Item 5: Adoption of
Annual Report for the year ending 30 June 2018
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Council
25 October 2018
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REPORT R9195
Adoption
of Annual Report for the year ending 30 June 2018
Purpose of Report
1.1 To
adopt the Annual Report for the year ending 30 June 2018 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 2018). Audit has completed its testing
and an unmodified audit report is expected. Some minor editorial adjustments
may be required.
2.2 The
Annual Report 2017/18 presents a positive picture of the financial performance
of the Council over the previous year.
2.3 The
Annual Report shows that Council recorded an accounting surplus before
revaluations for the year ended 30 June 2018 of $11.4 million which was $4.4
million less than budget. The surplus was $13.2 million for the 2016/17
financial year.
2.4 Rating
income was underspent by $270,000 in 2017/18. In essence Council rated very
close to what it required to fund its operations in 2017/18.
2.5 Borrowings
net of cash and deposits were $84 million, compared to a budget of $121.4
million.
3. Recommendation
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That the Council
Receives the report Adoption of
Annual Report for the year ending 30 June 2018 (R9195) and its attachments (A1983431 and A2080132); and
Adopts
the Annual Report for the year ended 30 June 2018 in accordance with s98 of
the Local Government Act 2002; and
Delegates the Mayor and Chief Executive to make minor editorial changes as
necessary.
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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 2017/18 compares performance
against the 2017/18 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 Bays Heritage Trust and Port Nelson Limited) these are equity
accounted. Joint ventures (Nelson Regional Sewerage Business Unit
(NRSBU), Nelson Tasman Regional Landfill Business Unit (NTRLBU) 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 2017/18 was presented to Audit Risk and Finance
Subcommittee on 25 September 2018, where the following resolutions were passed:
Resolved AUD/2018/001
That the
Audit, Risk and Finance Subcommittee
Receives
the report Draft Annual Report 2017/18 (R9204) and its attachment (A1983431);
and
Refers all
powers of the Audit Risk and Finance Committee relating to the adoption of the
final Annual Report 2017/18 to Council provided that there are no material
changes to the draft resulting from the audit.
Recommendation to Council AUD/2018/002
That the
Council
Notes the
draft Annual Report 2017/18 has been prepared and will be audited before being
presented to Council for adoption on 25 October 2018; and
Notes that
if there are material changes to the draft resulting from the audit, these will
be brought back to a specially convened Audit, Risk and Finance Subcommittee
meeting prior to the Council meeting on 25 October 2018; and
Considers
all matters relating to the adoption of the final Annual Report 2017/18
directly if there are no material changes to the draft resulting from the
audit.
4.5 The
audited Annual Report needs to be adopted by Council within four months of the
end of the financial year (i.e. by 31 October 2018). The attached Annual Report
covers Council’s financial and service performance for the period from 1
July 2017 to 30 June 2018.
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.
4.7 Following
adoption by Council, the Annual Report will be designed and formatted, then
made available to the public.
5. Discussion
Highlights
5.1 Improvements
to infrastructure that were carried out during the year included the
commissioning of the Corder Park wastewater pump station, and the commencement
of the major upgrade of the Neale Park Wastewater Pump Station, which
progressed over the year. Major water supply renewals included two of the
existing four membranes at the water treatment plant. In stormwater, the Nile
Street Stormwater upgrade is underway and investigation was carried out for
stormwater projects in other areas of the city. In the flood protection
activity, the third and fourth stages of the York Stream Stormwater upgrade
were completed and stage three of the Saxton Creek upgrade was also completed.
5.2 In
addition to this, a number of transport projects were underway, including the
Maitai to Rocks Road Shared pathway, an NZTA project, which has since been
completed and the commencement of a programme to convert the city’s
street lights to LED.
5.3 The
year also saw some significant weather events in February, which resulted in
the Emergency Operations Centre being activated and a Declaration of Emergency
being made. These events resulted in some unplanned reactive maintenance and
repairs for Council.
5.4 Two
new facilities were opened to the community during the year – the Saxton
Velodrome and the Nelson Centre of Musical Arts (previously called the Nelson
School of Music). Also opened during the year was a new mountain bike trail on
Fringed Hill which is a 5.1km track that descends 700 vertical metres. Work
continued on the construction of the Greenmeadows Centre in Stoke.
5.5 Nelson’s
waterway health was supported and improved through work on the Nelson Nature
and Project Maitai/Mahitahi. 2017/18 was the final year of Project
Maitai/Mahitahi, which will continue in future years as the Healthy Streams
Programme. A major workstream for Council’s planning team has been the
development of the Nelson Plan.
5.6 During
the year, 18 Special Housing Areas were gazetted and a further eight have been
approved by Council but are not yet gazetted by Government.
5.7 For
resource and building consents, statutory time limits targets continued to be
met in the majority of cases. 874 building consents were granted over the
year for works to an estimated value of $167 million. 526 resource
consents were received this year, with 417 decisions issued.
5.8 The
Nelson Regional Development Agency continued to partner with the public and
private sectors to attract and retain investment in Nelson. Investment
attracted was 21% higher than in 2016/17. In addition, the Events Fund
supported a number of events, including Marchfest, Ocean Swim Series, NZ Cider
Festival, Cricket One Day Internationals and the All Blacks, amongst others and
in addition to community events.
5.9 Council
provided support in many ways to residents’ wellbeing. The Youth Strategy
was adopted by Council and Council supported older adults through its
contribution to the Positive Ageing Expo. The last year of the Arts Festival
being delivered in-house included 122 performances over 66 different events.
5.10 Highlights
in the Parks & Active Recreation area included the replacement of the turf
at Trafalgar Park, Octopus Garden playground upgrade at Ngawhatu Reserve, the
reinstatement of the Days Track pedestrian access from Moana Avenue to
Grenville Terrace, and the preparation and adoption of the Freedom Camping
Bylaw which was in place for the 2017/18 summer. There were also new mountain
bike trails constructed and the formalisation of the relationship with the
Nelson Mountain Bike Club through a Memorandum of Understanding. A range of
events were held at the Trafalgar Centre, the first full year that it was open
following improvements.
Non-financial performance
5.11 Council
measures its performance each year using a core set of indicators that are set
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 will report the complete results from this survey at the
Governance Committee meeting on 29 November 2018.
5.12 Council’s
non-financial performance was 60% achieved, compared with 74% in 2016/17. A
discussion of the areas of non-performance is included below.
Areas of non-performance
5.13 The
stormwater activity had the greatest percentage of measures where targets were
not achieved, with 67% of the targets not being met. Of the four targets that
were not met, two were related to the weather events that occurred in February
2018 which resulted in a significant increase in the number of service requests
for the utilities team to follow up, impacting on the results for blockages and
complaints.
5.14 The
transport activity also had a high proportion of measures that were not met
(63%). Issues included travel to work, peak travel times, road safety
(including the number of deaths and serious injuries, the number of crashes,
the social cost of crashes and the number of crashes involving pedestrians and
cyclists), road roughness and the percentage of road re-sealed, parking spaces
and public satisfaction with the transport activity. Some of these results are
following national trends and are not just specific to Nelson. Work is underway
to improve on results for future years. In some areas, the targets have been
revised or changed through the Long Term Plan 2018-28 to targets that Council
has a greater control over. In the transport
area, there were also three targets where results were not reported against as
it was the first year of a new data collection method.
5.15 The
environment and social activities were the next lowest in terms of achievement,
with only half of the targets being met. In the environment area, targets that
were not met included some for volumes of waste to landfill and meeting
statutory timeframes for resource consent processing. In addition, there was a
breach to the air quality standards in Airshed B1, during very windy conditions,
most likely caused by dust, not smoke. Nelson Plan timeframes were not met.
5.16 During
the year, all rivers met the national bottom line for Ecosystem Health and
Human Health for recreation. All five beach bathing sites maintained water
quality standards satisfactory for swimming, and two of the six river bathing
sites also maintained this standard. Nelson had almost double the summer
rainfall from 2016/17, and wet weather days with elevated flows and
contaminated stormwater accounted for 40% of water sampling days, explaining
the reduced number of bathing sites graded suitable for recreation. There were
also results that were not achieved as a result of a reduction in number of
sites graded at A or B and an increase in the number of sites graded at D or E.
The decrease in A and B sites was primarily because of poor water clarity,
which is only one parameter measured. The data show maintenance or improvement
across other parameters. The increase in D and E sites was also related to
water clarity, and to dissolved nitrates. Actions to minimise sediment effects
include messaging to the contracting community after a successful prosecution,
the review of the Nelson Plan to incorporate targeted erosion and sediment
controls as objectives and rules (currently in the Land Development Manual),
real-time continuous turbidity monitoring at core hydrometric sites (Orphanage
trial underway) to enable prompt response to pollution reports, and the
construction of a treatment wetland at Groom Creek. Water quality improvement
trends are best identified through long term (5 or 10 year) data sets, and
annual variation can occur related to one-off events.
5.17 In
the social area, areas of non-performance related to the attendance at events,
satisfaction with public art and library membership and door count. Although
the door count at the library was lower than target, the online usage at the
library, which includes the website, catalogue, e-books and audio books,
increased from 2016/17.
5.18 In
all of Council’s other activity areas, achievement of targets was over
60%.
5.19 According
to the 2018 Residents Survey 36% of residents were satisfied or very satisfied
with the opportunities to provide feedback to Council. This target of
maintaining the 2014/15 result of 53% has not been met for the last three years
and actions to improve on this result, including using information also
provided in the 2018 Residents’ Survey about how people like to be
contacted, will be considered by Council.
Audit
Report
5.20 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
5.21 The
Annual Report shows that Council recorded a net surplus before revaluations for
the year ended 30 June 2018 of $11.4 million which was $4.4 million less than
budget. The surplus was $13.2 million for the 2016/17 financial year.
5.22 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 5.24.
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.
5.23 It
also includes unbudgeted expenditure such as abandoned assets, impairments and
losses on disposal relating to Council’s $1.5 billion of fixed assets.
Rating
surplus
5.24 Rating
income was underspent by $270,000 in 2017/18. In essence Council rated very close
to what it required to fund its operations in 2017/18.
5.25 Rates
required to fund operations were within 0.4% of rates collected which is even
closer than the 0.6% recorded in 2016/17. This is positive as Council should
only be rating for what it needs to operate in that particular year.
Variances
to budget
5.26 From
note 39 to the financial statements, major variances are as follows:
Statements of comprehensive
revenue and expense
Total
operating income $108,000 more than budget:
5.27 Fees
and charges are $2.9 million more than budget. More details can be seen in the
activities section, however the most significant items are:
· $1.0 million
unbudgeted income arising from a change to the consolidation methodology for
the regional sewerage business units, offset in expenditure.
· $0.3 million extra
rental income, particularly from the Tahuna camp ground
· $1.0 million
greater than budgeted income from landfill due to higher volumes and a
different mix of income streams than anticipated. Greater expenditure than
budgeted was also recorded.
5.28 Subsidies
and grants are $0.7 million less than budgeted. NZTA subsidies are $1.5m less
than budget due to less spent on the Transport capital programme than
anticipated; offset by the gifting to Council of the indoor cricket and
smallbore rifle facility at Saxton Field which was unbudgeted.
5.29 Other
revenue is $1.3 million less than budget. Development and subdivision reserves
contributions are $1.2 million higher than anticipated and the value of assets
vested to Council by developers is $1.1 million less than budget. Both
items reflect development activity in the city, at different stages of
development. $1.1 million of gains on sale and revaluation of forestry assets
was budgeted in this category in error, with $653,000 actual gains on sale and
revaluation reflected in other gains (para 5.30).
5.30 Other
gains of $1.1 million less than budget reflect unbudgeted gains and losses on
valuation and disposal of assets, including losses on abandoned assets and
interest rate swap valuations, offset by fair value gains on asset revaluations
(other than PPE). The variance is related to non-cash items.
Total
operating expenditure was $4.5 million more than budget:
5.31 Personnel
costs were $0.7 million less than budget. Some vacancies were backfilled using
unbudgeted temporary resource at the cost of $0.4 million, reflected in other
expenses.
5.32 Other
expenses were over budget by $5.7 million. More details can be seen in the
activities section, however the most significant items are:
· $1.4m more
expenditure in the NRSBU was offset by over budget income in fees and charges
and other revenue categories due to a change in consolidation methodology
· $0.8 million for
response to the storm events in February 2018 partly funded through the
disaster recovery fund. Insurance claims have been made and the proceeds of
those claims will be credited to the fund in the 2018/19 financial year
· $0.3 million
greater than budget consolidated expenditure from the regional landfill was
offset by increased income
· Other over budget
reactive maintenance items included water reticulation and leak detection
repairs, tree maintenance and Modellers Pond maintenance costs (due to delays
in finding a permanent solution to the algae issues at the pond)
· Activities
relating to the Nelson Plan were over budget by $555,000 including the
engagement of contractors to cover staff vacancies, and to enable the release
of the draft plan as approved by resolution of Council
· Asset impairments
of $0.8 million, and expenditure related to non‑capitalisable project
costs (scoping, feasibility, engagement. options identification) $0.4 million
greater than budgeted
· unbudgeted
expenditure for temporary/consultancy resource $0.4 million due to and offset
by vacancies in permanent staff
Other
comprehensive income
5.33 The
infrastructure assets are revalued every year to smooth out the large
fluctuations, and land is revalued when its fair value diverges materially from
its carrying value. The revaluation as at 30 June 2018 resulted in a total
increase in asset value of $42.9 million, $26 million more than budget.
Council last revalued land as at 30 June 2017.
Statements of financial
position
5.34 Current
assets are $11 million greater than budget relating to the on call deposit of
$5 million, unbudgeted cash surpluses and a short term deposit of $5 million
offsetting the prefunding of term borrowings maturing in March 2019.
5.35 Property,
plant, and equipment was $21.2 million more than budget. The opening balance at
1 July was $23 million more than forecast at the time of setting the 2017/18
budget, asset revaluations were $26 million more than budget, capital additions
were $22.7 million less than budget, disposals and impairments were $5.3 million
more than budget, depreciation $0.7 million less than budget and vested asset
additions were $1.1 million less than budget.
5.36 Forestry
assets are $761,000 less than budget due to greater volumes harvested than
budgeted for.
5.37 Current
trade and other payables are $2.3 million less than budget. The opening balance
at 1 July was $5.6m less than forecast at the time of setting the 2017/18
budget, and trade payables and other creditors balances have increased over the
year including new transactions related to the NRTLBU and the IT hardware
replacement programme.
5.38 Total
borrowings were $25.0 million below budget due to the difference in the opening
balance at 1 July ($9.7 million) and lower capital investment than budgeted,
offset by the prefunding of $5 million of existing debt that is maturing in
March 2019 (held on deposit until required).
5.39 Reserves
are $62 million more than budgeted. The opening balance at 1 July was $32.3
million more than forecast at the time of setting the 2017/18 budget, the asset
revaluation was $26 million more than budget, $7.7 million more than budget was
transferred to reserves from equity (particularly for forestry, landfill and
solid waste reserves) and $4 million of revaluation reserve was released to
equity relating to the disposal of assets.
External
Debt
5.40 The
Council’s external borrowings as at 30 June 2018 were $96.4 million,
($92.4 million in 2016/17) summarised in Note 27 of the financial
statements. Council’s overall debt usually increases primarily as a
result of the capital expenditure program, however in 2017/18 Council also
undertook to pre-fund $5m of debt due to mature in March 2019 in order to take
advantage of favourable interest rate margins at the time. There is an
offsetting term deposit in place to match the pre-funding.
5.41 Borrowings
net of deposits and cash were $84 million, compared to a budget of $118.9
million. $7.6 million of that variance is due to lower brought forward debt
balances.
5.42 Other
capital income from subsidies, development contributions and asset sales were
in excess of budget by $1.2 million and capital expenditure was less than
planned by $25.8 million resulting in a smaller increase in external debt than
anticipated ($4 million rather than $29 million increase).
Financial prudence results
5.43 Council
is required to include information on financial performance in relation to
various benchmarks in the annual report. Council continues to demonstrate
prudent financial management and has met or achieved all benchmarks once again,
continuing an enviable record in relation to these mandated benchmarks.
5.44 A
summary of the information found on pages 104 to 111 in the Annual report is
included in the following table:
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Measure
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Result
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Benchmark
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Rates (income) affordability
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$69.8m
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$93m
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Achieved
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Rates (increases) affordability
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2.8%
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3.8%
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Achieved
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Balanced budget (revenue:expenditure)
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105%
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100%
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Achieved
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Debt affordability (% of revenue)
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73%
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150%
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Achieved
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Essential services (capital expenditure:depreciation)
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126%
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100%
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Achieved
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Debt servicing (interest:revenue)
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4%
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10%
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Achieved
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Debt control (actual:budget)
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65%
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100%
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Achieved
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Operational control (actual:budget net cashflow from
operations)
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115%
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100%
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Achieved
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Material differences from draft Annual Report
5.45 The
draft Annual Report went to the Audit Risk and Finance Subcommittee on 25
September. Since that time, the audit has been completed.
5.46 There
have been no changes to the results of Council in the statement of
comprehensive revenue and expense, and only minor changes in the balance sheet
(and associated notes), particularly in receivables, payables, and borrowings
relating to the consolidation of the sewerage and landfill business units. All
changes have been agreed with Audit NZ.
6. Options
6.1 Option
1 is the preferred option.
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Option 1: Accept the recommendations
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Advantages
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· Meets statutory
timeframes
· Allows timely
production and distribution of the Annual Report
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Risks and Disadvantages
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· There will be no
further opportunity for Council to review any minor amendments prior to
publishing.
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Option 2: Not accept the recommendations
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Advantages
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· None
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Risks and Disadvantages
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· 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.
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7. Conclusion
7.1 It
is recommended that Council adopt the Annual Report for the 2017/18 year.
Author: Tracey
Hughes, Senior Accountant
Attachments
Attachment 1: A1983431
Annual Report 2017/18 ⇩
Attachment 2: A2080132
Financial statements and notes to the accounts ⇩
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Important considerations for decision making
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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.
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2. Consistency
with Community Outcomes and Council Policy
The decision to adopt the Annual Report aligns with
the following community outcome:
· Our Council
provides leadership and fosters partnerships, a regional perspective and
community engagement.
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3. Risk
The adoption of the Annual Report carries little
risk as it is a procedural matter required under legislation.
There is a risk that if Council does not adopt the
Annual Report by 31 October Council would be mentioned in the Office of the
Auditor General’s report to Parliament.
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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 2018 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 2017/18 financial year.
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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.
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6. Inclusion
of Māori in the decision making process
Māori have not been consulted on this
decision.
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7. Delegations
The Audit, Risk and Finance Subcommittee has the
following delegations to consider the adoption of the Annual Report.
Areas of Responsibility
· Council’s
Annual Report
Powers to Recommend:
· Adoption of Council’s Annual Report
At its meeting on 25 September, the Audit, Risk and
Finance Subcommittee referred all powers in relation to the adoption of
Council’s Annual Report to Council provided there were no significant
changes resulting from the audit.
The adoption of the Annual Report is a decision of
Council.
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Nelson City Council
