Agenda of Finance & Audit Committee

PALMERSTON NORTH CITY COUNCIL

Finance & Audit Committee MEETING

19 August 2020

Order of Business

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 17 June 2020 Part I Public be confirmed as a true and correct record.”

6. Human Resources and Health, Safety and Wellbeing Report Page 13

Memorandum, presented by Alan Downes, Health Safety & Wellbeing Manager.

7. S17A Review of Economic Development Page 21

Memorandum, presented by Sheryl Bryant, General Manager - Strategy & Planning.

8. Reserve land acquisition - unbudgeted proposals - Whakarongo Lagoon and Greens Road Page 25

Report, presented by Kathy Dever-Tod, Manager - Parks and Reserves.

9. Whakarongo Housing - Cashflow Analysis Page 43

Memorandum, presented by Stuart McKinnon, Chief Financial Officer.

10. Quarterly Performance and Financial Report - Quarter Ending 30 June 2020 Page 51

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

11. Update of Treasury Policy (including Liability Management & Investment Policies) Page 135

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

12. Treasury Report - 12 months ending 30 June 2020 Page 185

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

13. Te Huringa (ERP Ozone Replacement) Project - Business Assurance Progress Report Page 195

Memorandum, presented by Masooma Akhter, Business Assurance Manager.

14. Committee Work Schedule Page 229

15. 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 Elwood Room, Conference & Function Centre, 354 Main Street, Palmerston North on 17 June 2020, commencing at 9.02am

Members

Present:

Councillor Susan Baty (in the Chair), The Mayor (Grant Smith), Mr Stephen Armstrong and Councillors Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Karen Naylor and Bruno Petrenas.

Non Members:

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

Apologies:

Councillor Tangi Utikere.

NOTE: Prior to the commencement of the meeting, Mr Stephen Armstrong was introduced as a new independent member of the Committee.

19-20

Apologies

Moved Susan Baty, seconded Vaughan Dennison.

The COMMITTEE RESOLVED

1. That the Committee receive the apologies.

Clause 19-20 above was carried 16 votes to 0, the voting being as follows:

For:

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

20-20

Confirmation of Minutes

Moved Susan Baty, seconded Lorna Johnson.

The COMMITTEE RESOLVED

1. That the minutes of the Finance & Audit Committee meeting of 18 March 2020 Part I Public be confirmed as a true and correct record.

Clause 20-20 above was carried 16 votes to 0, the voting being as follows:

For:

21-20

Palmerston North Airport Limited - Updated draft Statement of Intent for 2020/21

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

After discussion Elected Members agreed an updated company position could be provided in October, as by then Palmerston North Airport Limited would have a better perspective of recovery after COVID-19, and would be able to include financial information from one quarter of the financial year. Elected Members also requested that capital development be progressed when financially prudent.

Moved Aleisha Rutherford, seconded Karen Naylor.

The COMMITTEE RECOMMENDS

1. That the Palmerston North Airport Ltd updated draft Statement of Intent for 2020/21, presented to the Finance & Audit Committee on 17 June 2020, be received and the Company be advised that:

· Council supports the draft SOI recognising the uncertainty of significant assumptions that have had to be made in its preparation

· Council requests an updated company position be provided (in October) and if changes have been significant that an amended SOI (including projections for 2021/22 and 2022/23) be provided to the Council for consideration

· Council encourages the Board to progress its capital development programme when financially prudent.

Clause 21-20 above was carried 16 votes to 0, the voting being as follows:

For:

22-20	Fees and Charges - Confirmation Following Public Consultation Memorandum, presented by Steve Paterson, Strategy Manager - Finance.
	Moved Susan Baty, seconded Aleisha Rutherford. The COMMITTEE RECOMMENDS 1. That the submission relating to planning fees, as attached in Appendix A of the memorandum titled ‘Fees and Charges – Confirmation Following Public Consultation’ presented to the Finance & Audit Committee on 17 June 2020, be received. 2. That the fees and charges for Trade Waste Services, as scheduled in Appendix C of the memorandum titled `Fees and Charges – Confirmation Following Public Consultation’, presented to the Finance & Audit Committee on 17 June 2020, be approved, effective from 1 July 2020.
	Clauses 22.1 and 22.2 above were carried 16 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Susan Baty, Brent Barrett, Rachel Bowen, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Mr Stephen Armstrong.
	Moved Susan Baty, seconded Aleisha Rutherford. 3. That the fees and charges for Planning & Miscellaneous Services, as scheduled in Appendix B of the memorandum titled `Fees and Charges – Confirmation Following Public Consultation’ presented to the Finance & Audit Committee on 17 June 2020, be approved, effective from 1 July 2020.
	Clause 22.3 above was carried 15 votes to 1, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Susan Baty, Brent Barrett, Rachel Bowen, Zulfiqar Butt, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Mr Stephen Armstrong. Against: Councillor Vaughan Dennison.

23-20	Public Rental Housing within Council's Whakarongo Subdivision Memorandum, presented by Bryce Hosking, Manager - Property. During discussion Elected Members requested further financial modelling be undertaken to include cashflow analysis of the impact of retaining the Whakarongo subdivision sections vs. selling the sections, and to include any partnership options. Elected Members also requested a report regarding energy and environmental efficiency options for any public housing opportunities, and that the conversation around wider housing development opportunities for Council be referred to the Long Term Plan process. The meeting adjourned at 10.41am The meeting resumed at 11.04am
	Moved Susan Baty, seconded Brent Barrett. The COMMITTEE RESOLVED 1. That the memorandum titled ‘Public Rental Housing within Council’s Whakarongo Subdivision’, presented to the Finance and Audit Committee on 17 June 2020, be received for information. 2. That further financial modelling be undertaken to include cashflow analysis of the impact of retaining the sections vs. selling the Whakarongo subdivision sections and to include any partnership options, and that this be reported back to the August meeting of the Finance & Audit Committee.
	Clauses 23.1 and 23.2 above were carried 15 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Susan Baty, Brent Barrett, Rachel Bowen, Zulfiqar Butt, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Mr Stephen Armstrong.
	Moved Brent Barrett, seconded Susan Baty. 3. That the Chief Executive be instructed to report back to the October meeting of the Finance & Audit Committee regarding energy and environmental efficiency options for any public housing opportunities.
	Clause 23.3 above was carried 15 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Susan Baty, Brent Barrett, Rachel Bowen, Zulfiqar Butt, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Mr Stephen Armstrong.
	Moved Aleisha Rutherford, seconded Leonie Hapeta. 4. That the conversation around wider housing development opportunities for Council be referred to the Long Term Plan process.
	Clause 23.4 above was carried 15 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Susan Baty, Brent Barrett, Rachel Bowen, Zulfiqar Butt, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Mr Stephen Armstrong. Note: Councillor Vaughan Dennison declared a conflict of interest and withdrew from the discussion.

24-20	CET Arena - Commercial Building Opportunity Report, presented by Bryce Hosking, Manager - Property.
	Moved Susan Baty, seconded Vaughan Dennison. The COMMITTEE RECOMMENDS 1. That Council does not proceed with the balance of programme #1514 – Central Energy Trust Arena Manawatu – Commercial Building in the current financial year.
	Clause 24-20 above was carried 16 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Susan Baty, Brent Barrett, Rachel Bowen, Zulfiqar Butt, Vaughan Dennison, Renee Dingwall, Lew Findlay QSM, Patrick Handcock ONZM, Leonie Hapeta, Lorna Johnson, Billy Meehan, Karen Naylor, Bruno Petrenas, Aleisha Rutherford and Mr Stephen Armstrong.
	Moved Susan Baty, seconded Vaughan Dennison.
	Note: On a motion that: “Council considers the construction of a commercial building at Arena, along with the timing of such a development, as part of the 2021-31 Long-Term Plan” the motion was lost 5 votes to 10, with 1 abstention, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Vaughan Dennison, Patrick Handcock ONZM, Leonie Hapeta and Billy Meehan. Against: Councillors Susan Baty, Brent Barrett, Rachel Bowen, Zulfiqar Butt, Renee Dingwall, Lew Findlay QSM, Lorna Johnson, Karen Naylor, Bruno Petrenas and Aleisha Rutherford. Abstained: Mr Stephen Armstrong.

25-20

Committee Work Schedule

Moved Susan Baty, seconded Karen Naylor.

The COMMITTEE RESOLVED

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

Clause 25-20 above was carried 16 votes to 0, the voting being as follows:

For:

The meeting finished at 12.03pm

Confirmed 19 August 2020

Chairperson

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 19 August 2020

TITLE: Human Resources and Health, Safety and Wellbeing Report

Presented By: Alan Downes, Health Safety & Wellbeing Manager

APPROVED BY: Patrick Watson, Chief People & Performance Officer

RECOMMENDATION TO Finance & Audit Committee

1. That the memorandum entitled ‘Human Resources and Health, Safety and Wellbeing Report’ presented to the Finance & Audit Committee on 19 August 2020, be received.

1. REPORT

This report covers the period 1 April to 30 June 2020. The information included in this report is discussed at the appropriate H&S Committees.

2. Key Point Summary

· The quarterly dashboard illustrates an increase in incidents across PNCC and within the Infrastructure unit, however overall trend is unchanged. This increase in reporting is an indication of improvements in the reporting culture and effectiveness of reporting tools.

· There were eleven injury incidents with three requiring professional medical attention. Threatening behaviour by customers and driving incidents continue to feature in near miss reports.

· PNCC successfully transitioned personnel back to work following COVID-19 restrictions.

· Alan Downes commenced the position of Health, Safety & Wellbeing Manager on 1 July.

· Immediate Safety, Health & Wellbeing focus is in understanding effectiveness of controls in critical risk areas with particular emphasis on the risk consequence.

· Annual Leave liability has grown during COVID-19 by 4%. It is expected to be managed back to normal levels within the next six months. Management is exploring leave liability from a wellbeing, financial liability and process perspective.

· Annual staff turnover is slightly above the 12% target but no immediate management action is required.

3. Training

COVID-19 inhibited progression of training during the lockdown period. A remediation plan is in place.

	Mar 19	Jun 19	Sep 19	Dec 19	Mar 20	Jun 20
Total Number of Events	13	21	21	19	20	14
Total Number of Staff Attending	102	374	106	48	99	34

4. PNCC Critical Risk Table

Whole of PNCC	Infrastructure & Whole of PNCC
Mental Health	Excavation
Violence / Robbery	Bodies of Water
Working Alone	Tree-Felling
Asset Failure	Working at Height
Mobile Plant	Confined Spaces
Stationary Plant & Powered Hand Tool	Hazardous Substances

5. Critical incidents (July 2019 – June 2020)

Type	Description	Mitigating / remedial controls
Excavation	9 underground strikes: 4 power cable strikes and 5 gas service strikes. 7 near miss incidents were also recorded. Mitigating factors - Service line plan information can be inaccurate, or line is unknown and/or the line has no detection capability.	Work organisation includes securing service line plans and site marking prior to starting work (dial before you dig). Note: Older gas lines do not have a detection capability. Safe systems of work item 3: underground and overhead services procedure in place. An educational programme from service providers started in July 2020.
Mobile plant	During training the trainer was injured when the safety mode was not engaged (digger).	Both the trainer and trainee have been advised to ensure the safe mode is engaged when the digger is not in use.
Powered hand tools/stationary plant	Incorrect use of a hand tool resulted in injury to employee (router).	Employee advised to use safe work practices.
Powered hand tools/stationary plant	While sawing tree and doing tree work, grit got into right eye and eye became infected.	Safety glasses were being used. Saline solution available in first aid kit. Process discussed with operator. Explore use of goggles.
Working at height	While stepping backwards down a ladder the employee slipped and sprained his ankle (3 step ladder).	Employees reminded of the rules around ladder use and the importance of staying engaged in the task.
Asset Failure	Employee received an electric shock when she pushed the call button of the staff lift on the second floor at the Library.	The lift was isolated and service provider called to assess it. Their service provider advised the sanitiser spray residue is causing the problem. Direct spraying has been stopped.
Members of the public (violence)	Customer with knife threatened to attack staff member. Customer on premises with an axe.	Police called, contact with appropriate agencies, security assessment occurred.
Members of the public (violence)	Seven other threatening behaviour incidents.	Provision of body camera, EAP/Vitae support and de-escalation training provided. Reminder to staff on processes for dealing with aggressive behaviour.
Members of the public (violence)	Armourguard attended a noise complaint. Security officer received 3 stab wounds (not life threatening).	Property placed on a dangerous property list requiring police presence if an END* is being issued. Refresher training for all security officers on assessing risk, adherence to operating procedures and PPE use and wearing requirements, e.g. stab resistant protective vest, body camera and high-viz.

* Excessive noise direction

6. Annual leave

The average annual leave balance per staff member is 25.2 days (entitled plus accrued leave). This rose during the Covid19 lockdown when staff did not take leave.

Jun 18	Sep 18	Dec 18	Mar 19	Jun 19	Sep 19	Dec 19	Mar 20	Jun 20
1556	1660	3287	2051	1884	1749	3006	1775	585

Total days of annual leave taken over the quarter

7. Turnover

Turnover for the quarter of permanent staff was 11 or 1.83%. The annual turnover rate was 14.45%. Normally we measure employee initiated turnover only which is 12.1%. Employee initiated turnover are resignations and retirements. Our benchmark is 12% which ensures that we have enough turnover to refresh the organisation.

Date	Jun 18	Sep 18	Dec 18	Mar 19	Jun 19	Sep 19	Dec 19	Mar 20	Jun 20
Employee Initiated	11	12	20	15	11	19	19	26	9
Other	0	0	11	3	5	8	2	2	2

The attachment is the H&S Dashboard for the quarter that is discussed at H&S committees.

8. Compliance and administration

Does the Committee have delegated authority to decide?		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?		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 Not Applicable The action is: Providing a safe and healthy workplace
Contribution to strategic direction and to social, economic, environmental and cultural well-being	Providing a safe and healthy workplace

Attachments

H&S Dashboard June 2020 ⇩

PALMERSTON NORTH CITY COUNCIL

Report

TO: Finance & Audit Committee

MEETING DATE: 19 August 2020

TITLE: Reserve land acquisition - unbudgeted proposals - Whakarongo Lagoon and Greens Road

PRESENTED BY: Kathy Dever-Tod, Manager - Parks and Reserves

APPROVED BY: Tom Williams, Chief Infrastructure Officer

RECOMMENDATIONS TO Council

1. That the report entitled ‘Reserve land acquisition – unbudgeted proposals – Whakarongo Lagoon and Greens Road’ presented to the Finance & Audit Committee on 19 August 2020, be received.

2. That Council approve acquisition of approximately 3,300m² of part of Lot 1 DP 467810, east of the Whakarongo Lagoon, from the Etheridge family, noting that new operational funding of $10,000 per year for three years, and $8,000 per annum thereafter, will be required to maintain this land.

3. That subject to acquisition of the Whakarongo land being approved, Council approve utilisation of Programme 144 Urban Growth – Whakarongo – Reserve Land Purchase in the 2020/21 financial year to fund costs associated with the land acquisition, which are estimated to be $10,000.

4. That Council approve acquisition of approximately 1.19ha, being part of Lot 1 DP 541201, adjacent to Greens Road, noting that new operational funding of $1,600 per annum will be required to maintain the land.

5. That subject to acquisition of the Greens Road land being approved, Council approve unbudgeted expenditure of up to $27,000 in the 2020/21 financial year to purchase the property.

6. That Council note that operational costs associated with land acquisitions approved by Council, as part of report entitled ‘Reserve land acquisition – unbudgeted proposals – Whakarongo Lagoon and Greens Road’, will be added to existing operating budgets as part of the development of the draft 2021/31 Ten Year Plan.

Summary of options analysis for

Problem or Opportunity	Two opportunities have arisen to acquire approximately 1.52ha of additional reserve areas, which would complement the existing reserve and walkways networks. The owners of 3,300m² of escarpment associated with the Whakarongo Lagoon are proposing to gift it to Council. Council needs to decide if it accepts the costs associated with acquiring and maintaining the land that is proposed to be gifted. The owners of land adjacent to Greens Road are proposing to grant Council an easement over or sell approximately 1.19ha of land alongside the Greens Road boundary of their property. This would make the current temporary off-road path, constructed to improve pedestrian safety during the windfarm development, a permanent feature. Council needs to decide if the costs associated with acquiring and maintaining this easement are acceptable.
Whakarongo Lagoon escarpment extension
OPTION 1:	Accept the gift of approximately 3,300m² of land, to be part of the Whakarongo Lagoon.
Community Views	Rangitāne o Manawatū are supportive of the land being added to the Whakarongo Lagoon area and restored. The general community has not been consulted.
Benefits	A larger ecological restoration area supporting biodiversity of flora and fauna will be available. This assists with restoring the mauri of the Whakarongo Lagoon. There would be a consistent terrace and lagoon management approach.
Risks	Pest management and restoration planting costs more than estimated.
Financial	$10,000 subdivision and acquisition costs using budget from Programme 144 Urban Growth – Whakarongo – Reserve Land Purchase. $5,000 fencing capital costs covered within Programme 95. $1,000 one-off unbudgeted operational cost to relocate a pohutukawa tree. $10,000 per year unbudgeted operational costs, for three years, for plant pest control, planting and general maintenance and $8,000 per annum thereafter.
OPTION 2:	Decline the gift of approximately 3,300m² land to be part of the Whakarongo Lagoon.
Community Views	Rangitāne o Manawatū are supportive of the land acquisition. The general community has not been consulted.
Benefits	Declining the proposal avoids unbudgeted capital and operating costs.
Risks	Any future owner of the escarpment may not undertake planting and animal pest control. This would negatively impact on the aesthetics of the area.
Financial	There are no financial implications associated with declining the proposal.
Greens Road pedestrian easement
OPTION 1:	Approve the creation of an easement approximately 1km long, over property Lot 1 DP 541201, adjacent to Greens Road to enable off-road walking and running to continue.
Community Views	The local Te Araroa Trail Committee support the proposed easement. Te Araroa Manawatu Trust has an ongoing objective to move more of the trail off the road. The owners of Greens Estate support this proposal as contributing to their future vision for their property. The general community has not been consulted on the proposal.
Benefits	Improves safety by keeping walkers, runners and Te Araroa hikers off the road for approximately 1km. Adds approximately 1.5ha of biodiversity planting opportunities.
Risks	If the Te Araroa Trail was diverted to another route in the future, the benefits would be reduced. Walkers and runners may choose to use the road anyway.
Financial	$19,239 in unbudgeted legal and easement purchase costs. $33,750 fencing and minor upgrade costs covered within Programme 95. $1,600 per year unbudgeted operational maintenance costs.
OPTION 2:	Approve the purchase of a strip of land 1km long on the property, Lot 1 DP 541201, adjacent to Greens Road to enable walking and running access to remain off the road.
Community Views	The local Te Araroa Trail Committee support the proposed easement. Te Araroa Manawatu Trust has an ongoing objective to move more of the trail off the road. The owners of Greens Estate support this proposal as contributing to their future vision for their property. The general community has not been consulted on the proposal.
Benefits	Improves safety by keeping walkers, runners and Te Araroa hikers off the road for approximately 1km. Adds approximately 1.5ha of biodiversity planting opportunities. Purchasing the land provides greater control and less risk for future public use.
Risks	If the Te Araroa trail was diverted to another route in the future, the benefits would be reduced. Walkers and runners may choose to use the road anyway.
Financial	$26,825 in unbudgeted legal and land purchase costs. $33,750 fencing and minor upgrade costs covered within Programme 95. Operational costs - $1,600 per year additional maintenance.
OPTION 3:	Decline the creation of an easement or purchase of approximately 1km long on property, Lot 1 DP 541201, adjacent to Greens Road to enable walking and running access to remain off the road.
Community Views	The local Te Araroa Trail Committee support the proposed easement. The general community has not been consulted as part of the proposal development.
Benefits	No unbudgeted capital and operational expenditure.
Risks	The opportunity for improving the safety and experience of Te Araroa and community walkers for this section of road may not arise again.
Financial	No effect on existing budgets.

Rationale for the recommendations

1. Overview of the problem or opportunity

1.1 Council has two opportunities to enhance the recreational and ecological environments that have not been planned or budgeted for in the current financial year.

1.2 The opportunity to accept a gift of approximately 3,300m² of escarpment associated with the Whakarongo Lagoon and connected to James Line, which comes with associated costs.

1.3 The opportunity to create an easement on, or purchase of, land adjacent to Greens Road, at the Kahuterawa Road end, allowing walkers and runners to remain off the road. This also comes with associated costs.

1.4 This report seeks Council direction on whether to accept or decline these proposals.

2. Background and previous council decisions

2.1 Whakarongo Lagoon escarpment extension

2.1.1 Whakarongo Lagoon and the associated escarpment sits within the Napier Road Residential area as shown in Map 7.5, Section 7, of the District Plan – refer Figure One.

Figure One: Whakarongo Lagoon and Etheridge property

2.1.2 Residential development in the area is underway.

2.1.3 The developer is required to undertake restoration works on the Whakarongo Lagoon and escarpment before vesting these with Council.

2.1.4 Officers identified that there will be a potential disjoint with the restoration of the Lagoon/escarpment and the management of the escarpment in private ownership to the immediate east of the Whakarongo Lagoon. This property is owned by the Etheridges, as shown in Figure One.

2.2 Greens Road pedestrian easement or purchase

2.2.1 Greens Road forms part of a popular recreational loop used by walkers, runners, cyclists and horse riders. Greens Road connects the top end of Turitea Road to Kahuterawa Road via a 1.5km section closed to vehicle traffic since the 1990s.

2.2.2 Greens Road is also part of the Te Araroa Trail. The Te Araroa route south from Palmerston North, is shown in Appendix One.

2.2.3 Over the years Council has supported enhancements to the Te Araroa Trail, which also support local walking and running, through the city with projects such as:

- Up to 2006, working with the Te Araroa Manawatu Trust to establish the route;

- 2017 Turitea Green Corridor bridge over Turitea Stream $40,000;

- 2019 Moturimu Whare and toilet at Gordon Kear Forest $50,000;

- 2020 off-road path to take walkers off the Turitea Road escarpment bends $70,000

2.2.4 The landowner adjacent to Greens Road was approached by Electrix and Mercury to facilitate a safe off-road option for cyclists and walkers via his property during the construction of the Turitea Wind Farm. Contours proved difficult for cyclists, but a walking option was feasible.

2.2.5 An off-road walking route, marked with poles, was created as an alternative for Te Araroa hikers as the Turitea Wind farm construction commenced during the summer of 2019/20.

2.2.6 Mercury and the landowner funded construction of several stiles and small boardwalks over streams and swamps. The Te Araroa Manawatu Trust funded and installed a picnic table. The route was well used by Te Araroa hikers and runners during the summer, reducing on-road conflict with vehicles and tree felling contractors.

2.2.7 The property owner, Brad Nieunkoop, is developing the property as a boutique downhill mountain bike venue with longer term aspirations to provide accommodation for users of Arapuke Mountain Bike Park and Te Araroa hikers. He views the hiker/runner use of the proposed easement or land sale as an enhancement to the vision for his property and the district.

2.2.8 The upgrade of the road for windfarm construction access has likely resulted in higher operating speeds for general traffic as the road has been widened and sealed.

3. Description of options

3.1 Whakarongo Lagoon escarpment extension

3.1.1 Council officers approached the owners to ascertain their intentions for the land including whether they would consider sale to Council.

3.2 The owners of the property, Leonie and Roderick Etheridge, were not only receptive to the idea but were considering subdividing their property for sale. They are bird enthusiasts and wished to see the retention of the escarpment in a reserve.

3.3 Since discussions with the Etheridges, the property has been placed on the market. It is advertised for sale with the caveat that the owners are currently negotiating possible vesting of a portion of the land with Council.

3.4 The Etheridges are aware that a decision of Council is required regarding the vesting of the land, and have asked that this be given some urgency in order to give surety to potential purchasers of their property.

3.4.1 Option One: Accept the gift of approximately 3,300m² land, to become part of the Whakarongo Lagoon.

3.4.2 The donation would be executed though a sale and purchase agreement with a sale price of $1.

3.4.3 The approximate area is shown in Figure Two. The actual area gifted would be subject to survey and agreement.

Figure Two: Approximate area of escarpment proposed to be accepted

3.4.4 The area forms part of the margins of the Whakarongo Lagoon to the east, being the slope between the terrace and the road being formed as part of the residential development. Accepting the gifted land would essentially extend the Whakarongo Lagoon area.

3.4.5 The proposed area comprises a variously sloped bank/terrace area and is heavily vegetated as shown in Figures Three and Four.

3.4.6 Work on planting and pest control would be required to progressively bring it up to the same standard as the restored Whakarongo Lagoon.

Figure Three: View of escarpment

Figure Four: Close view of escarpment

3.4.7 The Etheridges are keen bird enthusiasts and follow the roosting habits of the birds in large trees located on the land proposed to be gifted. They wish to ensure trees are not removed unnecessarily.

3.4.8 A ten to twelve-year-old, 3.5m tall pohutukawa tree is considered particularly special by the Etheridges. It is situated in an awkward location in relation to the land proposed to be gifted, as shown in Figure Five.

3.4.9 A cul-de-sac of land would be created to retain it in its present location. The maintenance costs and the potential for issues with the neighbours when the tree matures means it would be better to relocate the tree than amend the land boundary to include it. The cost to relocate the tree to the Whakarongo walkway linking James Line and the Whakarongo School, is estimated at $1,000.

Figure Five: View of escarpment

3.4.10 Proposed conditions of the gifting of the land include:

· That the ten to twelve-year-old pohutukawa tree on the property which is being sold into private ownership be relocated to a Council park.

· That the land be retained by Council as a reserve in perpetuity.

· That the large trees on the land being gifted, both exotic and native, be retained until such time as they either naturally die, are assessed by a suitably qualified person as being a danger to people or property, or be negotiated for removal (in writing) with the Etheridges on a case-by-case basis.

3.4.11 Option Two: Decline the gift of approximately 3,300m²land to be part of the Whakarongo Lagoon.

3.5 Greens Road pedestrian easement/purchase

3.5.1 The owners identified that this temporary safety arrangement could be made permanent, benefiting recreation users and local community in the area. They approached Council officers to consider an easement or sale proposal.

3.6 Option One: Approve the creation of an easement approximately 1km long on property, Lot 1 DP 541201, adjacent to Greens Road to enable walking and running access to remain off the road.

3.6.1 Under Option One Council would acquire a permanent easement permitting pedestrian access for approximately 1 km along the private land adjacent to Greens Road shown in Figure Six.

Figure Six: Extent of proposed Greens Road pedestrian access length

3.6.2 The easement would vary in width following the existing temporary off-road path varying from 3 to 20m wide. A view of the easement corridor is shown in Figure Seven.

Figure Seven: Easement location – view from top of the hill easement path follows the road boundary to the shed visible in the mid right of the photo

3.6.3 Council would fence the inside boundary of the easement. Future fence maintenance costs for the inner easement boundary would be shared 50/50, ie. the inside boundary fence of the easement would essentially form the new boundary fence of the useable property.

3.6.4 The existing property boundary fence could be left to deteriorate as the easement walkway matures and revegetate as a native roadside boarder.

3.7 Option Two: Purchase the land and own it outright.

3.7.1 Option Two has the same general features as Option One. Instead of securing an easement Council would purchase the land outright.

3.7.2 Under the purchase option there is one location at which the current owner would require an easement across the purchased land for a potential access to his adjoining land. This is not seen as an issue for the walking/hiking activities.

3.8 Option Three: Decline the creation of an easement/land purchase approximately 1km long on property, Lot 1 DP 541201, adjacent to Greens Road to enable walking and running access off the road.

3.9 This option would forego the recreation and safety benefits and save Council the unbudgeted acquisition, fencing and maintenance costs.

4. Analysis of options

4.1 Whakarongo Lagoon escarpment extension

4.1.1 The costs and benefits of the Whakarongo Lagoon escarpment extension proposal are contained in Table One.

Costs

Benefits

Acquisition Costs – up to $10,000

- Subdivision including survey costs, consent and title up to $8,000

- Legal fees up to $2,000

- Larger ecological restoration area supporting biodiversity of flora and fauna – supporting the Biodiversity Plan purpose

- Assists restoring the mauri of the Whakarongo Lagoon, which Rangitāne o Manawatū support

- Allows a consistent terrace and lagoon reserve management approach avoiding any confusion from the public about ownership and management boundaries

Capital Development Cost - $5,000

- Fencing (deer fence style) $5,000

Operating costs - $10,000 per year

- $1,000 expenditure in 2020/2021 to relocate the pohutukawa

- $10,000 a year for three years for planting, plant and animal pest control, tree, fence and general maintenance. $8,000 a year thereafter

Table One: Whakarongo Lagoon escarpment extension costs and benefits

4.1.2 The risks are:

- The cost of plant pest removal and restoration planting being higher than estimated.

- No detailed assessment of the escarpment bank stability has been undertaken. The bank appeared stable and well vegetated during a recent site visit. There are no adjacent hard surfaces draining to the bank, which may accelerate erosion. The contour, at its midpoint, is six metres lower than the Whakarongo Lagoon escarpment and is less steep as shown in Figure Eight. The bank stability risk is considered to be very low and can be managed through maintaining vegetation cover or specialised assessment for any proposed works.

Figure Eight: Contour comparison

4.2 Greens Road pedestrian easement or purchase

4.3 The costs and benefits of the Greens Road pedestrian easement or purchase proposal are similar. The differences are:

- The cost of buying the land is approximately $7,000 more than acquiring an easement.

- The benefits of purchase are the rights of outright ownership reducing the risk of negotiations and conflicts between the easement rights and land owners activities.

4.4 Table Two details the costs and benefits of the options.

Costs

Benefits

Acquisition Costs – Option 1 $20,000 for an easement, or Option 2 $27,000 to purchase

- Option 1: Easement purchase valuation is $15,589. Easement creation costs $4,000. Total $19,589

- Option 2: Purchase land freehold land valuation $20,825, plus $6,000 in survey and legal fees. Total $26,825

- Improves Te Araroa Trail quality and safety

- Provides additional biodiversity enhancement opportunities

- Improves walker/runner safety

Capital Development Cost - $34,000

Both options would incur capital costs of:

- Minor improvements to track $10,000

- Fencing 950m at $25 = $23,750

Operating costs - $1,600

Both options would incur operational costs of:

- Track maintenance and clearance - one person for four days per year

- 50% of boundary fence maintenance

Table Two: Greens Road costs and benefits

4.5 The risks are:

- That the initial trail is proposed to be a grass track as is being used during the windfarm construction. There is a risk over time that an increased level of service might be desired, costing more.

- That hikers may choose to walk down the road as the contours and footing would make walking easier.

- That if the route of the Te Araroa Trail were to change in the future, the demand/use level would reduce.

5. Financial

5.1 Acquisition Costs

5.1.1 Programme 144 Urban Growth – Whakarongo – Reserve Land Purchase sets aside $659,000 for reserve purchases in the Whakarongo area. Whether the budget is fully subscribed will depend on subdivision progress and final reserve costs. It is likely the $10,000 cost of the Whakarongo Lagoon escarpment extension can be accommodated in this budget.

5.1.2 Programme 94, Walkways and Shared Path – Purchase of Land to Extend Network contains $102,000 in the 2020/21 Annual Budget. The following purchases are expected to utilise all of available budget.

- Moonshine Valley Road to Polson Hill Drive walkway connection

- Mangaone Stream Esplanade Reserve

5.1.3 The cost including fees of creating and acquiring the easement, or alternatively purchasing the land at Greens Road, cannot be accommodated within any appropriate existing budget and would require new borrowing.

5.2 Development costs

5.3 Programme 95, Walkways and Shared Path – Construction, has a budget of $72,000 in 2020/21. The following works are planned:

- McCraes Bush Bridge $10,000

- Moonshine to Polson fencing $20,000

5.4 The fencing costs of the Whakarongo Lagoon Escarpment of $5,000 and the fencing and development costs of the Greens Road easement of $33,750, can be accommodated within this year’s budget provision.

5.5 The cost to move the pohutukawa tree can be accommodated within the existing parks tree maintenance budget.

5.6 Operating Costs

5.6.1 There is no provision in the existing operating budgets for these new reserve and walkway opportunities.

5.6.2 If the proposals were accepted, Council would be committing to additional operational funding of $10,000 per year for three years, and $8,000 per annum thereafter for the Whakarongo Lagoon escarpment and $1,600 per year for the Greens Road easement or purchase. These additional operational costs would need to be incorporated into operating budgets as part of the development of the Draft 2021/31 Ten Year Plan.

6. Conclusion

6.1 The opportunities presented will allow for improvements to the ecology and recreation in the Whakarongo Lagoon and Greens Road areas.

6.2 Purchasing the 1.19ha of land at Greens Road provides greater control and reduces risks than the option of an easement for a small increase in cost.

6.3 While the development costs of fencing for both areas can be covered from Programme 95 and the acquisition costs for the Whakarongo Lagoon extension from Whakarongo Urban Growth Land Purchases Programme 144, the Greens Road purchase costs of $26,825 cannot be accommodated from existing budgets.

6.4 Additional unbudgeted operational costs of $11,600 per year would be incurred from 2021/22 should the proposals be accepted, $10,000 per year at the Whakarongo Lagoon site and $1,600 per year at Greens Road.

6.5 It is recommended that both proposals be approved.

7. Next actions

7.1 Complete survey and sale and purchase processes.

8. Outline of community engagement process

8.1 No general community engagement has been undertaken or is proposed. Te Araroa Manawatu Trust support the proposed Greens Road easement and Rangitāne o Manawatū support both proposals.

Compliance and administration

Does the Committee have delegated authority to decide?		No
Are the decisions significant?		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 2: A Creative and Exciting City The recommendations contribute to Goal 4: An Eco City
The recommendations contribute to the outcomes of the Creative and Liveable Strategy The recommendations contribute to the outcomes of the Eco City Strategy
The recommendations contribute to the achievement of action/actions in the Active Community Plan The recommendations contribute to the achievement of action/actions in the Active Community Plan The action is: Extend the walking and cycling network, including completing and upgrading parts of the existing network.
Contribution to strategic direction and to social, economic, environmental and cultural well-being	The opportunities to extend the reserve area and recreational access provide opportunities to enhance the biodiversity and recreational opportunities in the city.

Attachments

Te Araroa route - southern Palmerston North ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 19 August 2020

TITLE: Whakarongo Housing - Cashflow Analysis

Presented By: Stuart McKinnon, Chief Financial Officer

APPROVED BY: Heather Shotter, Chief Executive

RECOMMENDATION TO Finance & Audit Committee

1. That the memorandum entitled ‘Whakarongo Housing – Cashflow Analysis’ presented to the Finance & Audit Committee on 19 August 2020, be received for information.

1. ISSUE

1.1 A report titled ‘Public Rental Housing within Council’s Whakarongo Subdivision’ was presented to the Finance and Audit Committee on 17 June 2020.

1.2 The Committee Resolved

That further financial modelling be undertaken to include cashflow analysis of the impact of retaining the sections vs. selling the Whakarongo subdivision sections and to include any partnership options, and that this be reported back to the August meeting of the Finance & Audit Committee.

1.3 This report is in response to the resolution.

2. BACKGROUND

2.1 The above report made a number of broad assumptions regarding the financial implications of building public rental housing at the future Whakarongo subdivision, however the Committee requested a cashflow analysis to gain clarity on the financial impacts of such an investment.

2.2 Through the Chair, clarification was sought as to the specifics of the above resolution for which feedback was provided that this analysis should be based on 40 houses being built, as opposed to the 26 discussed as part of the above report, and that values used should be updated to reflect the best estimates available at the time of writing.

2.3 A number of assumptions have been made in preparing the analysis, and external advice was sought. These include significant assumptions on variables such as section sales price, rental incomes, cost of borrowing, the type of housing to be built and cost of house construction. In the cashflow analysis these are presented as average values for the purpose of the modelling. Exact values for the elements above will be subject to market conditions and future decisions regarding the subdivision.

2.4 The analysis presented as Appendix 1 makes the following assumptions:

- The subdivision will get appropriate consents within the timeframes and that 114 sections will be available. Consent conditions will not result in significant additional costs of development.

- A mix of two and three bedroom options with an average build price of $375,000. (GST is not claimable on residential house building of this nature, so this equates to $326,086 excl GST). This advice was received from a reputable building company that Council uses, and is the halfway point between $300k excl GST for two bedroom properties and $350k excl GST for three bedroom properties.

- Development costs based on a July 2020 assessment from Veros consultants, who are the development team for the subdivision.

- An average weekly rental of $450 per week, available for 48 weeks per annum to allow for vacancies. This is based on advice from Property Market professionals and averages at $400 per week for a two bedroom property and $500 per week for a 3 bedroom property.

- Section sale price average of $240,000 (incl GST). This is advice received from several Property Market professionals with whom we have engaged.

- The long-term average cost of borrowing set at 3.4%.

- Retain houses for 30 years, therefore a 30 year loan timeframe as per financial strategy.

- Timing of section sales and year of building are estimates and may change.

2.5 The cashflow impact of building houses as described above is shown in Appendix 2.

2.6 The net impact on operating cashflows is a net cash deficit of $542k per annum when all houses are built and tenanted. This is the combination of an annual $272k cashflow deficit and the opportunity cost of a net $270k in interest savings if no rental houses are built.

2.7 The current Long Term Plan assumes that the subdivision will go ahead with all sections being sold, resulting in a cash surplus of approximately $10m which is currently budgeted to repay debt. Under the scenario presented in Appendix 1 where no houses are built $10.1m is available for debt repayment or as capacity to complete further developments.

2.8 If 40 houses are built that would result in approximately $7.9m less net revenue in sales, and an additional cost of construction of $15.3m. The net impact on loans is an increase in debt of $23.2m over that assumed in the current Long Term Plan.

2.9 Consideration should be given to the effect this could have on Council’s capacity to borrow, as one of the key challenges we are likely to face through the Long Term Plan will be Council’s ability to fund future infrastructure needs.

2.10 In summary, building 40 houses will add 23.2m to debt levels and require a rates subsidy of $272k per annum to rent out. Officers suggest that if this is an option Council would like to pursue, that further financial advice and analysis be sought regarding the implications of this cost in light of other priorities through the Long Term Plan and the overall financial position of Council.

2.11 As the cashflow analysis is based on a large number of assumptions, some scenario analysis is presented in Appendix 3. This presents the results under different assumed scenarios such as land sale price, construction price, rental return and interest rate assumptions.

Partnership Opportunities

2.12 The original concept for development of the Whakarongo subdivision is based on Council marketing and selling the sections to individual buyers, and current demand for sections suggests that this could be successfully achieved. Alternatively, there could be potential partnership opportunities, and organisations who could be approached regarding the provision of houses at Whakarongo. This needs to be explored further as Officers have not yet had the opportunity to engage with potential partners.

2.13 Conceptual strategies for partnership opportunities could be split into 3 broad categories:

1. Building Companies – retaining as rentals.

a. Council provides the land, the building company builds the house, we have a 50/50 split on the rental income and expenses.

2. Building Companies – house and land packages to ensure houses are built.

a. Council provides the land, the building company builds the house, house and land packages sold to market, profit split 50/50.

3. Government Organisations.

a. Sections sold to government agencies who build the houses themselves at their cost to rent and/or sell to their tenants.

b. Examples could be Defence, Roading alliance, etc.

2.11 Council Officers have engaged with a group builder to gauge the interest in options 1 and 2. Whilst this is only one opinion, it does provide some insight. There was not much interest in option 1. This was deemed to be outside of their business model and not something they were interested in engaging on. However, there was some interest in option 2 and this has been done with other clients.

3. NEXT STEPS

3.1 Council to consider its options in respect to retaining 40 sections within the Whakarongo subdivision and the building of public rental housing on these sections.

4. Compliance and administration

Does the Committee have delegated authority to decide?		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?		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 Housing and Future Development Plan The action is: Progress a Council led housing development at Whakarongo.
Contribution to strategic direction and to social, economic, environmental and cultural well-being

Attachments

1.	Cashflow Analsis - No Houses ⇩
2.	Cashflow Analysis - 40 Houses ⇩
3.	Scenario Analysis ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 19 August 2020

TITLE: Update of Treasury Policy (including Liability Management & Investment Policies)

Presented By: Steve Paterson, Strategy Manager - Finance

APPROVED BY: Stuart McKinnon, Chief Financial Officer

RECOMMENDATIONS TO Council

1. That the memorandum entitled ‘Update of Treasury Policy (including Liability Management & Investment Policies)’ presented to the Finance & Audit Committee on 19 August 2020, be received.

2. That the updated Treasury Policy (incorporating the Liability Management and Investment Policy pursuant to section 102 of the Local Government Act 2002) as attached to this report be adopted.

3. That it be noted Council will be reviewing the specific borrowing limits contained in clause 3.6.1 of the Policy as part of the process of developing its Financial Strategy for the 2021-31 10 Year Plan, and that if the outcome of this is that there are changes to these limits, the Policy will be updated to include them.

1. ISSUE

Council adopted its current Treasury Policy on 21 December 2017 and adopted amendments to specific borrowing limits on 25 June 2018. One of the terms of the Policy is that it will be reviewed every three years. This report recommends the adoption of an updated policy (marked up version attached) containing a number of changes to reflect changed circumstances, although in practical terms they will not impact materially on the way the treasury activity is managed.

2. BACKGROUND

The Council is required under section 102 of the Local Government Act 2002 to adopt a Liability Management Policy and an Investment Policy. As they are operational in nature these policies can be adopted by ordinary resolution of the Council.

Our Council chooses to combine the two policies into one document called a Treasury Policy and the latest version of this Policy was adopted by Council on 25 June 2018.

The Policy itself states it will be reviewed three-yearly.

The present policy has been operating effectively. However changes are being proposed to:

· Align the policy with changes made by the Local Government Funding Agency (LGFA) as well as changes to the credit rating methodology by S&P Global. These impacts are flowing through the local government sector particularly in the area of liquidity management.

· Change the interest rate risk management framework in a manner consistent with other similar sized Councils, to provide greater flexibility in the medium term management of interest rates whilst continuing to meet a prudent risk management approach.

· Update the policy by removing reference to matters that are out of date such as the long term investment fund.

Key changes proposed include:

· A policy framework around on-lending activity to CCOs (including CCTOs). This is to allow for any potential on-lending activity that may be required along with allowing for the possibility of direct lending from the LGFA to these entities.

· A new policy framework for interest rate risk control limits (section 3.2).

· Updated funding control limits to provide greater flexibility in Council’s funding arrangements (clause 3.3.5).

· Adjustments to counterparty credit limits along with a tiered approach to counterparty risk management. This will allow a greater exposure to ‘very strong’ credit rated entities and a reduced exposure to ‘strong’ credit rated counterparties. The minimum credit rating policy of long-term A has not been altered (clause 3.4.2).

Borrowing mechanisms to CCOs & CCTOs (section 3.14)

Shareholders have approved changes to foundation documents for the LGFA that enable LGFA to lend to CCO/CCTOs either directly or through shareholder Councils. These changes are expected to be operative shortly. Such lending is expected to be provided on a case by case basis, approved by the LGFA Board and will depend on the individual circumstances of the Council and the related entity.

At this stage the only possible Council related entity that may be considered is Palmerston North Airport Limited. Although the likelihood of this happening is relatively low it seems sensible to have a framework in place that would guide the Council when considering providing financial support in the form of debt funding either directly or indirectly.

The framework considers various factors such as:

· Credit risk profile of the borrowing entity and the ability to meet timely repayments

· Impact on Council’s credit rating, debt cap amount (if any), lending covenants with the LGFA and other lenders and the Council’s future borrowing capacity

· The form and quality of security arrangements provided

· The lending rate and terms

· Lending arrangements to CCOs and CCTOs must be documented (through a terms sheet) on a commercial arm’s length basis.

Interest rate risk management framework (section 3.2)

The present policy uses the 12 month rolling forecast of the Council’s debt as the basis for calculating the percentage of the debt that has a fixed interest rate versus floating.

Our advisors have recommended this be changed to what they term a ‘corridor policy’ approach meaning the calculation would be based on the forecast debt for each of the years of the 10 Year Plan. This approach continues to achieve interest cost certainty and a spreading of interest rate re-pricing maturities whilst allowing for flexibility to manage the uncertainty that comes with long term debt forecasting.

From a management perspective maintaining realistic forecasts of debt (as circumstances change with revisions to capital expenditure timing) is one of the more challenging aspects of interest rate risk management.

Funding risk control limits (clause 3.3.5)

The present policy is based on debt maturity bands 0-3, 3-5 and over 5 years. It is proposed this be changed to 0-3, 3-7 and 7 year + timeframes. This wider band allows more flexibility to manage within the policy and continues to enforce a spreading and smoothing approach, avoiding concentrated repricing and refinancing risks.

Counterparty credit risk (clause 3.4.2)

It is proposed to take a tiered approach to counterparty credit risk management involving allowing a higher level of exposure where the credit rating of the counterparty is very strong at AA- or above and lowering this exposure amount where the credit rating is strong at A or above (this captures a wider range of registered banks including Kiwibank).

The changes will provide the Council with the flexibility to vary the mix of transactions in order to get the best outcomes from each bank counterparty, cognisant of their weighting based on their credit risk profile, while continuing to maintain a spreading of risk amongst bank counterparties.

It is becoming increasingly necessary to refinance maturing debt well in advance of maturity and then invest for the period until maturity of the original loan. The changes mentioned above allows additional investment capacity where required for this pre-funding.

Other changes

There are a number of other relatively minor changes proposed in the draft to ensure consistency and/or reflect the latest position (such as for forestry, real estate investments) and to reduce the glossary of terms to only those that are directly relevant to the Council.

No change has been made to the specific borrowing limits (3.6.1) but a footnote indicates they are being reviewed as part of the development of the financial strategy for the 2021-31 10 Year Plan and that if changes are approved through that process the Policy will be consequentially updated.

3. NEXT STEPS

Once the updated Policy is approved it will be made available to financial institutions, advisors and published on Council’s website.

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 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	As part of the legislative framework for Council financial management there is a legislative requirement to adopt borrowing management & investment policies. The borrowing limits contained in these policies flow from the Council’s financial strategy. These will be reviewed as part of the development of the 2021-31 10 Year Plan and if there are any changes the Treasury policy will be further updated at the time of adoption of the 10 Year Plan.

Attachments

Treasury Policy - draft for adoption - August 2020 ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 19 August 2020

TITLE: Treasury Report - 12 months ending 30 June 2020

Presented By: Steve Paterson, Strategy Manager - Finance

APPROVED BY: Stuart McKinnon, Chief Financial Officer

RECOMMENDATIONS TO FINANCE & AUDIT COMMITTEE

1. That the memorandum entitled ‘Treasury Report – 12 months ending 30 June 2020’ presented to the Finance & Audit Committee on 19 August 2020, be received.

2. That the performance of Council’s treasury activity for the 12 months ended 30 June 2020 be noted.

1. ISSUE

To provide an update on the Council’s treasury activity for the 12 months ending 30 June 2020.

2. BACKGROUND

The Council’s Annual Budget for 2019/20 forecast additional debt of $44.792m would need to be raised during the year to fund the $53.516m of new capital expenditure programmes (including assumed carry forwards from 2018/19). In June 2019 the Council resolved to specifically authorise the raising of up to $45m of additional debt. In August 2019 the Council approved increasing the new capital expenditure programme for the year to $57.022m due to a revised assessment of the level of carry forwards from 2018/19. There was no change to the additional debt that was authorised as it was assumed some of the previously approved debt would not be raised.

Council’s Financial Strategy (updated version adopted 25 June 2018) contains the following ratios which the Council has determined to be prudent maxima:

• Net debt as a percentage of total assets not exceeding 20%

• Net debt as a percentage of total revenue not exceeding 200%

• Net interest as a percentage of total revenue not exceeding 15%

• Net interest as a percentage of annual rates income not exceeding 20%

The Treasury Policy (embracing the Liability Management and Investment Policy), adopted in December 2017 and updated on 25 June 2018, also contains a number of other criteria regarding debt management.

3. Performance

Following the latest annual review published on 20 April 2020 Council’s S&P Global Rating’s credit rating remained unchanged at AA / A-1+, although the outlook was revised from positive to stable.

Schedule 1 attached shows the details of Council’s debt as at 30 June 2020. Debt levels were within the policy parameters outlined in section 2 of this report.

The summarised gross term debt movements are shown in the following table:

Annual Budget for year (2019/20)

$000

Actual – 3 months (2019/20)

$000

Actual – 6 months (2019/20)

$000

Actual – 9 months (2019/20)

$000

Actual – 12 months (2019/20)

$000

Debt Balance at 1 July 2019

New Debt #

Debt repayments #

122,041

44,792

121,200

2,950

121,200

8,850

121,200

13,150

121,200

33,000

(12,200)

Closing Balance

Comprising:

Bank advance (on call)

LGFA short term advance

LGFA & Council stock

166,833

124,150

5,150

10,000

109,000

130,050

6,050

10,000

114,000

134,350

2,350

10,000

122,000

142,000

# A portion of the Council’s debt is drawn on a daily basis – daily drawdowns & repayments are not included in these figures but the net draw or repayment for the year to date is shown as part of new debt or debt repayment as appropriate.

Gross debt at 30 June 2020 was $142m compared with $121.2m at 1 July 2019.

Movements in recent years are shown in the following graph:

Actual finance costs incurred during the 12 months (including interest, line fees & the effects of payments relating to swaps) amounted to $5.535m compared with the budget for the year of $7.616m. The effective average interest rate for the year was 4.2% compared with the budgetary assumption of 5.2% and this translated to a saving of approximately $1.3m. The remainder of the saving reflects the lower levels of debt due to the delays in the capital expenditure programme.

The Council has entered financial instruments related to its debt portfolio utilising swap trading lines established with Westpac, ANZ and BNZ. The details of these are shown in Schedule 2 attached.

The value of these instruments is measured in terms of its “mark-to-market” i.e. the difference between the value at which the interest rate was fixed and the current market value of the transaction. Each of these transactions was valued at the date they were fixed and again at the reporting date. Financial reporting standards require the movement in values to be recorded through the Council’s Statement of Comprehensive Income (Profit & Loss Account). They have been revalued as at 30 June 2020 and show a decrease in book value of $0.5m for the quarter and $2.7m for the year.

The Council’s Treasury Policy contains guidelines regarding the measurement of treasury risk as follows:

· Interest rate risk is managed by the Council maintaining the ratio of debt that is subject to floating versus fixed interest rates within pre-set limits.

· Funding and liquidity risk is managed by the Council maintaining a pre-set portion of its debt in a range of maturity periods eg < 1 year, 1 – 3 years, 5 years +.

The position compared to the policy is illustrated in the graphs in Schedule 3. The overall ratio of fixed v floating interest rate debt is based on the assessed level of total debt in 12 months’ time.

For the purpose of this calculation the forecast debt has been assumed as $155m although the Annual Budget forecast (for 2020/21) is that the total debt will be $178m by 30 June 2021. We have used this lower forecast to protect against the risk of becoming over hedged i.e. too much fixed debt in the event the actual borrowing required is lower than budgeted. 55% of the forecast total debt is fixed (using the forecast total of $155m) and this reduces to 48% (if the total is assumed to be $178m). Current market sentiment is that interest rates will be lower for longer.

A separate report on the review of the Treasury Policy recommends a change to the way this calculation is made.

As at 30 June 2020 all policy targets had been met.

Council’s credit lines with the banks include a $18m four-year credit facility with Westpac Bank (maturing 31 July 2022) and a revolving $25m three-year facility with ANZ Bank (maturing 31 March 2023).

4. conclusion & next steps

Finance costs for the year (including interest, line fees & the effect of swaps) was $5.535m compared with budget for the year of $7.616m. This was due to lower average interest rates and debt levels than assumed.

In conjunction with Council’s treasury advisors hedging instruments are regularly reviewed in an effort to ensure the instruments are being utilised to best advantage as market conditions change. The level of hedging cover is also reviewed as the forecasts of future debt levels are revised.

Council’s borrowing strategy is continually reviewed, in conjunction with Council’s treasury advisors, to ensure best advantage is taken of Council’s quality credit rating.

A further performance report will be provided after the end of the September 2020 quarter.

5. Compliance and administration

Does the Committee have delegated authority to decide?		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 Not Applicable This report outlines the outcomes of a fundamental administrative activity of the Council.
Contribution to strategic direction	Managing the Council’s treasury activity is a fundamental component of day to day administration of the Council.

Attachments

Schedules 1 - 3 ⇩

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance & Audit Committee

MEETING DATE: 19 August 2020

TITLE: Te Huringa (ERP Ozone Replacement) Project - Business Assurance Progress Report

Presented By: Masooma Akhter, Business Assurance Manager

APPROVED BY: Sheryl Bryant, General Manager - Strategy & Planning

RECOMMENDATION TO Finance & Audit Committee

1. That the memorandum entitled ‘Te Huringa (ERP Ozone Replacement) Project – Business Assurance Progress Report’ and its two appendices, presented to the Finance & Audit Committee on 19 August 2020, be received for information.

1. ISSUE

On 18 December 2019, the Council resolved “that the Chief Executive be given delegation to enter into a contract with Civica to purchase a replacement ERP system. The term of this contract will not exceed ten years, and the value over this period will not exceed $5.9m”.

Palmerston North City Council (PNCC) went through a consultative process that has eventuated in the ERP Programme being named “Te Huringa” meaning, transformation, change, renew or figuratively to ‘turn another page’.

This project has been split into two phases, the focus of the first phase being on finance and the second phase on the regulatory elements.

For a project of this magnitude, it was deemed beneficial to obtain independent assurance over its life. PWC has been engaged to provide the Business Assurance function support in delivering independent assurance over the project. This is to ensure the project is effectively structured, governed and managed in line with sound management principles to deliver according to its objective and that the deliverables from the project are fit for purpose.

2. BACKGROUND

PWC has developed an integrated approach to assurance over phase one of the project that has been adopted. This will be a balance of the Business Assurance Manager driving the internal review process and PWC conducting specialist review components (please refer to appendix 1).

In June 2020, PWC completed the foundation review that provided a view of the then-current state of the programme established, considering potential weaknesses and risks within the project management control environment. Several recommendations were made to build on good practices identified and to enhance the intended approach to solution design and implementation (please refer to appendix 2).

In response to the foundation review, an action plan has been developed and will be followed up by the Business Assurance Manager. A review was completed during July 2020 to check status of items that were required to be completed by 30 June 2020. Of these, three items were still in progress, and therefore overdue. However, these were not considered to pose material risks to the project and therefore the status was accepted. Overall it can be concluded that we are on track to action these items in a timely manner.

Project Progress Update

Impact of COVID-19

The COVID-19 lockdown, along with PNCC local community and Te Ao Nui (Emergency Operations Centre) demand on key stakeholders and project resources, has had an effect on the programme overall. While we decided to continue during the lockdown and have made good progress, the remote operating model has made it challenging to build a high performing and focused team. This is now being addressed through reviewing the programme environment, including bringing all project team members into one location going forward.

Civica, the software vendor, is mostly Australian based and has a no travel policy for the foreseeable future. They are experienced at operating remotely, however the hands-on configuration workshops are typically done face to face. In response, Civica Auckland resources are being brought in to facilitate this process.

A key impact of this disrupted period has been that the formal scope definition (and phasing) has not been finalised. Some decisions that were made are being revisited to ensure all parties clearly understand and support them. The impact of this on the current schedule and budget will be continually reviewed by the Project Control Group (PCG).

Financial Status

As at 30 June 2020, $797,620 has been expensed in relation to implementing this project.

Programme Governance

A multi-tiered governance model has been built that aligns with industry standards for ERP and has been endorsed by PWC. This includes a governance group known as “PCG” and a Steering Committee (SteerCo). The PCG is the decision-making team and its primary role is to ensure the successful delivery of the business case and the defined benefits of the project. The SteerCo is responsible to keep the programme on track, manage resources, plans and provide recommendations to PCG for any changes to scope, timing or cost.

Timeline

The initial programme closure date of December 2021 still stands and has not been revised at this stage. However, as a consequence of COVID-19 and a general review of the programme, internal milestone dates have been reviewed and updated to be more accommodating.

Below is a timeframe for phase one of the project that has been aligned with the assurance plan on page 4 of appendix 1.

Risks & Issues

A team has been developed with representatives from Business Assurance, Risk & Resilience, Regulatory, Information Technology and Finance. This team is tasked with recording and monitoring risks and establishing mitigation plans. Where risks transition to become issues, this team will communicate these with the PCG and key stakeholders to ensure an appropriate and effective action plan is in place.

Below is an up-to-date summary of the top risks identified for this project and any issues that have been recorded to date.

Top Project Risks
Risk	Mitigation Plan
Due to the unavailability of business resources due to conflicting priorities, additional support may be required.	To ensure a backfilling plan, an internal communications plan and resource identification work is completed.
The complexity of rules for data conversion from the previous system and/or the data is of poor quality.	To ensure a data conversion strategy is in place. To ensure all data elements are adequately defined and mapped. Institute a data cleansing procedure before the conversion begins (contingency budget available to assist with data cleansing / manual conversion if required).
The readiness of PNCC internal systems for integration.	Develop an integration plan but also a fall-back position.
Lack of documentation on current business processes may impact the project schedule.	Additional resource engaged to assist with identifying and documenting business processes. If a change to the schedule is required, then the formal change request process will be adhered to.
Project creep – that delivery can’t be completed within timeframes, scope or budget.	A decision-making framework developed and to be utilised wherever timeframe, scope or budget changes required. Monthly updates to PCG on status.

Issues
Date	Issue Description	Actions / Mitigation Plan
March 2020	Impact of COVID. Restricted access to the Council staff and facilities. Travel bans in place. The potential impact on the delivery of the programme unclear.	Civica and Effectus continued planning and setup remotely with minimal contact with PNCC staff. PCG and SteerCo meetings continued virtually. The impact on the schedule and budget of the programme has not been confirmed. This will be monitored by the PCG to ensure any necessary decisions are made proactively.
June 2020	Data migration not scoped for CM9.	To ensure a migration strategy is developed.
July 2020	Lack of project manager, subject matter experts and change manager is impacting the delivery of the project.	Change Manager appointed. Project Manager recruitment underway with a preferred candidate. Discussions for subject matter experts underway. To assess the impact on the project and whether any changes to the budget/scope/timeframe required. If so, to utilise the formal decision-making framework to evaluate and proceed.

Definitions: Risk vs Issue

Risk: Events that will have a negative impact on your project if they occur. Risk refers to the combined likelihood the event will occur and the impact on the project if it does occur.

Issue: Something that is going wrong on your project and needs to be managed. Failure to manage issues may result in a poor delivery or even failure.

3. NEXT STEPS

1. Adopting the assurance plan developed by PWC and undertaking assurance engagements in partnership with PWC.

2. Business Assurance will follow-up on recommendations from the foundation review to ensure they are actioned in a timely manner.

3. Provide the Finance & Audit Committee with updates at the end of each phase (as per timeline) with findings of the assurance reviews and progress on the project.

4. Compliance and administration

Does the Committee have delegated authority to decide?		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 Not Applicable
Contribution to strategic direction and to social, economic, environmental and cultural well-being	The purpose of this report is to report on Business Assurance activity.

Attachments

1.	PWC Assurance Plan for ERP Project ⇩
2.	PWC Foundation Review - Final Report ⇩

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

1.	Quarterly Performance and Financial Report - Quarter Ending 30 June 2020 - CE and Catalyst Report ⇩
2.	Quarterly Performance and Financial Report - Quarter Ending 30 June 2020 - Performance Measures ⇩
3.	Quarterly Performance and Financial Report - Quarter Ending 30 June 2020 - Supplementary Material ⇩
4.	Quarterly Performance and Financial Report - Quarter Ending 30 June 2020 - Revision to carry forwards 2020-21 ⇩