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17 February 2021

Memo to:             Elected Members

Memo from:         Governance Advisers

Subject:              Council 18 February 2021 – LATE ITEM



7.       Late Item: Adoption of the Draft Financial Strategy                                                                      3 - 21

Document R22545

A report titled Adoption of the Draft Financial Strategy is attached and to be considered as a major late item at this meeting.  This report was listed as item 7 on the public agenda for the Council meeting on 18 February 2021 to ensure elected members were aware that it would be presented to this meeting.

Section 46A(1)-(6) of the Local Government Official Information and Meetings Act 1987 and Standing Order 9.8 require that agendas are distributed with the associated reports.  As this report was not distributed with the agenda for this meeting, it must be treated as a major late item to be considered at this meeting.

In accordance with section 46A(7) of the Local Government Official Information and Meetings Act 1987 and Standing Order 9.12, a procedural resolution is required before a major item that is not on the agenda for the meeting may be dealt with.

In accordance with section 46A(7)(b)(i) the reason why the item was not on the agenda is because it came to hand after the agenda had been distributed.

In accordance with section 46A(7)(b)(ii) the reason why discussion of this item cannot be delayed until a subsequent meeting is because a resolution on the matter is required before the next scheduled meeting of the Council to enable a timely decision to be made.






That the Council

1.     Considers the item regarding Adoption of the Draft Financial Strategy at this meeting as a major item not on the agenda, pursuant to Section 46A(7)(a) of the Local Government Official Information and Meetings Act 1987, to enable a timely decision to be made.






Item 7: Adoption of the Draft Financial Strategy



18 February 2021




Adoption of the Draft Financial Strategy



1.       Purpose of Report

1.1       To adopt the draft Financial Strategy as part of the Long Term Plan 2021–31 (LTP) process.

2.       Summary

2.1       Council must, as part of the LTP, prepare and adopt a financial strategy for all of the consecutive financial years covered by the LTP.

2.2       Section 101A of the Local Government Act 2002 sets out that the purpose of the financial strategy is to:

2.2.1    Facilitate prudent financial management by the Council by providing a guide for the Council to consider proposals for funding and expenditure against; and

2.2.2    Provide a context for consultation on the Council’s proposals for funding and expenditure by making transparent the overall effects of those proposals on the Council’s services, rates, debt and investments.



3.       Recommendation


That the Council

1.     Receives the report Adoption of the Draft Financial Strategy (R22545) and its attachment (A2533099); and

2.     Adopts the Draft Financial Strategy (A2533099).




4.       Background

4.1       The key aspects of the amended Financial Strategy have been discussed with elected members at LTP workshops in October and December 2020 and January and February 2021.

4.2       A number of amendments have been made to the Financial Strategy. These are represented in red in Attachment 1: A2574126

5.       Discussion

          Council needs to consider requirements of section 101

5.1       Council needs to consider the requirements of s101 of the LGA 2002 which requires that Council “manage its revenues, expenses, assets, liabilities, investments, and general financial dealings prudently and in a manner that promotes the current and future interests of the community.”

5.2       Council includes consideration of these matters through its usual decision making processes, including the table on important considerations for decision making appended to reports.

5.3       Council must also make adequate and effective provision in its Long Term Plan to meet the expenditure needs identified in the Plan. The proposed Financial Strategy does this through its revenue and debt limits.

          Multiple years for budget recovery following COVID-19

5.4       Council resolved in July 2020 to have a net zero rates increase and set an unbalanced budget for 2020/21 given the COVID-19 pandemic and its effects on the local economy and ratepayers. This was to enable the planned levels of services to continue.

5.5       It was acknowledged during this process that Council’s finances would not immediately recover in the following year. This is due to the effect that this would have on rates and ongoing lower Council revenue streams. It was also noted that any decrease in rates in one year would typically increase the percentage increase in the following year, unless there was a permanent change to levels of service.

          Impact of COVID-19 recognised

5.6       COVID-19 is one of the biggest challenges Council has had to face. A new paragraph has been added to the Strategy to demonstrate that while this is an ongoing situation, COVID-19 and the effects it has had on the community have been taken into account throughout the document.

          Three Waters assumption added

5.7       An addition of an assumption about the Three Waters Reform Programme (that there will be a continuing provision of water services by Council) has been added. Central government’s work programme proposed new entities be established to manage the local government Three Waters’ assets. While this, once implemented, will have a significant impact on Council’s Financial Strategy, the detail of this work programme is not yet known and therefore it is prudent to reflect this is in the Strategy.

          Changes to depreciation to spread costs of revaluations

5.8       Assets are required to be revalued every two years under Council’s Accounting Policies. As at 30 June 2020, a revaluation was performed and Council assets increased in value by $130.5 million. The three water assets made up $105 million of this increase and Transport assets $24.3 million, with the remaining $1.2 million being Flood protection and Solid Waste.

5.9       The increase in rates funding of depreciation for the revaluation of these assets is 3% on rates. Given COVID-19, other pressures on Council funding and community affordability of increases in rates, it is proposed that Council departs from its usual practice of funding depreciation from revaluations commencing the year following the revaluation.

5.10     It is proposed that the increase in depreciation costs be spread and phased in over Year 2 to Year 6 of the LTP. The draft Strategy has been written to reflect this change in practice.

          Net debt, debt/revenue ratio, rates and rate cap

5.11     Due to the increasing levels of capital expenditure, as outlined in the Infrastructure Strategy, Council is proposing to increase its debt to revenue ratio limits to 175% from 150%, to fund the investment. The capital expenditure programme includes social and community infrastructure such as libraries and other community facilities, transport and Three Waters infrastructure.

5.12     In order to keep debt at lower levels than it would otherwise be, and under the Debt to Revenue ratio of 175%, it is proposed to set annual rates increases at the new rates cap of LGCI + 2.5% (previously LGCI + 2%), except for Year 1. In Year 1 the overall rates increase is proposed to be 5.7% vs LGCI + 2.5% of 6.3%.

5.13     The net debt, debt to revenue, rates and rate cap figures have been updated to include the latest financial information. This is outlined on pages 7 and 8 of the Strategy.

          Forecasted increase for capital and operational expenditure

5.14     The ten year forecast capital expenditure was $462 million (including inflation, excluding vested assets and the joint business units) in the 2018 LTP of which $144 million is for renewals. This has been increased to $631 million for the draft LTP 2021-2031, of which $230 million is for renewals. Overall capital expenditure has increased by $169million.

5.15     The forecast 10 year operational expenditure has increased from $1,254 million in 2018 to $1,522 million in 2021.

          Shortfall funded through the Emergency Fund

5.16     At the Extraordinary Meeting held on 23 April 2020, Council agreed to address the 2020/21 Annual Plan unbalanced budget by drawing down against the Emergency Fund (previously named the Disaster Recovery Fund). The fund was projected to be $4.3 million overdrawn at 30 June 2021.

5.17     To respond to the ongoing financial impacts of COVID-19 and to spread the impacts of rate movements, Council proposes to draw down a further $5.1 million from this fund in the first four years of the Long Term Plan. In years 5-10, Council will contribute $30.3 million to the fund, resulting in a projected balance of $20.9 million at the end of the ten year period. 

          Contingency Funding

5.18     Council builds contingency funding into capital expenditure projects. Contingency funding manages the risk of cost escalations and covers potential cost estimate shortfalls which may arise as a result of unexpected delays or complexities. Contingency funding is used to improve our financial stability and our ability to fund projects within their budgets. When projects go through their lifecycle, and as the designs are refined, the need for contingency funding is reduced.

5.19     Council has made an overall downward adjustment to the total capital programme of approximately 10% per year. This adjustment acknowledges that Council is unlikely to use the full amount of contingency in the programme for every project and enables Council to avoid overfunding the activities.

6.       Options


Option 1: Adopt the proposed policy (Recommended)


·   Reflects Council’s view in prudent financial management

·   Ensures a clear governance position on financial matters is available for auditors

Risks and Disadvantages

·   No significant risks or disadvantages

Option 2: Do not adopt the proposed policy (Not recommended)


·    None known

Risks and Disadvantages

·    Lack of clarity about the governance view of appropriate financial management

·    Fails to fulfil statutory requirements to adopt a Financial Strategy for the LTP


7.       Next Steps

7.1       The Strategy will be updated if necessary to reflect any changes through the audit process and will form part of the supporting documents for the LTP 2021-31 consultation process.


Author:           Clare Knox, Manager Finance


Attachment 1:    A2533099 - Long Term Plan 2021-31 - Draft Financial Strategy



Important considerations for decision making

1.   Fit with Purpose of Local Government

Section 101A of the Local Government Act 2002 requires Council, as part of the Long Term Plan, to prepare and adopt a Financial Strategy.

2.   Consistency with Community Outcomes and Council Policy

The Financial Strategy aligns with the LTP Consultation Document supporting documents and adoption of the Financial Strategy supports all of the community outcomes.

3.   Risk

 There is a risk that some in the community may not support changes to the Financial Strategy. However, the public have an opportunity to submit on the Strategy as part of the LTP consultation process.

4.   Financial impact

Adoption of the Financial Strategy will determine the level of funding, rates, rates cap, funding of depreciation and other financial impacts. The Strategy needs to cover the ten years of the LTP.

5.   Degree of significance and level of engagement

This matter is of high significance as it determines the financial strategy of the Council for the next ten years. As a LTP supporting document, the public will be consulted as part of the wider LTP consultation process. The Strategy is reviewed every three years.

6.   Climate Impact

The impacts on the climate have been considered as part of the development of the Activity Management Plans and Infrastructure Strategy. The information from this and other processes has been checked for consistency with the Financial Strategy limits and policy.

7.   Inclusion of Māori in the decision making process

No engagement with Māori has been undertaken in preparing this report, although the LTP and Financial Strategy has been discussed in broad terms at the Iwi-Council partnership hui.

8.   Delegations

The Council has the responsibility for development of the Long Term Plan and its related processes.


Item 7: Adoption of the Draft Financial Strategy: Attachment 1

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