Agenda of Finance & Audit Committee

PALMERSTON NORTH CITY COUNCIL

Finance & Audit Committee MEETING

18 March 2020

Order of Business

NOTE: The Finance & Audit Committee meeting coincides with the ordinary meeting of the Play, Recreation & Sport Committee and the Council meeting. The Committees will conduct business in the following order:

- Council

- Finance & Audit

- Play, Recreation & Sport

1. Apologies

2. Notification of Additional Items

Pursuant to Sections 46A(7) and 46A(7A) of the Local Government Official Information and Meetings Act 1987, to receive the Chairperson’s explanation that specified item(s), which do not appear on the Agenda of this meeting and/or the meeting to be held with the public excluded, will be discussed.

Any additions in accordance with Section 46A(7) must be approved by resolution with an explanation as to why they cannot be delayed until a future meeting.

Any additions in accordance with Section 46A(7A) may be received or referred to a subsequent meeting for further discussion. No resolution, decision or recommendation can be made in respect of a minor item.

3. Declarations of Interest (if any)

Members are reminded of their duty to give a general notice of any interest of items to be considered on this agenda and the need to declare these interests.

4. Public Comment

To receive comments from members of the public on matters specified on this Agenda or, if time permits, on other Committee matters.

(NOTE: If the Committee wishes to consider or discuss any issue raised that is not specified on the Agenda, other than to receive the comment made or refer it to the Chief Executive, then a resolution will need to be made in accordance with clause 2 above.)

5. Confirmation of Minutes Page 7

“That the minutes of the Finance & Audit Committee meeting of 19 February 2020 Part I Public be confirmed as a true and correct record.”

6. Palmerston North Airport Ltd - Interim Report for 6 months to 31 December 2019 Page 17

Memorandum, presented by Steve Paterson, Strategy Manager - Finance.

7. Palmerston North Airport Ltd - Draft Statement of Intent for 2020/21 Page 33

Memorandum, presented by Steve Paterson, Strategy Manager - Finance.

8. Audit New Zealand Report to Council Page 59

Memorandum, presented by Stuart McKinnon, Chief Financial Officer.

9. Fees and Charges Review Page 111

Report, presented by Steve Paterson, Strategy Manager - Finance.

10. Transforming PNCC's Business Continuity Practice Page 175

Memorandum, presented by Miles Crawford, Risk Manager.

11. Committee Work Schedule Page 179

12. Exclusion of Public

To be moved:

“That the public be excluded from the following parts of the proceedings of this meeting listed in the table below.

The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter, and the specific grounds under Section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows:

General subject of each matter to be considered	Reason for passing this resolution in relation to each matter	Ground(s) under Section 48(1) for passing this resolution

This resolution is made in reliance on Section 48(1)(a) of the Local Government Official Information and Meetings Act 1987 and the particular interest or interests protected by Section 6 or Section 7 of that Act which would be prejudiced by the holding of the whole or the relevant part of the proceedings of the meeting in public as stated in the above table.

Also that the persons listed below be permitted to remain after the public has been excluded for the reasons stated.

[Add Third Parties], because of their knowledge and ability to assist the meeting in speaking to their report/s [or other matters as specified] and answering questions, noting that such person/s will be present at the meeting only for the items that relate to their respective report/s [or matters as specified].

Palmerston North City Council

Minutes of the Finance & Audit Committee Meeting Part I Public, held in the Council Chamber, First Floor, Civic Administration Building, 32 The Square, Palmerston North on 19 February 2020, commencing at 9.01am

Members

Present:

Councillor Susan Baty (in the Chair) and Councillors Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Karen Naylor, Bruno Petrenas and Tangi Utikere.

Non Members:

Councillors Brent Barrett, Rachel Bowen, Zulfiqar Butt, Billy Meehan and Aleisha Rutherford.

Apologies:

The Mayor (Grant Smith) (for lateness), Councillors Leonie Hapeta and Rachel Bowen (early departure on Council business)

The Mayor (Grant Smith) entered the meeting at 9.09am at the conclusion of clause 3. He was not present for clauses 1 to 3 inclusive.

Councillor Rachel Bowen left the meeting at 10.19am during consideration of clause 6. She entered the meeting again at 12.06pm during consideration of clause 9. She was not present for clauses 6 to 8 inclusive.

1-20

Apologies

Moved Susan Baty, seconded Aleisha Rutherford.

The COMMITTEE RESOLVED

1.That the Committee receive the apologies.

Clause 1-20 above was carried 14 votes to 0, the voting being as follows:

For:

Councillors Brent Barrett, Susan Baty, Rachel Bowen, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

2-20

Confirmation of Minutes

Moved Susan Baty, seconded Karen Naylor.

The COMMITTEE RESOLVED

1. That the minutes of the Finance & Audit Committee meeting of 4 December 2019 Part I Public be confirmed as a true and correct record.

Clause 2-20 above was carried 14 votes to 0, the voting being as follows:

For:

3-20

Conference Opportunity - Rangitāne Appointed Members

Memorandum, presented by Hannah White, Democracy & Governance Manager.

After discussion Elected Members requested that the scope of the Expenses Policy be broadened to allow for other items to be included in the review.

Moved Rachel Bowen, seconded Karen Naylor.

The COMMITTEE RESOLVED

1. That the attendance of Rangitāne Appointed Member Mr Chris Whaiapu, with expenses paid, at the Te Maruata Hui of LGNZ being held in South Taranaki on 11 and 12 March 2020, be approved.

2. That a review of the Expenses Policy be undertaken to consider whether the Policy be extended to cover all Appointed Members, and to make recommendations for any other changes required to update the policy including to the definition of, and travel expenses associated with, Official Business, with a report to Finance and Audit Committee (in September 2020).

Clause 3-20 above was carried 14 votes to 0, the voting being as follows:

For:

The Mayor (Grant Smith) entered the meeting at 9.09am

4-20

Quarterly Performance and Financial Report - Quarter Ending 31 December 2019

Memorandum, presented by Stuart McKinnon, Chief Financial Officer and Andrew Boyle, Head of Community Planning.

Moved Susan Baty, seconded Karen Naylor.

The COMMITTEE RESOLVED

1. That the Committee receive the December 2019 Quarterly Performance and Financial Report.

Clause 4-20 above was carried 15 votes to 0, the voting being as follows:

For:

The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

5-20

Treasury Report - 6 months ending 31 December 2019

Memorandum, presented by Steve Paterson, Strategy Manager - Finance.

Moved Susan Baty, seconded Karen Naylor.

The COMMITTEE RESOLVED

1. That the performance of Council’s treasury activity for the six months ended 31 December 2019 be noted.

Clause 5-20 above was carried 15 votes to 0, the voting being as follows:

For:

6-20

New Deed of Lease for Manawatu Pony Club, Manawatu Canine Club and Ruahine Kindergarten Milverton

Memorandum, presented by Bryce Hosking, Manager - Property.

Councillor Rachel Bowen left the meeting at 10.19am

Moved Aleisha Rutherford, seconded Brent Barrett.

The COMMITTEE RECOMMENDS

1. That the Council as the administering body under the Reserves Act 1977, on behalf of the Minister of Conservation, approve the following leases:

a. Land lease at Ashhurst Domain, Palmerston North, to Manawatu Pony Club Incorporated.

b. Land lease at Ashhurst Domain, Palmerston North, to The Manawatu Canine Centre Incorporated.

c. Land lease at Milverton Park, Palmerston North, to Ruahine Kindergarten Association Incorporated.

2. That the Council agree to execute the following leases:

a. A new five-year lease with renewal option between Palmerston North City Council and Manawatu Pony Club Incorporated for the land at Ashhurst Domain, Palmerston North.

b. A new five-year lease with renewal option between Palmerston North City Council and The Manawatu Canine Centre Incorporated at Ashhurst Domain, Palmerston North.

c. A new five-year lease with renewal option between Palmerston North City Council and Ruahine Kindergarten Association Incorporated for the land at Milverton Park, Palmerston North.

Clause 6-20 above was carried 14 votes to 0, the voting being as follows:

For:

The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

7-20

Powerco Easement at Vautier Park

Memorandum, presented by Bryce Hosking, Manager - Property.

Moved Susan Baty, seconded Grant Smith.

The COMMITTEE RECOMMENDS

1. That Council, as the administering body of Vautier Park (legally described as Part Section 249 Town of Palmerston North), authorise the granting of an easement to convey electricity, to Powerco.

2. That Council, in exercise of the powers conferred on it by delegation under the Reserves Act 1977, authorise the granting of an easement to convey electricity, to Powerco.

3. That Council note that the requirements of Section 4 of the Conservation Act 1987 have been satisfied in relation to consultation with Iwi over granting an easement to convey electricity at Vautier Park.

4. That Council note that the requirements of Sections 119 and 120 of the Reserves Act 1977 have been satisfied in relation to public notification prior to the resolution to grant an easement to convey electricity over Vautier Park.

Clause 7-20 above was carried 14 votes to 0, the voting being as follows:

For:

The meeting adjourned at 10.26am
The meeting resumed at 10.46am

8-20	Wastewater BPO Quarterly Report & Financial Status Report, presented by Robert van Bentum - Transport and Infrastructure Manager, Sacha Haskell, GM - Communications and Marketing.
	Moved Susan Baty, seconded Vaughan Dennison. The COMMITTEE RESOLVED 1. That the Committee receive the update for the Wastewater BPO Project as detailed in the report titled `Wastewater Best Practicable Option Quarterly Report & Financial Status’ dated 19 February 2020.
	Clause 8.1 above was carried 14 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.
	Moved Susan Baty, seconded Vaughan Dennison. The COMMITTEE RECOMMENDS 2. That Council approves additional budget of $470,700 in order to complete the technical work and marketing and communications input scoped for the BPO Project for the 2019/2020 financial year.
	Clause 8.2 above was carried 10 votes to 4, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Patrick Handcock ONZM, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere. Against: Councillors Renee Dingwall, Lew Findlay QSM, Billy Meehan and Karen Naylor.
	Moved Karen Naylor, seconded Billy Meehan.
	Note: On a motion that “The Committee approves additional budget of $355,200 in order to complete the technical work scoped for the BPO project for the 2019/2020 financial year”, the motion was lost 5 votes to 8, with 1 abstention, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Renee Dingwall, Billy Meehan, Karen Naylor and Bruno Petrenas. Against: Councillors Brent Barrett, Susan Baty, Zulfiqar Butt, Vaughan Dennison, Patrick Handcock ONZM, Lorna Johnson, Aleisha Rutherford and Tangi Utikere. Abstained: Councillor Lew Findlay QSM.

9-20	PNCC Animal Shelter Options Report, presented by Bryce Hosking, Manager - Property. During discussion Elected Members felt there was a level of urgency to progress this project, as the current facility is non-compliant and animal welfare continues to be a concern. Elected Members therefore requested the design and consent phase be brought forward to the current year. Councillor Rachel Bowen returned to the meeting at 12.06pm
	Moved Lorna Johnson, seconded Lew Findlay QSM. The COMMITTEE RECOMMENDS 1. That Council agrees to proceed with Option 2 and builds a new Animal Shelter next to the existing facility in Totara Road, Palmerston North for $2,925,919 + GST. This will be a multi-year Programme split over the 2020/21 and 2021/22 financial years. The proposed programme budget (not currently budgeted for) will be split: 2020/21 $300,000 – Design and Consent Phase 2021/22 $2,625,919 – Construction Phase Amended by Council on 26 February 2020 Clause 14-20
	Clause 9.1 above was carried 14 votes to 1, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Billy Meehan, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere. Against: Councillor Karen Naylor.
	Moved Lorna Johnson, seconded Aleisha Rutherford. 2. That consideration be given by the Chief Executive to bringing the design and consent phase into the current year if possible.
	Clause 9.2 above was carried 12 votes to 3, the voting being as follows: For: Councillors Brent Barrett, Rachel Bowen, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere. Against: The Mayor (Grant Smith) and Councillors Susan Baty and Billy Meehan.

Moved Susan Baty, seconded Karen Naylor.

Note:

On a motion that “The scope of a new Animal Shelter is referred to a Councillor workshop with revised options being reported back to the Finance & Audit Committee as soon as practicable”, the motion was lost 5 votes to 10, the voting being as follows:

For:

The Mayor (Grant Smith) and Councillors Susan Baty, Billy Meehan, Karen Naylor and Bruno Petrenas.

Against:

Councillors Brent Barrett, Rachel Bowen, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Lorna Johnson, Aleisha Rutherford and Tangi Utikere.

10-20

Committee Work Schedule

Moved Susan Baty, seconded Lew Findlay QSM.

The COMMITTEE RESOLVED

1. That the Finance & Audit Committee receive its Work Schedule dated February 2020.

Clause 10-20 above was carried 15 votes to 0, the voting being as follows:

For:

The meeting finished at 1.28pm

Confirmed 18 March 2020

Chairperson

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 18 March 2020

TITLE: Palmerston North Airport Ltd - Interim Report for 6 months to 31 December 2019

Presented By: Steve Paterson, Strategy Manager - Finance

APPROVED BY: Stuart McKinnon, Chief Financial Officer

RECOMMENDATION(S) TO Council

1. That the Interim Report and Financial Statements of Palmerston North Airport Ltd for the period ended 31 December 2019 be received.

1. ISSUE

Palmerston North Airport Ltd (PNAL), as a Council-Controlled Organisation, is required to provide a 6-monthly report to the Council. The report for the period ending 31 December 2019 is attached.

2. BACKGROUND

PNAL’s draft Statement of Intent (SOI) for 2019/20 was considered by the Council in March 2019 and the final SOI was considered by the Council in June 2019.

Performance for the year to date is covered in the report by the Chair and Chief Executive. They outline the key components of what has been another busy period for PNAL with an improved overall financial performance compared with the same period the previous year. They signal an expectation of a second half year where revenue falls behind budget with the withdrawal of the Jetstar service. However, they forecast a year-end tax paid surplus that exceeds budget.

The Council has been paid a dividend of $685,238 based on the previous year’s results – this compares with the Council’s budget for 2019/20 of $550,000.

PNAL has prepared its draft SOI for the 2020/21 year and this is being considered under a separate report.

3. NEXT STEPS

PNAL will prepare and forward an annual report after 30 June 2020.

4. Compliance and administration

Does the Committee have delegated authority to decide?		No
Are the decisions significant?		No
If they are significant do they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		No
Is there funding in the current Annual Plan for these actions?		No
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 1: An Innovative and Growing City
The recommendations contribute to the outcomes of the City Development Strategy
The recommendations contribute to the achievement of action/actions in the Strategic Transport Plan The action is: Work with the airport company to ensure the airport’s strategic intent aligns with the City’s aspirations
Contribution to strategic direction and to social, economic, environmental and cultural well-being	This report outlines progress to date.

Attachments

PNAL Interim Report to 31 December 2019 ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 18 March 2020

TITLE: Palmerston North Airport Ltd - Draft Statement of Intent for 2020/21

Presented By: Steve Paterson, Strategy Manager - Finance

APPROVED BY: Stuart McKinnon, Chief Financial Officer

RECOMMENDATION(S) TO Council

1. That the Palmerston North Airport Ltd (PNAL) draft Statement of Intent for 2020/21 be received and PNAL be advised that the Council supports the proposed direction and implementation strategy.

2. That PNAL also be advised that in the interests of supporting the proposed Terminal Development Plan, the Council agree to an amendment to the dividend policy although its expectation is that the dividend payable should increase each year.

3. That to recognise this, it is proposed the new dividend policy be as follows:

Dividend Policy

The shareholder’s expectation is that a dividend of 40% of after-tax profit be paid. To facilitate PNAL’s investment in the Terminal Development Plan (TDP), PNAL will seek to limit the dividend to $600,000 for 2019/20, $650,000 for 2020/21; $700,000 for 2021/22 and 2022/23 with the balance that would usually be paid being re-invested in the TDP.

1. ISSUE

To present and provide comment on the draft Statement of Intent for Palmerston North Airport Ltd (PNAL) for 2020/21.

2. BACKGROUND

2.1 Introduction

PNAL is deemed a Council-Controlled Trading Organisation (CCTO) under the Local Government Act 2002. A CCTO must deliver a draft Statement of Intent (SOI) to shareholders by 1 March each year and adopt it by 30 June. The Council must, as soon as possible after a draft SOI is delivered to it agree to a CCTO’s SOI or, if it does not agree, take all practicable steps under clause 6 of Schedule 8 of the Local Government Act 2002 to require the SOI to be modified. The Board of the CCTO must consider any shareholder feedback by 1 May.

The Council’s reason for its shareholding in PNAL is to ensure that the capacity and image of the City’s key transportation gateway is consistent with the Council’s economic development objectives.

As a CCTO PNAL is required under the Local Government Act 2002 to have the following principal objective:

· Achieve the objectives of its shareholders, both commercial and non-commercial, as specified in the Statement of Intent; and

· Be a good employer; and

· Exhibit a sense of social and environmental responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so; and

· Conduct its affairs in accordance with sound business practice.

The Council’s shareholding represents 100% of the issued and paid-up capital.

2.2 Draft SOI - overview

Attached is a letter from PNAL to shareholders explaining the enclosed draft SOI and outlining the key assumptions.

The draft SOI retains the vision from the current year ‘New Zealand’s leading regional airport’. However, a new purpose statement “Launching our communities into a promising future” has been introduced and the strategic objectives sections have been updated and extended to include ‘Culture’.

It has been assumed the airport will operate as a Tier 2 domestic regional one over the next three years. Modest passenger growth is assumed in 2020/21 accelerating in the following two years to the point of nearing terminal capacity. Revenue and operating expenses are forecast to increase as a consequence.

PNAL is working proactively with Air New Zealand to sustainably grow the Auckland - Palmerston North route, maintaining and growing frequency but increasing capacity at peak times.

The draft SOI contains an assumption that capital expenditure of $34.8m will be phased across the three years, funded in part ($3.4m) from the sale of non-strategic land and a net increase of $17.4m in term borrowing, with the balance from retained earnings.

A significant component of the capital programme ($15m) relates to the proposed Terminal Development Plan, including a proposed extension to the footprint of the building to cope with increased passenger volumes and the possibility of passenger security screening being mandated for tier 2 regional airports.

The SOI also provides for the on-going development of the Ruapehu Business Park.

Shareholders’ funds are forecast to reduce marginally to 68% then 63% of total assets through the three-year term of the SOI. This is still well above the expectation that it will remain over 40%.

2.3 Draft SOI – Performance targets

The following financial performance targets are included:

	Draft SOI 2020/21 Budget	SOI 2019/20 Budget
NPBIT: Total assets	6%	6%
NPAIT: Shareholders’ funds	5%	3.1%
Shareholders’ funds: Total assets (>40%)	68%	69%
Interest cover (>2.25)	8.2	4.8
Tangible Net Worth (>$50m)	$71m	$63.1m
Dividends - % of NPAT	$600k (equates 17.7%)	40%

Non-financial targets relate to:

· Maintaining a customer satisfaction Net Promoter score of 55 or above (measured annually – target 55 for 2020/21)

· Serving 665,000 passengers during the 2020/21 year increasing to 705,000 for the following year and 725,000 in the June 2023 year (660,500 forecast for 2019/20)

· Maintaining Civil Aviation Rule Part 139 certification

· Zero lost time injuries to those who work within the airport community

· Safety management system implemented

· Executing the roadmap to carbon neutrality

· Achievement of emission reduction & energy consumption reduction targets.

· Completing 35% of the terminal development during 2020/21

2.4 Draft SOI – Dividend policy

Council’s 10 Year Plan 2018-28 assumes PNAL will pay the Council shareholder dividends of $600,000 during 2020/21 increasing to $650,000 for 2021/22 and $700,000 for the following years.

PNAL has incorporated an SOI assumption the dividend payment will be limited to $600,000 in 2020/21 and in each of the next three years. The Board has sought Council agreement to this arrangement as a means of enabling PNAL to invest a greater level of retained earnings in the terminal development plan.

If the Council were to be paid dividends representing 40% of tax paid surplus (as in the past) the dividend for 2019/20 (based on the forecast year end position) that is payable in 2020/21 would amount to $900,000 and dividends for the succeeding three years would be $1.36m, $1.31m and $1.12m.

A portion of the after-tax profit in each year is assumed to be derived from the net profit on the sale of assets. If these were removed from the dividend calculation then at 40% projected dividends payable to the Council would be $830,000 in 2020/21 then $980,000, $940,000 and $840,000 in the succeeding three years.

If the Council agreed with the dividend being limited to $600,000 p.a. then over the four year period the potential dividend being retained by PNAL would amount to $2.3m (if the profits from assets sales are included in the dividend calculation) or $1.2m (if they were not).

The draft SOI contains the following section relating to dividend policy:

“To facilitate PNAL’s investment in the Terminal Development Plan (TDP), PNAL will seek to maintain the annual dividend paid to the Shareholder at a maximum of $600,000 per annum. Funds in excess of $600,000 will be re-invested into the TDP programme.”

In assessing PNAL’s dividend policy change request it is suggested the following be amongst the matters that are considered:

· Is the proposed terminal development essential for the future success of PNAL and the city?

An appropriately sized, functional & inviting terminal is an important element of Council’s strategy for investing in the airport company i.e. capacity and image of a key transportation gateway.

Airport companies to the east and west of the City are investing heavily in terminal redevelopment so it is important the City maintain its facilities to a standard that meets the expectations of a growing City and the travelling public.

There is strong evidence the City will grow significantly in the near future so it is realistic to believe this will mean growing air passenger numbers and more demand on the current facilities.

The existing terminal facilities have an estimated capacity of 725,000 passenger movements p.a. (current 660,500). Based on PNAL’s latest forecasts this level of passenger movements may be reached by Year 3 of the SOI and therefore start to constrain passenger growth with flow on impacts on our city and regional economies, including the various regional infrastructure projects planned.

It is not certain PNAL will be mandated to add new security screening facilities, but it is possible and therefore it is prudent to be capable of handling such an eventuality.

PNAL and Air NZ are working on a plan to reintroduce jet services on the Auckland – Palmerston North route by late 2022, early 2023. The re-introduction of Jet services will require the terminal development to have been completed due to the anticipated growth in passenger volumes using the terminal at peak times, and because Jet operations will trigger a mandatory requirement for passenger and hold bag screening to be introduced.

· Is PNAL capable of funding the development without undue financial risk, if the present dividend policy of 40% is retained?

The forecasts of financial performance are based on a number of significant assumptions about passenger numbers, revenue growth etc. However, it appears PNAL may be capable of paying a higher dividend than proposed without putting the company at risk of breaching any covenants. Limiting the dividend distribution does mitigate against this risk. It is recognised as well that this development is being proposed without needing to seek additional capital from the Council as shareholder.

· Is it reasonable that PNAL retain all surpluses from its property development and they be excluded from any dividend calculation?

The SOI does assume an after-tax profit in relation to asset sales of approximately $2.6m over the three-year period. It seems not unreasonable that PNAL retains these profits to re-invest in terminal development.

· If PNAL is successful in its application to the Provincial Growth Fund for a five-year interest free loan would this alter Council’s views about dividend policy?

For every $5m of interest free loan PNAL would save approximately $200,000 p.a. in interest. Assuming this would lead to a higher taxable profit of $200,000 the saving would be approximately $160,000 p.a. after tax. Savings of this magnitude would enable PNAL to pay a higher dividend without impacting on its financial position.

· Does the Council rely on the payment of dividends?

Council has set budgets that make conservative assumptions about what dividend might actually be paid by PNAL. This recognises there is a reasonable level of risk PNAL will face market conditions or extra-ordinary events that will impact on its after-tax profits and therefore ability to generate dividends. Council’s main reason for investing in PNAL is not a financial but a strategic one relating to the provision of a key transportation gateway i.e. it is seen as being a key part of the City’s infrastructure.

The Council will face increasing pressure on its ability to fund services, facilities and infrastructure over the next few years and efforts are being made to find alternate funding sources to help moderate the impact on rates. Although it may be a worthwhile thing to do, foregoing potential dividend income does not assist this quest.

Directors of companies have an obligation to undertake appropriate solvency tests each year before declaring a dividend. A dividend in any year is therefore subject to successfully completing this test.

Whether or not to agree to PNAL’s dividend policy request is a judgement call by the Council.

If the Council believes it does wish to support PNAL’s request it is suggested PNAL be advised the proposed SOI dividend policy wording be amended, as follows, to more clearly outline Council expectations:

“Dividend Policy

The shareholder’s expectation is that a dividend of 40% of after-tax profit be paid. To facilitate PNAL’s investment in the Terminal Development Plan (TDP), PNAL will seek to limit the dividend to $600,000 per annum from 2019/20 until 2022/23 with the balance that would usually be paid being re-invested in the TDP.”

Another option could be to include provision for the limit to be $600,000 for 2019/20 and an increasing sum in the following years. Such an outcome could be embraced in a policy such as:

“Dividend Policy

This latter option is being recommended.

3. NEXT STEPS

The Council can either endorse the SOI as presented or make suggestions for change to a greater or lesser extent. The proposed dividend policy is the most significant matter upon which feedback is to be given.

PNAL is obliged to consider shareholder comments by 1 May then decide whether or not to make any changes to the draft when adopting the final SOI before 30 June 2020.

4. Compliance and administration

Does the Committee have delegated authority to decide?		No
Are the decisions significant?		No
If they are significant do they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		No
Is there funding in the current Annual Plan for these actions?		Yes
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 1: An Innovative and Growing City
The recommendations contribute to the outcomes of the City Development Strategy
The recommendations contribute to the achievement of action/actions in the Strategic Transport Plan The action is: Work with the airport company to ensure the airport’s strategic intent aligns with the City’s aspirations
Contribution to strategic direction and to social, economic, environmental and cultural well-being	The draft Statement of Intent includes a direction and specific actions that are designed to continue to improve the airport for customers and stimulate growth

Attachments

1.	PNAL - Cover letter for draft SOI 2020/21 ⇩
2.	PNAL Draft SOI for 2020/21 ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 18 March 2020

TITLE: Audit New Zealand Report to Council

Presented By: Stuart McKinnon, Chief Financial Officer

APPROVED BY: Stuart McKinnon, Chief Financial Officer

RECOMMENDATION(S) TO Finance & Audit Committee

1. That the interim 2018/19 Management Report from Audit New Zealand be received.

2. That the final 2018/19 Management Report from Audit New Zealand be received.

1. ISSUE

The interim and final reports on the audit of the Council for the year ended 30 June 2019 have been received from the Council Auditors, Audit New Zealand. In the reports, the auditors outline significant matters considered, and areas of interest they have reviewed during the course of their audit. Where applicable, management have commented on audit’s recommendations and these are incorporated in the report. This report includes an update on the matters outstanding from previous reports.

Where appropriate, management will be reviewing and considering the recommendations for implementation.

2. NEXT STEPS

It is recommended that the Committee receive the interim and final 2019 audit management reports.

3. Compliance and administration

Does the Committee have delegated authority to decide? If Yes quote relevant clause(s) from Delegations Manual <Enter text>		Yes
Are the decisions significant?		No
If they are significant do they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		No
Is there funding in the current Annual Plan for these actions?		Yes
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 5: A Driven and Enabling Council
The recommendations contribute to the outcomes of the Driven and Enabling Council Strategy
The recommendations contribute to the achievement of action/actions in a plan under the Driven and Enabling Council Strategy The action is: to enable Council to exercise governance by reviewing the report of the Auditors relating to their review of financial performance and operating performance and provide accountability for these to the public.
Contribution to strategic direction and to social, economic, environmental and cultural well-being	As above.

Attachments

1.	Interim management report to Council 2019 ⇩
2.	Final management report to Council 2019 ⇩

PALMERSTON NORTH CITY COUNCIL

Report

TO: Finance & Audit Committee

MEETING DATE: 18 March 2020

TITLE: Fees and Charges Review

PRESENTED BY: Steve Paterson, Strategy Manager - Finance

APPROVED BY: Stuart McKinnon, Chief Financial Officer

RECOMMENDATION(S) TO Council

1. That the Fees and Charges Review report be received and the current status of fees and charges be noted.

Trade waste

2. That the proposal to adopt updated fees and charges for Trade Waste services effective from 1 July 2020 as attached in Appendix 2, be approved for public consultation and the Chief Executive be authorised to undertake the necessary consultative process under sections 82 and 150 of the Local Government Act 2002.

Planning & Miscellaneous

3. That the Statement of Proposal (and the associated summary) to adopt updated fees and charges for Planning Services and Miscellaneous Services effective from 1 July 2020 as attached in Appendix 3, be approved for public consultation and the Chief Executive be authorised to undertake the necessary consultative process under sections 83 and 150 of the Local Government Act 2002.

Building

4. That the fees and charges for Building Services, as proposed in Appendix 4 be adopted and following public notification take effect from 1 July 2020.

Environmental Health

5. That the fees and charges for Environmental Health Services (in terms of regulation 7 of the Health (Registration of Premises) Regulations 1966) as proposed in Appendix 5, be adopted and following public notification, take effect from 1 July 2020.

Animal Control

6. That the fees and charges for the Impounding of Animals (in terms of section 14 of the Impounding Act 1955) and for Dog Registration and Dog Impounding (in terms of sections 37 and 68 of the Dog Control Act 1996) as proposed in Appendix 6 be adopted, and following public notification, take effect from 1 July 2020.

Burial & Cremation

7. That the fees and charges for Burial and Cremation, as proposed in Appendix 7 be adopted and following public notification, take effect from 1 July 2020.

Service Connections

8. That the fees and charges for Service Connections, as proposed in Appendix 8 be adopted and take effect from 1 July 2020.

Sportsfields

9. That the fees and charges for Sportsfields as proposed in Appendix 9 be adopted and take effect from 1 July 2020.

Bulk Water Filling Station

10. That the fees and charges for the Bulk Water Filling Station as proposed in Appendix 10 be adopted and take effect from 1 July 2020.

Summary of options analysis for

Problem or Opportunity	Fees and charges need to be reviewed annually to ensure they adequately meet Revenue & Financing policy, budgetary and other objectives
OPTION 1:	Approve fee increases as proposed
Community Views	Each of different types of fees requires a different process for community engagement. Where this is legislatively controlled it is identified in the report
Benefits	More likely to comply with funding proportions contained in Revenue & Financing Policy
Risks	Public criticism of increases
	Increased charges for some activities may discourage compliance or reduce volumes
Financial	Budgeted revenue targets more likely to be achieved
OPTION 2:	Approve fee amendments for some of those proposed at greater or lesser levels
Community Views	As above
Benefits	Lower fees than recommended likely to mean policy targets will not be achieved
	Higher fees than recommended in some instances will increase likelihood of policy user fee target being achieved
Risks	Higher fees than recommended may increase the risk of public criticism
Financial	If lower increases are approved for some fees likely that budgeted revenue will not be achievable
OPTION 3:	Do not approve any fee increases
Community Views	As above
Benefits	Lower fees than recommended likely to mean policy targets will not be achieved
Risks	When increases eventually are made (to reduce the pressure on rates increases) the extent of the increase required will be publicly and politically unacceptable
Financial	If no increases are approved likely that budgeted revenue will not be achievable

Rationale for the recommendations

1. Overview of the problem or opportunity

1.1 The purpose of this report is to provide an overview of the current status of fees and charges made by the Council and to recommend the adoption of updated fees for some of them.

1.2 It is important that fees and charges be regularly reviewed. There are a variety of reasons for this including:

· Compliance with legislative requirements – many fees and charges made by the Council are governed by specific legislation

· Consistency with Council’s Revenue and Financing policy – for each activity the Council has adopted targets for the funding mix i.e. the proportion of costs to be funded from fees and charges

· Transparency – in some instances it is important to be able to demonstrate that the charge being made represents a fair and reasonable recovery of the costs of providing a particular service

· Market comparability – for some services the Council operates in a contestable market and it is important that fees and charges are responsive to market changes.

1.3 However, as a review process is sometimes very time-consuming the depth of the review for each type of fee or charge may vary depending on the circumstances.

1.4 Attached as Appendix 1 is a schedule listing, in broad terms, the various types of fees and charges made by the Council. The schedule is ordered by activity (consistent with the 10 Year Plan 2018-28) and within that by function (consistent with the Revenue & Financing Policy). Comments are made within the schedule outlining the reasons for there being no change recommended to a particular fee or charge. In cases where changes are recommended more detail is provided in the appendices.

2. Background and previous council decisions

2.1 Council has previously indicated that as a matter of policy it wishes all fee and charge revisions to be encapsulated in a single report to this Committee early each year.

2.2 Council’s current Revenue & Financing Policy (10 Year Plan 2018-28 pages 211-231) describes how the Council goes about deciding who should pay for the provision of each activity and in what proportions. The policy should be the foundation for decisions about the levels of fees and charges.

2.3 The following table shows the indicative levels of direct user contribution (including through the use of targeted rates) sought to fund the operating costs for each activity as described in the Revenue & Financing Policy:

Revenue & Financing Policy – Indicative levels of direct user contribution (incl. targeted rates) sought toward activity cost

Low

0-19%

Med-Low

20-39%

Med

40-59%

Med-High

60-79%

High

80-100%

Economic development & international relations

Planning services- public

Urban design

Heritage management

Roads, street facilities, street lighting & traffic services

Active & public transport

Creative & exciting city

Arts, culture & heritage

Reserves & sportsfields

Swimming pools

Libraries & community centres

Civil defence & safer community initiatives

Biodiversity & sustainable practices

Stormwater

Leadership

Central Energy Trust Arena

Public Health

Conference & Function Centre

Building services

Cemeteries

Planning services – private

Parking

Social housing

Animal Control

************

Rubbish & Recycling^#

Wastewater^#

Water^#

************

# significant portion of funding through targeted rates

2.4 For some activities (such as swimming pools) only a portion of the operating costs is borne by the Council and none of the revenue is received directly by the Council. The Council does have the right under the agreement with CLM to set the maximum fees charged for the services. The Revenue & Financing Policy addresses only that portion of the net operating costs funded by the Council and therefore makes no reference to user charges for swimming pools.

2.5 In some of the activities shown above it is not practical to charge users through a separate charge specifically related to use. An example of this is water where large consumers are metered but the majority of users are charged through the rating system by way of a fixed targeted rate as the best proxy for direct user charge.

2.6 In some activities a combination of charging mechanisms is used. Rubbish & recycling is an example. Users are responsible for their own rubbish disposal. The Council does provide a collection and disposal service which is funded from the sale of rubbish bags. Recycling activity is funded from the sale of recyclables and the balance through the rating system by way of fixed targeted rates.

2.7 Council reviewed its approach to funding the animal control activity in December but at that time made no specific changes.

3. Description of options

3.1 With a few exceptions (e.g. cemetery/crematorium, animal control), draft revenue budgets for 2020/21 have been set at levels which aim to meet the Revenue & Financing Policy proportion targets. Achieving these revenue levels is dependent not only on the level of fee or charge set but also the actual volumes of activity by comparison with budget assumptions. On occasions changes are made to the way indirect costs are allocated to activities and this impacts on whether budgeted revenue meets the policy targets. In such situations it is appropriate to accept the policy may not be met but that it will be reviewed at the three yearly intervals.

3.2 The timing of this review is scheduled to fit into the annual planning timetable in a way which ensures appropriate revenue assumptions are made in the proposed 10 Year or Annual Plans and changes to fees and charges can be implemented as soon as practicable.

3.3 Much of this report is focused on providing an overview of Council’s fees and charges. However the report does include specific proposals for change for a number of fees and charges as explained in more detail in the following appendices:

Appendix
2	Trade Waste	Proposal for public consultation
3	Planning & Miscellaneous	Proposal for public consultation
4	Building	Proposed increases
5	Environmental Health	Proposed increases
6	Animal Control	Proposed increases/changes
7	Burial & Cremation	Proposed increases
8	Service Connections	Proposed increases
9	Sportsfields	Proposed increases
10	Water tanker filling station	Proposed changes

4. Analysis of options

4.1 Analysis of the options for each of the fee types for individual activities is contained in the appendices.

5. Conclusion

5.1 A broad review of fees and charges has been undertaken. Revenue from these is an important part of the funding mix. There are two elements to achieving revenue budgets. The first is the actual level of the fee or charge. The second is the volume of sales or use. A change to the level of fee or charge can influence demand. Achieving revenue targets is sometimes more about volumes than the level of the charge. There is a fine balance between the two. This report recommends increases in charges for tradewaste, planning & miscellaneous, building, environmental health, animal control, burial & cremation, service connections, sportsfields and the water tanker filling station.

6. Next actions

6.1 There is a series of procedural steps to be followed to enable some of the revised fees and charges to be implemented. In some cases (as specifically identified in the recommendations) this involves a period of public consultation and a report back to the Council for final confirmation (taking into account any public submissions).

7. Outline of community engagement process

7.1 The Revenue & Financing Policy incorporates the Council’s current views on what portion of each activity should be directly funded from users. This policy forms part of the 10 Year Plan which was the subject of public consultation in 2018.

7.2 There are varying types of public consultation required to enable changes to be made to fees and charges. For some the special consultative process or a process consistent with the principles of section 82 of the Local Government Act is to be used. More detail about each is provided in the detailed appendices.

Compliance and administration

Does the Committee have delegated authority to decide?		No
Are the decisions significant?		No
If they are significant do they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		Yes
Is there funding in the current Annual Plan for these actions?		Yes
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 5: A Driven and Enabling Council
The recommendations contribute to the outcomes of the Driven and Enabling Council Strategy
The recommendations contribute to the achievement of action/actions in Not Applicable
Contribution to strategic direction and to social, economic, environmental and cultural well-being	The process for setting fees and charges depends on the nature of the activity and the particular requirements of the relevant bylaw, legislation or Council policy. The recommendations take account of Council’s Revenue & Financing Policy that in turn reflects Council’s strategic direction.

Attachments

Appendices 1- 10 ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 18 March 2020

TITLE: Transforming PNCC's Business Continuity Practice

Presented By: Miles Crawford, Risk Manager

APPROVED BY: Chris Dyhrberg, Chief Customer Officer

RECOMMENDATION(S) TO Finance & Audit Committee

1. That the Finance & Audit Committee note progress made in developing Council’s business continuity arrangements.

1. ISSUE

While business continuity plans exist for Council’s business critical functions, recent organisational restructures have renewed the organisation’s focus on building business continuity into how Council operates on a day-to-day basis.

2. BACKGROUND

Resilient Organisations Ltd (Res Orgs) was engaged in November 2019 to transform PNCC’s business continuity practice. They were asked to build upon the Councils existing plans; ensuring plans are progressive, agile and fit for purpose; and to use their consultation process to grow Council awareness and engagement.

Res Orgs’ business continuity review is implemented across four stages:

Stage 1 – (ending 28/02/20)

A review of business unit BCPs to understand the current state of BCP arrangements and scenario workshops with two Units within Council.

Stage 2 – (ending 31/03/20)

Scenario workshops with the remaining Units within the Council and an online benchmark survey and integrate transformation projects in with business continuity planning.

Stage 3 – (ending 30/06/20)

One day workshop with resilience champions from across the organisation to assist them in updating their BCPs and related activities.

Stage 4 – (n/a)

Engage the Executive Leadership Team via a presentation and short interactive activity to help gain support for ongoing risk and resilience management efforts at the senior level.

Stage 1 is now complete with Res Orgs reporting that while teams worked collaboratively in the exercises, further work is needed to build awareness and champions within PNCC to build an ongoing programme of work.

3. NEXT STEPS

The next steps in this programme are to:

· Run further scenario workshops with other Units across Council.

· Discuss transformation projects with appropriate staff to understand the implications of these for BC.

· Assess the all of staff view of PNCC resilience.

· Run training workshops with identified BC champions.

4. Compliance and administration

Does the Committee have delegated authority to decide? If Yes quote relevant clause(s) from Delegations Manual <Enter text>		Yes
Are the decisions significant?		Yes
If they are significant do they affect land or a body of water?		No
Can this decision only be made through a 10 Year Plan?		No
Does this decision require consultation through the Special Consultative procedure?		No
Is there funding in the current Annual Plan for these actions?		No
Are the recommendations inconsistent with any of Council’s policies or plans?		No
The recommendations contribute to Goal 5: A Driven and Enabling Council
The recommendations contribute to the outcomes of the Driven and Enabling Council Strategy
The recommendations contribute to the achievement of action/actions in a plan under the Driven and Enabling Council Strategy
Contribution to strategic direction and to social, economic, environmental and cultural well-being	Council’s business continuity arrangements enable Council to maintain its service to the community in a disruption event.

Attachments

Nil

Susan Baty (Chairperson)
Karen Naylor (Deputy Chairperson)
Grant Smith (The Mayor)
Vaughan Dennison	Leonie Hapeta
Renee Dingwall	Lorna Johnson
Lew Findlay QSM	Bruno Petrenas
Patrick Handcock ONZM	Tangi Utikere