08 -Roads & Accessways
Riverlink - contribution to Melling Bridge Renewal
(118)
-
-
-
-
-
(7,583)
7,465
-
-
-
is
08 -Roads & Accessways
Road Network Improvements (Subsidy 51%)
67,594
-
-
-
-
(1,139)
(38,498)
(35,921)
50,615
55,499
37,038
tin
09 -Water Supply
Reservoir Upgrades (WS)
11,539
700
(10)
(40)
(131)
5,360
1,053
1,100
1,151
1,125
1,230
g
10 -Wastewater
Trunk Type B Asset Development
22,790
(484)
(476)
10,422
10,685
3,276
(10)
(10)
(164)
(435)
(13)
f
10 -Wastewater
Wellington Waters Infrastructure Growth
12,720
-
-
-
-
-
-
3,445
-
-
9,275
in
P
14 -City Leadership
Network storage/Server Hardware and PC
889
1,442
(66)
(276)
(106)
(15)
(16)
(17)
(17)
(19)
(20)
a
a
n
14 -City Leadership
Other (IT) Projects
8,305
2,665
2,218
2,115
1,070
95
210
(15)
(16)
(17)
(19)
g
c
e
14 -City Leadership
Facilities Seismic Strengthening
2,121
1,250
767
105
-
-
-
-
-
-
-
ia
TOTAL
1
l
183,661
(11,431)
25,358
46,674
32,278
23,419
(44,956)
(24,158)
42,612
45,569
48,296
s
8
t
r
o
a
f
t
e
2
g
2
y
under the Local Government Official Information and Meetings Act
Released
Appendix 3
The key messages in the consultation document are:
Since the last LTP we have received new reports and information on what’s needed to
maintain and improve our Three Waters infrastructure and our transport network. In 2020
we are now set to reach the population figure we did not expect to reach until 2030.
Wellington Water has advised us we need to double our investment in our water network to
ensure a properly functioning water supply, waste and stormwater system. Our local roading,
walking and cycling networks also need investment to accommodate a growing population
and provide more options for people moving around our city.
Our financial strategy needs to consider current and future needs and ensure expenditure is
spread across both present and future ratepayers. If we want to fund all our plans we need to
make changes to our financial strategy. The changes proposed would allow for greater rates
revenue rises and an increased borrowing limit. We are proposing a 7.9% rates revenue
increase for 2020/21, a change to limits on borrowing and to work towards having a
balanced budget by 2023/24.
Principles of the proposed financial strategy
1. The financial strategy enables Council’s contribution to the vision for Lower Hutt.
2. Fairness and equity
under the Local Government Official Information and Meetings Act
The funding of expenditure is equitable across both present and future ratepayers.
a) Intergenerational equity – the cost of long term assets should be met by ratepayers
over the life of that asset. This is reflected by debt funding new assets and funding the
replacement or renewal of assets from rates.
Released b) Balanced Budget – projected operating revenues over the lifetime of the LTP is set at
a level sufficient to meet projected operating expenses, ensuring that current
ratepayers are contributing an appropriate amount towards the costs of the services
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 19 of 22
they receive or are able to access i.e. ‘everyday costs are paid for from everyday
income’.
3. Prudent sustainable financial management – budgets are managed prudently and in the
best interests of the city in the long term. Debt must be maintained at prudent levels and be
affordable.
4. Ability to pay (affordability) - affordability is an important consideration as it ensures that
the ability of our diverse community to pay rates is transparently considered as part of the
decision making process. Consideration will be given at both the macro level (i.e. generally
affordable to most) and also at the micro level (i.e. for a specific individual where rates
rebates, remissions or postponement policies may be required).
5. Value for Money – any proposals must contribute to the strategic outcomes agreed with
the community and the total cost must be reasonable. The cost effectiveness of the funding
mechanism must be considered.
6. Prioritisation of investment choices – careful consideration is given to investment choices
and options, with priority given to core infrastructure investment and ‘invest to save’
options.
7. Good financial governance and stewardship
Good stewardship of the Council’s assets and finances require Council to ensure that its
actions now do not compromise the ability of future councils to fund future community
needs. Under this principle:
a) Assets must be maintained at least at current service levels to avoid placing a financial
burden on future generations.
b) Debt must not be used to fund operating expenditure other than in specific
exceptional circumstances.
c) The level of debt is regularly reviewed to ensure that it is at a level that will not restrict
a future council’s ability to fund new assets through debt.
d) The consequential operational expenditure implications of capital expenditure
decisions are considered.
under the Local Government Official Information and Meetings Act
Released
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 20 of 22
Appendix 4 Extract of financial statement from the Annual reports for the years ended 30
June 2017, 2018 & 2019
Extract of Statement of comprehensive
2017
2018
2019
revenue and expenses
$,000
$,000
$,000
REVENUE
Actual
Budget
Actual
Budget
Actual
Budget
Rates
9
9,311
9
9,007
1
02,082
1
02,559
1
05,316
1
05,123
Fees, charges and metered rates for water
3
3,409
3
3,429
3
6,965
3
5,241
4
0,012
3
8,663
Development & Financial Contributions
4
50
5
61
1
,030
5
61
6
65
5
61
Subsidies & Grants
1
0,523
1
5,013
1
3,258
1
7,418
1
4,893
1
7,573
Finance income
1
,040
6
87
9
69
6
86
1
,300
9
68
Other revenue
7
,373
5
,740
6
,562
5
,662
7
,206
5
,711
Gain on revaluation of financial instruments
5
,152
-
-
-
-
-
Gain on Disposal of Assets
6
92
-
1
8
-
3
,253
-
Total revenue
1
57,950
1
54,437
1
60,884
1
62,127
1
72,645
1
68,599
EXPENDITURE
Employee costs
3
2,338
3
2,110
3
4,532
3
3,491
3
5,841
3
6,319
Operating costs
8
3,015
9
3,228
9
0,914
9
0,072
9
6,033
8
7,397
Interest expenditure
6
,145
7
,187
7,039
7,193
8
,042
8
,781
Loss on revaluation of financial instruments
-
-
2,875
-
1
1,557
-
Depreciation
3
5,478
3
6,475
3
6,727
3
4 824
3
9,109
3
8,181
Total expenditure
1
56,976
1
69,000
1
72,087
1
65,580
1
90,582
1
70,678
SURPLUS/(DEFICIT)
974
(14,563)
(11,203)
(3,453)
(17,937)
(2,079)
Other comprehensive revenue and expenses
Gains (losses) on property revaluations
6
9 781
7
2,313
Impairment gain (losses) on revalued property
(9,358)
-
Total comprehensive revenue and expenses
974
(14,563)
58,578
68,860
(27,295)
(2,079)
Extract of Statement of comprehensive
revenue and expenses excluding non cash
2017
2018
2019
gains and losses
$,000
$,000
$,000
REVENUE
Actual
Budget
Actual
Budget
Actual
Budget
Rates
9
9,311
9
9,007
1
02,082
1
02,559
1
05,316
1
05,123
Fees, charges and metered rates for water
3
3,409
3
3,429
3
6,965
3
5,241
4
0,012
3
8,663
Development & Financial Contributions
4
50
5
61
1
,030
5
61
6
65
5
61
Subsidies & Grants
1
0,523
1
5,013
1
3,258
1
7,418
1
4,893
1
7,573
Finance income
1
,040
6
87
9
69
6
86
1
,300
9
68
Other revenue
7
,373
5
,740
6
,562
5
,662
7
,206
5
,711
Total revenue
1
52,106
1
54,437
1
60,866
1
62,127
1
69,392
1
68,599
EXPENDITURE
Employee costs
3
2,338
3
2,110
3
4,532
3
3,491
3
5,841
3
6,319
Operating costs
8
3,015
9
3,228
9
0,914
9
0,072
9
6,033
8
7,397
Interest expenditure
6
,145
7
,187
7,039
7,193
8
,042
8
,781
Depreciation
3
5,478
3
6,475
3
6,727
3
4,824
3
9,109
3
8,181
Total expenditure
1
56,976
1
69,000
1
69,212
1
65,580
1
79,025
1
70,678
under the Local Government Official Information and Meetings Act
SURPLUS/(DEFICIT)
(4,870)
(14,563)
(8,346)
(3,453)
(9,633)
(2,079)
Accumulated Surplus(Deficit) over the last
three years
(22,849)
(20,095)
Released
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 21 of 22
2017
2018
2019
Modified Funding Impact statement
$,000
$,000
$,000
REVENUE
Actual
Budget
Actual
Budget
Actual
Budget
Rates
9
9,311
9
9,007
1
02,082
1
02,559
1
05,316
1
05,123
Fees, charges and metered rates for water
3
3,409
3
3,429
3
6,965
3
5,241
4
0,012
3
8,663
Operating Subsidies & Grants
6
,246
6
,450
5
,844
6
,091
5
,304
4
,611
Finance income
1
,040
6
87
9
69
6
86
1
,300
9
68
Other revenue
7
,373
5
,740
6
,562
5
,662
7
,206
5
,711
Total revenue
1
47,379
1
45,313
1
52,422
1
50,239
1
59,138
1
55,076
EXPENDITURE
Employee costs
3
2,338
3
2,110
3
4,532
3
3,491
3
5,841
3
6,319
Operating costs
8
3,015
9
3,228
9
0,914
9
0,072
9
6,033
8
7,397
Interest expenditure
6
,145
7
,187
7,039
7,193
8
,042
8
781
Total expenditure
1
21,498
1
32,525
1
32,485
1
30,756
1
39,916
1
32,497
SURPLUS/(DEFICIT)
25,881
12,788
19,937
19,483
19,222
22,579
Add capital funding sources
Increase in debt
1
1,891
6
8,709
3
9,987
3
7,345
1
5,479
3
3,088
Capital Subsidies
4
,277
8
,563
7
,414
1
1,327
9
,589
1
2,962
Development & Financial Contributions
4
50
5
61
1
,030
5
61
6
65
5
61
Deduct Capital expenditure
Additional demand
-
-
-
3
,795
8
,644
Increased level of service
3
3,285
6
6,009
4
7,936
5
6,783
2
6,414
4
6,179
Replace existing assets
16,599
26,177
18,235
22,073
14,017
17,804
Total Capital expenditure
4
9,884
9
2,186
6
6,171
7
8,856
4
4,226
7
2,627
Increase (reduction) in reserves/cash
(7,385)
(1,565)
2,197
(10,140)
729
(3,437)
under the Local Government Official Information and Meetings Act
Released
Report on proposal to amend the 2018-2028 Long term plan and existing financial strategy
Page 22 of 22
Document Outline
