Agenda of Council - 31 October 2017

Item	General subject of each matter to be considered	Reason for passing this resolution in relation to each matter	Particular interests protected (where applicable)
3	Trafalgar Park Turf Renewal	Section 48(1)(a) The public conduct of this matter would be likely to result in disclosure of information for which good reason exists under section 7	The withholding of the information is necessary: · Section 7(2)(i) To enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)

Council

31 October 2017

REPORT R8141

Adoption of the Annual Report 2016/17

1. Purpose of Report

1.1 To adopt the Annual Report 2016/17 in accordance with section 98 of the Local Government Act 2002.

2. Summary

2.1 The audited Annual Report needs to be adopted by Council within four months of the end of the financial year (by 31 October 2017). Audit has completed its testing and an unmodified audit report is expected. Some minor editorial adjustments may be required.

2.2 The Annual Report 2016/17 presents a positive picture of both the financial and non-financial performance of the Council over the previous year.

2.3 The Annual Report shows that Council recorded a net surplus before revaluations for the year ended 30 June 2017 of $13.2 million which was $8.9 million more than budget. The surplus was $12.7 million for the 2015/16 financial year.

2.4 Borrowings net of deposits were $92.1 million, compared to a budget of $131.6 million.

3. Recommendation

That the Council

Receives the report Adoption of the Annual Report 2016/17 (R8141) and its attachments (A1853308 and A1850169); and

Adopts the Annual Report for the year ended 30 June 2017 in accordance with s98 of the Local Government Act 2002; and

Delegates the Mayor and Chief Executive to make minor editorial changes as necessary.

4. Background

4.1 The purpose of an Annual Report is to compare the actual activities and performance of the local authority with those intended, as set out in the applicable Long Term Plan or Annual Plan (the Annual Report 2016/17 compares performance against the 2016/17 Annual Plan). It also aims to promote the local authority’s accountability to the community for the decisions made throughout the year. An Annual Report is required under section 98 of the Local Government Act 2002.

4.2 The Annual Report includes both the parent (Nelson City Council) and the Nelson City Council Group – which consists of Nelson City Council, its subsidiaries Nelmac Limited, Nelson Civic Trust, Bishop Suter Trust, Nelson Regional Development Agency and its associates and joint ventures.

4.3 As Council does not have a controlling interests in its associates (Nelson Airport Limited, Tasman Bay Heritage Trust and Port Nelson Limited) these are equity accounted. Joint ventures (Nelson Regional Sewerage Business Unit (NRSBU) and Nelson Tasman Combined Civil Defence organisation) are proportionately consolidated as these are not separate legal entities. Further detail of the accounting treatment is included in Note 1 to the accounts.

4.4 The Draft Annual Report 2016/17 was presented to Audit Risk and Finance Subcommittee on 8 September 2017, where the following resolutions were passed:

Notes the draft Annual Report 2016/17 has been prepared and will be audited before being presented to Council for adoption; and

Notes that if there are material changes to the draft resulting from the audit, these will be brought back to the Audit Risk and Finance Subcommittee on 28 September 2017; and

Notes that, if there are no material changes to the draft resulting from the audit, due to timing constraints, the final Annual Report 2016/17 will be presented directly to Council for adoption, rather than via the Audit, Risk and Finance Subcommittee.

4.5 The audited Annual Report needs to be adopted by Council within four months of the end of the financial year (by 31 October 2017). The attached Annual Report covers Council’s financial and service performance for the period from 1 July 2016 to 30 June 2017.

4.6 Council is required to make publicly available a summary of the information contained in the Annual Report within one month of its adoption. This year, as in previous years, it is proposed to include an article in Council’s fortnightly Our Nelson publication, which is delivered to every Nelson household. A more comprehensive audited summary will also be available online, at Council’s public libraries and at the Customer Service Centre.

5. Discussion

Non-financial performance

5.1 Council measures its performance each year using a core set of indicators that are determined through the Long Term Plan. The results present a high level view of performance. A number of indicators are based on the Annual Residents’ survey. Officers reported the results from this survey at the Audit Risk and Finance Subcommittee meeting on 28 September 2017.

5.2 Council’s non-financial performance was on a par with last year. 74% of performance targets were met (compared with 72% in 2015/2016) and 26% were not achieved, with two measures not able to be reported on. These results demonstrate that for the majority of its activities Council is meeting the expectations set out in the Long Term Plan.

Highlights

5.3 Council continues to demonstrate strong but prudent financial management in 2016/17.

5.4 The year saw the completion of two major city facilities and the commencement of work on another. The Trafalgar Centre re-opened following major strengthening and upgrading work. The $12 million Suter Art Gallery redevelopment project was completed providing improved gallery space able to attract travelling exhibitions, whilst respecting the long heritage of the institution and building. During the year work started on the construction of the Greenmeadows Centre in Stoke. This community centre will serve our fastest growing area.

5.5 As well as key renewal and maintenance programmes, core infrastructure improvements took place including the last stage of the Maitai pipeline duplication from the water treatment plant to the city improving resilience, commissioning the Corder Park wastewater pump for and upgrading several stormwater systems around the city to address flood risk. Roading safety improvements continued with specific work on walking and cycling projects in Tahuna and Haven Road.

5.6 Nelson’s waterway health was supported and improved through work on the Nelson Nature and Project Maitai/Mahitahi. This and other work such as the Top of the South Marine Biosecurity Partnership has seen Council working with others to achieve environmental outcomes. A major workstream for the planning team has been the development of the Nelson Plan.

5.7 Reflecting city growth, resource and building consent numbers were considerably up on the previous year but statutory time limits targets continued to be met in the majority of cases. 975 building consents were issued over the year for works to a value of $177 million. This is compared to 763 building consents in 2015/16 at a value of $109 million. 597 resource consents were received this year, with 469 decisions issued and close to $1.4 million income received from charges for processing.

5.8 Supporting economic growth has been an important focus in many areas of Council. Thirteen Special Housing Areas were approved under the Housing Accord with central government. The Nelson Regional Development Agency continued to partner with the public and private sectors to attract and retain investment in Nelson. An example of this was the completion and presentation to stakeholders of the Regional Identity Project. In addition, over $460,000 was provided to a range of events. Uniquely Nelson provided support to over 600 businesses.

5.9 Council provided support in many ways to residents’ wellbeing. Work started on a Youth Strategy and we partnered with Age Concern to look at social isolation. The Arts Festival delivered record sales and the Founders Book Fair which supports development at Founders Park was the largest to date.

5.10 Highlights in the Parks & Active Recreation area included continued work on mountain bike trails, development at Saxton Field including a new hammer throw cage and drainage improvements, in-principle approval of the Brook Recreation Reserve Management Plan and purchase of the Marina hardstand.

Areas of non-performance

5.11 The transport activity had the highest proportion of measures that were not achieved (61%). Issues included peak travel times, road safety, the social cost of crashes and the number of crashes involving pedestrians. Arterial road traffic options and cause and intervention analysis will be key to achieving targets in the future. Measures of short stay parking supply and pricing suggest that maximum short stay occupancy is being reached. The lowest levels of satisfaction related to public transport, with residents feeling the service is not extensive enough and more buses are needed.

5.12 The environment activity was the next lowest in terms of achievement with a third of measures not met. Targets that were not met included some for freshwater quality, for volumes of waste to landfill and meeting statutory timeframes for resource consent processing. The Civil Defence and Emergency Management area fell 2% short of achieving its target.

5.13 Some areas did not meet targets, for example provision of recreational opportunities, but showed an increase in the result from last year. For the Trafalgar Centre, targets could not be met as the facility was closed during the renovation project.

5.14 The target set in the economic activity for the value of capital projects completed to rise year on year was not met. However the KPI for the 2016/17 year with respect to capital projects was to deliver 85% of projects by June 2017. After taking into account approved exceptions and approvals by the relevant Committee/Council on aspects such as genuine delays and the re-phasing of projects, the percentage achieved was 84.6%.

5.15 According to the 2017 Residents Survey 55% of residents were satisfied or very satisfied with Council’s overall performance this year, which is similar to the last result (from the survey in 2014). For residents who had direct contact with Council staff satisfaction increased to 67%. Figures for satisfaction with engagement have moved around significantly over the past three years from 53% in 2014/15, down to 37% in 2015/16 and up again to 42% in 2016/17. The target to better the 2014/15 levels of satisfaction with engagement has not been met for the last two years.

Audit Report

5.16 Audit New Zealand is expected to issue an unmodified audit report. The final audit report will be issued once the document is adopted, and will be included in the published Annual Report.

Surplus

5.17 The Annual Report shows that Council recorded a net surplus before revaluations for the year ended 30 June 2017 of $13.2 million which was $8.9 million more than budget. The surplus was $12.7 million for the 2015/16 financial year.

5.18 It should be noted that the word “surplus” is an accounting term, and is different from the rating surplus which is referred to in paragraph 5.23. The accounting surplus includes capital items such as roading subsidies and other grants related to capital projects, development contributions, revaluations and vested assets which are required to be treated as income for accounting purposes.

5.19 While it is pleasing that the net surplus is significantly higher than budgeted, the surplus includes some sizeable non-cash items that we do not budget for such as derivative revaluations ($3 million income), along with items that we have little direct control over in terms of timing (vested assets and development/subdivision reserves income ahead of budget $4.2 million). Vested assets and development/subdivision reserves income have been high and well above budget for the last two years reflecting good development activity.

5.20 More meaningful is the operational control measure (see paragraph 5.25) which compares actual net cashflow from operations against budget. As capital and financing activities and non-cash items are filtered out, it gives a clearer picture of how Council is managing its operational budget. Under 100% and Council would not be living within its means. Over 100% and Council is collecting more income than it needs to deliver (non capital) services to the community. While there are inevitably unforeseen circumstances that may affect this measure, along with variances against budget for any number of income and expenditure items, a result close to 100% overall is ideal. Council’s result of 101% is therefore very positive.

5.21 Note 39 explanation of major variances is included below:

Statements of comprehensive revenue and expense

5.22 Total operating income $14 million more than budget:

5.22.1 Fees and charges are $5 million more than budget. More details can be seen in the activities section, however the most significant items are:

· $3.2 million unbudgeted income from forestry harvesting after the completion of the forestry activity review.

· $943,000 extra income from resource and building consents, reflecting activity in the sector.

· Unbudgeted sale of Emissions Trading Scheme units $520,000.

5.22.2 Subsidies and grants are $1.3 million more than budget reflecting the timing of the subsidy received from the Ministry of Civil Defence and Emergency Management for expenditure around the 2011 emergency event ($555,000), the receipt of donations for the indoor cricket/smallbore rifle facility at Saxton Field ($493,000) and contributions from utilities providers for infrastructure ($184,000).

5.22.3 Other revenue is $4.6 million more than budget with both vested assets and development/subdivision reserves contributions well ahead of budget ($3.4 million and $794,000 respectively) reflecting development activity around the city.

5.22.4 Other gains of $2.8 million with no budget reflect the revaluation of interest rate swaps ($3 million gain) along with unbudgeted gains and losses on sale and revaluations.

5.23 Total operating expenditure was $5.1 million more than budget:

5.23.1 Personnel costs were $1.1 million less than budget. Some vacancies were backfilled using unbudgeted temporary or consultancy resource at the cost of $534,000, reflected in other expenses.

5.23.2 Other expenses were over budget by $7.3 million. More details can be seen in the activities section, however the most significant items are:

· maintenance expenditure under budget by $849,000. $539,000 of budget has been carried forward to 2017/18 for items programmed but not completed within the 2016/17 financial year.

· service provision over budget by $4.8 million, including $1.7 million unbudgeted forestry harvesting costs, $1.1m for the rollout of the new recycling bins (change in accounting treatment from that assumed in budget), $1 million relating to timing differences in the Nelson School of Music earthquake strengthening project, and $574,000 unbudgeted expenditure for contracting resource to support increased workflows through the Resource Consents activity.

· $1.5 million over budget relates to a consolidation adjustment in respect of the Nelson Regional Sewerage Business Unit.

· unbudgeted expenditure for temporary/consultancy resource $534,000.

5.24 Other comprehensive income

5.24.1 The infrastructure assets are revalued every year to smooth out the large fluctuations, and land is revalued when it’s fair value diverges materially from its carrying value. The revaluation as at 30 June 2017 resulted in a total increase in asset value of $47.8 million, $32.1 million more than budget. Council revalued land as at 30 June 2017, amounting to $28.3 million of the total revaluations.

Statements of financial position

5.25 Trade and other receivables $820,000 more than budget with dividends receivable and accrued revenue both higher than had been anticipated.

5.26 Property, plant, and equipment was $6 million less than budget. The opening balance at 1 July was $32 million less than forecast at the time of setting the 2016/17 budget, asset revaluations were $32.1 million more than budget, capital additions were $6.7 million less than budget, disposals and impairments were $2.8 million more than budget, and vested asset additions were $3.4 million more than budget.

5.27 Investments accounted for using the equity method are $14.4 million greater than budget due to the difference in the opening balance at 1 July.

5.28 Borrowings net of cash and cash equivalents, were $39.5 million below budget due to the difference in the opening balance at 1 July ($30.3 million), the utilisation of brought forward cash balances ($2.2 million) and lower capital investment.

5.29 Reserves are $18.7 million more than budgeted. The opening balance at 1 July was $13.6 million less than forecast at the time of setting the 2016/17 budget, the asset revaluation was $32.1 million less than budget, and $372,000 of revaluation reserve was released to equity relating to the disposal of assets.

5.30 Accumulated funds are $30.3 million more than budget. The surplus for the year is $8.9 million more than budget, and the 1 July opening balance was $21.5 million more than forecast at the time of setting the 2016/17 budget.

External Debt

5.31 The Council’s borrowings as at 30 June 2017 were $92.4 million, ($81.4 million in 2015/16) summarised in Note 27 of the financial statements. Council overall debt increases primarily as a result of the capital expenditure program.

5.32 Borrowings net of deposits were $92.1 million, compared to a budget of $131.6 million. $30.3 million of that variance is due to lower brought forward debt balances.

5.33 Other capital income from subsidies, development contributions and asset sales were in excess of budget by $2.4 million and capital expenditure was less than planned by $6.8 million resulting in a smaller increase in debt than anticipated ($11 million rather than $20.3 million).

Rating surplus

5.34 Rating income was overspent by $381,000 in 2016/17. This was overspent as a result of unbudgeted asset impairments and is effectively funded by prior years’ surpluses. Asset impairments arise when assets are replaced earlier than anticipated or when work in progress that has been budgeted and recorded as capital is reassigned as operating in nature when reviewed.

5.35 Rates required to fund operations were within 0.6% of rates collected which is closer than in recent years. This is positive as Council should only be rating for what it needs to operate in that particular year.

Financial prudence results

5.36 Council is required to include information on financial performance in relation to various benchmarks in the annual report. Here’s a summary of the information found on pages 107 to 111 in the Annual report:

Measure	Result	Benchmark
Rates (income) affordability	$67m	$93m	Achieved
Rates (increases) affordability	2.3%	2.8%	Achieved
Balanced budget (revenue:expenditure)	101%	100%	Achieved
Debt affordability (% of revenue)	80%	150%	Achieved
Essential services (capital expenditure:depreciation)	158%	100%	Achieved
Debt servicing (interest:revenue)	4.08%	10%	Achieved
Debt control (actual:budget)	56%	100%	Achieved
Operational control (actual:budget net cashflow from operations)	101%	100%	Achieved

Material differences from draft Annual Report

5.37 The draft Annual Report went to the Audit Risk and Finance Subcommittee on 8 September August. Since that time, further information has become available, and the audit has been completed.

5.38 There were some material changes to the Statement of Comprehensive Income and Statement of Financial Position which were tabled at the 28 September 2017 Audit, Risk and Finance Subcommittee. These mainly related to the asset revaluation and fixed assets and the subcommittee was comfortable with the changes agreed with Audit NZ.

6. Options

6.1 Option 1 is the preferred option.

Option 1: Accept the recommendations
Advantages	· Meets statutory timeframes · Allows timely production and distribution of the Annual Report
Risks and Disadvantages	· There will be no further opportunity for Council to review any minor amendments prior to publishing.
Option 2: Not accept the recommendations
Advantages	· None
Risks and Disadvantages	· Adoption of the annual report will not meet statutory timeframes. · Annual Report will not be available to the public in a timely manner · Not meeting statutory timeframes may be a consideration by Standard and Poor’s for the Council credit rating.

7. Conclusion

7.1 It is recommended that Council adopt the Annual Report for the 2016/17 year.

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: Financial Statements (A1853308) ⇩

Attachment 2: Annual Report 2016/17 for the year ended 30 June 2017 (A1850169) ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

The Annual Report is Council’s major accountability document and is required under s98 of the Local Government Act.

2. Consistency with Community Outcomes and Council Policy

The Annual Report informs the community of Council’s performance against the Long Term Plan.

3. Risk

The adoption of the Annual Report carries little risk as it is a procedural matter required under legislation.

4. Financial impact

There is no immediate financial impact from this decision. If Council does not adopt the Annual Report before the statutory deadline of 31 October 2017 it may be a consideration for Standard and Poor’s in its annual credit rating assessment.

The Annual Report itself outlines the financial position of Council at the end of the 2016/17 financial year.

5. Degree of significance and level of engagement

This decision is of lower significance and does not require consultation.

The Annual Report, once adopted, will be made available for the public to view and a summary of the Annual Report will also be prepared.