Item 5: Annual Report
Adoption
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Council
31 October 2024
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Report
Title: Annual
Report Adoption
Report
Author: Prabath
Jayawardana - Manager Finance
Jessica
Ettridge – Manager Strategy
Report
Authoriser: Nikki Harrison - Group Manager Corporate
Services
Nicky
McDonald – Group Manager Strategy and Communications
Report
Number: R28816
1. Purpose
of Report
1.1 To
adopt the Annual Report for the year ending 30 June 2024 in accordance with
section 98 of the Local Government Act.
2. Summary
2.1 The
Local Government Act requires Council to adopt the final Annual Report within
four months after the end of the financial year (i.e. by 31 October).
2.2 Audit
New Zealand commenced auditing the draft Annual Report 2023/24 in September
2024, and audit work will be complete by the date of this meeting. Any final
amendments to the draft Annual Report will be tabled at this meeting, along
with the audit report. No significant issues have been identified during the
audit.
2.3 The
Annual Report 2023/24 presents the financial performance of the Council over
the previous year. Council recorded an accounting deficit before the
revaluations for the year ended 30 June 2024 of $7.3m against a budgeted
surplus of $6.2m. At a high level the main drivers of the variance are
additional depreciation of $1.9m, net interest cost of $1.9m, insurance costs
of $1.5m, other losses of $6.1m and Tahuna beach remediation accrual of $2.6m.
3. Recommendation
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That the
Council
1. Receives
the report Annual Report Adoption (R28816) and its attachment/s and its Attachment;
and
2. Adopts
the Annual Report for the year ended 30 June 2024 (Attachment 1 NDOCS-839498445-19946)
in accordance with S98 of the Local Government Act 2002; and
3. Receives
the Audit New Zealand Opinion as tabled at the meeting; and
4. Delegates
his Worship the Mayor and the Chief Executive authority to approve minor
editorial changes to the Annual Report 2023/24 as necessary.
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4. Background
4.1 The
purpose of the Annual Report is to compare the actual activities and
performance of Council with those set out in the Annual Plan 2023/24. It is
also a means to enable accountability to the community for the decisions
Council has made throughout the year.
4.2 Progress
has been made across a range of projects in line with Council’s Long Term
Plan 2021-31 (LTP), however the recovery from the August 2022 severe weather
event continued to impact all activities across Council. Council achieved 80.6%
of its performance measures in 2023/24, which is an increase from the 2022/23
result of 77.6%.
4.3 Of
the remaining measures, 10.4% were substantially achieved. Substantially
achieved applies when the end of year result is within 10% of the target for
the year (but is not included in the final achieved count for the year). 7.5%
of the measures were not achieved, and one measure was not due for measurement
in the 2023/24 year.
4.4 An
initial draft of the Annual Report 2023/24 was presented to the Audit, Risk and
Finance Committee on 18 September 2024 for information and to provide an
opportunity for feedback. The Committee suggested that it would be good to
provide an expanded introduction which summarised key achievements of the
2023/24 year and this has been added.
4.5 The
Annual Report includes both the parent (Nelson City Council and its share of
joint operations; Nelson Regional Sewerage Business Unit, Nelson Tasman
Regional Landfill Business Unit and Civil Defence Emergency Management Business
Unit) 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.
4.6 As
Council does not have a controlling interest in its associates (Infrastructure
Holdings limited and Tasman Bays Heritage Trust) these are equity accounted.
Nelson Regional Sewerage Business Unit, Nelson Tasman Regional Landfill
Business Unit, and the 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.
5. Discussion
Highlights and key projects for
2023/24
5.1 Despite a
challenging year Council has continued to deliver core services while also
investing in services that make a real difference to the community. The Annual
Report includes highlights and key projects for 2023/24 from each activity
area, and these range broadly from infrastructure upgrades to community events.
Three of Council’s significant achievements for the reporting period are
highlighted below:
5.1.1 The August 2022 Severe Weather
Event created widespread flooding and severe landslips which impacted
Council’s infrastructure as well as private homes. In 2023/24, we spent
$17.9m on recovery work, which will continue into 2024/25. Central government
has supported Council with funding to help remediate landslips and buy out
properties where land instability has created an intolerable risk to life.
5.1.2 In December 2023, Te Tauihu
Mayors and Iwi Chairs signed the Kia Kotahi Te Tauihu Partnership Agreement,
which promotes collaborative work on mutual interests and addresses broader
strategic and regional challenges. This strengthening of our relationship with
iwi will benefit the whole community.
5.1.3 Council has exceeded its carbon
emissions reduction goals with total greenhouse gas emissions down 89% since
the baseline reporting year of 2017/18, largely due to capturing methane at the
landfill. We still have considerable work to reduce other types of emissions,
specifically those that are not biogenic methane.
Non-financial performance
5.2 Council measures
its non-financial success against performance measures that are set through the
LTP. The LTP established 67 performance measures across Council’s eleven
activity areas. The measures are recorded as achieved, substantially achieved,
not achieved, or not measured (where insufficient data is available to
determine a result) at the end of the year.
5.3 Council achieved
Council achieved 54 (80.6%) of it’s non-financial performance measures in
2023/24, which is an increase from the 2022/23 result of 52 (77.6%). Commentary
on all measures is provided in the activity sections of Attachment 1.
Surplus/Deficit
5.4 The
Annual Report 2023/24 presents the financial performance of the Council over
the previous year. Council recorded an accounting deficit before the
revaluations for the year ended 30 June 2024 of $7.3m against a budgeted
surplus of $6.2m. At a high level the main drivers of the variance are
additional depreciation of $1.9m, net interest cost of $1.9m, insurance costs
of $1.5m, other losses of $6.1m and Tahuna beach remediation accrual of $2.6m.
The detailed reasons for this variance will be explained in the final Annual
Report Note 40. This is yet to be finalized however the variances are mainly
due to following reasons:
5.5 Fees
and charges are $0.6m higher than budget, which is mainly due to water by meter
charges being higher than budget by $0.7m due to higher usage than planned.
5.6 Subsidies
and grants are $1.4m lower than budget mainly due to the following:
5.6.1 Waka
Kotahi income is $3.6m less than budget.
5.6.2 IAF
Active Linear Corridor $1.5m budgeted but not received.
5.6.3 Contribution
from Waste Minimization Fund - $1.3m budgeted but not received.
5.6.4 Crown
slip effected properties grant is $4.1m which is unbudgeted.
5.7 Finance
income is $1.4m greater than budgeted. This is due to interest on short-term
investments (i.e. pre-funding of debt).
5.8 Development/financial
contributions are $1.4m lower than budget due to less development activity than
budgeted.
5.9 Other
revenue is $1.8m greater than budget due to the following reasons:
5.9.1 Vested
asset income is $4.2m more than budgeted.
5.9.2 Dividend/subvention
income was $3.3m less than budgeted as the Infrastructure Holdings Limited
(IHL) dividend has not been accrued due to the new IHL dividend policy,
resulting in a shortfall of $3m compared to budget plus Nelmac subvention under
budget by $0.3m.
5.10 Other
losses are $6.1m higher than budget mainly due to $4.3m of abandoned assets as
a result of the August 2022 flood event (driven by $2.1m of wastewater assets
and $1.1m of water supply assets).
5.11 Personnel
costs are $2.5m higher than the Annual Plan budget mainly due to the activity
funded staff costs. These costs are covered by savings in other expenses or
additional income, resulting in a net impact of zero on the council’s
overall performance. For further details on this variance, please refer to the
Audit Risk and Finance Committee on 18th September 2024 (R28614).
5.12 Depreciation
and amortisation expense was $1.9m greater than budgeted. In the 2022/23
financials, the asset valuations saw significant increases. This resulted
in a much higher depreciation expense than budgeted for, particularly in Roads,
Wastewater, Stormwater, and Water Supply.
5.13 Finance
costs are greater than budget by $3.3m. This increase is due to additional
pre-funding of debt (offset against additional interest income of $1.4m in 5.7
above leaving net interest over by $1.9m) and higher interest rates and higher
borrowings than planned during the year.
5.14 Other
expenses were $1m greater than budget. This was mainly driven by the below
increases/decreases:
5.14.1 $2.6m unbudgeted
Tahuna sawdust mitigation accrual.
5.14.2 $1.5m higher
than planned insurance cost due to increase in premium rates and asset values.
5.14.3 $0.6m higher
than planned Resource Consent job purchases due to higher usage of consultants
due to staff vacancies (this is partially offset by savings in personnel costs
and higher fees and charges).
5.14.4 $3.75m lower
than planned Housing Reserve Grant. This was carried forward to next financial
year as a part of Long Term Plan Deliberations report (R28349) that went to
Council on 23 May 2024.
5.14.5 $0.3m higher
than planned weather event costs.
5.15 The
Land and Infrastructure Revaluations is $89.4m compared with a budget of $38m
($51.4m over budget):
5.15.1 Infrastructure
assets are revalued fully every second year and this year is a full revaluation
year. In the interim years the assets are revalued via applying industry
indices to smooth out the large fluctuations. Infrastructure revaluation
increases accounted for $76.6m, with $52.3m specifically related to transport,
contributing to a total revaluation of $89.4m against a budget of $38m. These
figures are currently under review by the audit team and may be subject to
change.
5.15.2 Land was
revalued in 2023/24 and increased by $12.8m against a Nil budget. This has no
impact on rates.
External
Debt
5.16 At
30 June 2024 Council’s borrowings, net of deposits, cash and LGFA
borrower notes were $223.5m compared to a budget of $207.9m. The actual net
debt is higher than the budget mainly due to additional debt raised to fund the
costs related to the weather event including property purchases and slip
remediation works that were expedited from 2024/25 budget.
Financial prudence results
5.17 Council is required to
include information on financial performance in relation to various benchmarks
in the Annual Report.
5.18 A summary of this
information 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 (increases) affordability
(actual
rates increase vs rates cap)
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7.2%
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<6.8%
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Not achieved
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Balanced Budget (revenue:expenditure)
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95%
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>100%
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Not achieved
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Debt affordability (% of revenue)
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133%
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<150%
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Achieved
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Essential services (capital
expenditure:depreciation)
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156%
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>100%
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Achieved
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Debt Servicing (interest:revenue)
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6.61%
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<10%
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Achieved
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Debt Control (actual:budget)
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110%
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<100%
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Not achieved
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Operational Control (actual:budget net
cashflow from operations)
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73%
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>100%
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Not achieved
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5.19 The following benchmarks
were not achieved:
5.19.1 Rates increases affordability
(Actual rates increase vs Rates cap) was not achieved due to inflationary
pressures when setting the rates for 2023/24 that are driving up costs at
Council, along with rising interest costs, higher than anticipated depreciation
due to the infrastructure revaluation, staff salary increases and the costs
from the August 2022 severe weather event.
5.19.2 A balanced
budget (Revenue/Expenditure) was not achieved due to an increased provision for
the Tahuna sawdust mitigation, higher than anticipated depreciation due to the
infrastructure revaluation and higher than budgeted insurance and interest
costs.
5.19.3 Debt control
(Actual debt/Planned debt) was not achieved due to additional debt raised to
fund the costs related to the weather event including property purchases and
slip remediation works that were expedited from 2024/25 budget.
5.19.4 Operational
control (Actual net cash flow from operations vs planned) was not met mainly
due to higher insurance and interest costs than budgeted, and lower than
budgeted development contribution income.
6. Options
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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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· No further opportunity for Council to review minor amendments
prior to publishing.
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Advantages
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· None
identified.
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Risks and Disadvantages
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· Adoption of the Annual Report will not meet statutory timeframes.
· Not meeting statutory timeframes may be a consideration by
Standard and Poor’s for the Council credit rating.
· The Annual Report will not be available to the public in a timely
manner.
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7. Conclusion
7.1 It is
recommended that Council adopts the Annual Report for the 2023/24 year.
8. Next Steps
8.1 Following
adoption by Council the Annual Report 2023/24 will be made available online,
and printed copies provided for reference at Council’s public libraries
and the Customer Service Centre. An article on the Annual Report will be
included in an upcoming edition of Our Nelson.
8.2 Council is
required to make publicly available a summary of the information contained in the Annual Report within one month of
its adoption. An audited Summary Annual Report 2023/24 will be made available
online, as well as at Council’s public libraries and the Customer Service
Centre.
Attachments
Attachment 1: Draft
Annual Report 2023/24 ⇩
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Important considerations for decision making
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Fit with Purpose of Local Government
The Annual Report 2023/24 is a requirement of the
Local Government Act 2002 and fits the purpose of local government by
providing information about Council’s performance during the year
– this contributes to democratic local decision making on behalf of the
community.
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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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Risk
The content of the Annual Report is prescribed by
statute so there is a very low risk that it will not achieve the required
outcome.
The Local Government Act 2002 requires Council to
adopt the final Annual Report within four months of the end of the financial
year (31 October). If Council does not adopt the Annual Report at this
meeting, the deadline will not be met.
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Financial impact
There is no immediate financial impact from this
decision – preparation and publication of the Annual Report can be
achieved within existing budgets. The Annual Report itself outlines the
financial position of Council at the end of the 2023/24 financial year.
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Degree of significance and level of
engagement
This decision is of low significance and does not
require engagement.
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Climate Impact
The
Annual Report contains a summary of Council’s climate change actions in
2023/24, promoting awareness of Council’s work in this area.
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Inclusion of Māori in the
decision making process
No engagement with Māori has been undertaken in
preparing this report.
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Delegations
The adoption of the Annual
Report is a decision that can only be made by the Council.
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Notice of the Ordinary meeting of
