Agenda of Corporate and Strategic Committee

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: Report and Recommendations from the Finance Audit and Risk Sub-committee

Reason for Report

1. The following matters were considered by the Finance Audit and Risk Sub-committee (FARS) meeting on 12 February 2020 and subsequently at a workshop with staff and the Internal Auditor, Crowe, and are now presented for the Committee’s consideration, alongside any additional commentary the Sub-committee Chair wishes to offer.

Confirmation of the Terms of Reference for the FARS

2. This item was taken as read and the Terms of Reference confirmed as proposed.

Confirmation of the Sub-committee Work Programme

3. This item provided the opportunity for the sub-committee to influence, in light of its confirmed Terms of Reference, the work programme for the remainder of the 2019-22 triennium. Extensive discussions traversed internal and external audit, potential section 17a activity and Risk Management framework reviews, and internal processes and controls to manage financial proposals for investment or funding requests. Following discussions it was agreed that staff will create an Audit Action list, as a live document that tracks progress against internal audit recommendations, and the Sub-committee resolved:

3.1. Agrees that the work programme for the Sub-committee will be developed through workshops ahead of confirming the schedule of work and budget allocations at the 13 May FARS meeting, and that in the meantime Internal Audits agreed in August 2019 will be scoped and/or carried out as planned.

3.2. The internal audits agreed were:

3.2.1. Water Management follow-up

3.2.2. Asset Management

3.2.3. Risk Management.

4. After further discussions at a workshop on 3 March 2020, the following actions were proposed. The minutes from the workshop are included with this paper.

4.1. To confirm the asset management audit, which had been previously scheduled for the 2019-20 audit programme, would be delayed. There is already a review underway by Waugh Infrastructure so any audit would have more value later. It was felt more useful to carry out a review on the Water Management follow-up audit agreed in May 2019. This would be in the form of a recap and closure of the audit recommendations and management actions in response with the intention to a future audit once Three Waters legislation and regulation is in effect.

4.2. In addition to the inclusion of the Water Management follow-up, any other audit actions could be included in this piece of work. This will ensure that any outstanding actions are addressed. The scope for this review is attached for the Committee’s consideration.

4.3. To seek confirmation from C&S to the Risk Management review scope (attached). The scope of the risk management review will include how risks are identified from across the business.

4.4. The 2020-2021 audit programme to include “Staff attraction/retention and welfare”, as well as Council’s grants process.

5. Cyber security internal audit progress on management actions to be reported to FARS.

6. The audit review on eels management and gantry/lifting equipment processes to be carried out but will sit outside the scheduled ‘internal audit’ umbrella.

Risk Assessment and Management

7. This item provided the Sub-committee with the six-monthly review of the risks that Council is exposed to and the mitigation actions in place to manage Council’s risk profile.

8. Following discussions about CDEM staff training, initiatives to attract and retain suitably qualified staff, IT failure, and the organisation’s preparedness in response to the corona virus, the Sub-committee resolution was:

8.1. Advises staff of the specific risks (following) that require reassessment to confirm the level of risk is accurate and internal controls are adequate, for reporting back to the 13 May 2020 Sub-committee meeting.

8.1.1. ORG002: Ability to retain and attract appropriately skilled staff

8.1.2. CORP001: ICT Failure - Business Wide.

Introduction to Council’s Audit NZ Auditor

9. The Sub-committee was introduced to Council’s appointed Auditor, Karen Young, who outlined Audit NZ’s role and how her engagement with Council will occur.

Treasury Report for Period to 31 December 2019

10. This agenda item provided an update on the compliance monitoring of treasury activity and the performance of Council’s diversified investment portfolios, as presented by PwC. Discussions traversed the establishment of council’s current management and reporting framework including the review and updating of the Treasury Policy, SIPO (reviewed annually), and design of the Treasury report, Portfolio returns and ethical investments; with the Sub-committee resolution being:

10.1. That the Finance, Audit and Risk Sub-committee receives and notes the “Treasury Report for period to 31 December 2019” staff report and that recommended amendments to the SIPO be provided to the 11 March 2020 Corporate and Strategic Committee meeting for adoption

Business Continuance Plan

11. This agenda item provided the Sub-committee with the updated Business Continuance Plan, completed in response to a series of recommendations from the 2018 independent review undertaken by Kestrel Group. The item also provided an update on the ongoing process staff are undertaking to address outstanding issues identified through the review.

Cyber Security Internal Audit

12. The item provided the report on the Cyber Security internal audit undertaken by Crowe Horwath, including descriptions of management actions that have been undertaken or that are planned for the future in response to the report’s findings and recommendations. The resolution of the Sub-committee was:

12.1. That the Finance, Audit & Risk Sub-Committee Committee receives and notes the “Cyber Security Internal Audit” staff report and requests that staff report back to the May FARS meeting on progress on management actions that have been undertaken to respond to the issues identified and recommendations made in the Crowe Horwath Cyber Security internal audit report.

Procurement Policy and Procurement Manual Update

13. This agenda item was not considered by the FARS, and deferred to the 13 May 2020 meeting.

Financial Results for the Period to 31 December 2019

14. This agenda item was not considered by the FARS, and deferred to the 11 March 2020 meeting of the Corporate and Strategic Committee.

Decision Making Process

15. These items were specifically considered by the Finance, Audit and Risk Sub-committee on 12 February 2020 and are now the subject of the following recommendations to the Corporate and Strategic Committee.

Recommendations

The Finance, Audit and Risk Sub-committee recommends that the Corporate and Strategic Committee:

1. Receives and notes the “Report and Recommendations from the 12 February 2020 Finance, Audit and Risk Sub-committee Meeting”

2. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that the Committee can exercise its discretion and make decisions on these items without conferring directly with the community or persons likely to have an interest in them.

Confirmation of the Terms of Reference for the Finance, Audit and Risk Sub-committee

3. Recommends that Hawke’s Bay Regional Council adopts the Terms of Reference (attached) as proposed to and confirmed by the 12 February 2020 Finance, Audit and Risk Sub-committee meeting.

Confirmation of the Sub-committee Work Programme

4. Agrees the proposed audit scopes (attached) for the 2019/20 Risk Management Review and the Review of the Follow-up for Water Management and other previous internal audits incorporating any agreed amendments, being:

4.1. ...

4.2. …

4.3. …

Noting that this would normally occur at Finance, Audit & Risk Sub-Committee meetings, however, in order to progress this work within the Calendar year, it is requested that at the Corporate and Strategic Committee meeting provide feedback and approval.

Risk Assessment and Management

5. Recommends that the Corporate and Strategic Committee receives and notes the resolutions of the Sub-committee, including the specific risks that require reassessment; being:

5.1. ORG002: Ability to retain and attract appropriately skilled staff

5.2. CORP001: ICT Failure - Business Wide.

Reports Received

6. Notes that the following reports were provided to the Finance Audit and Risk Sub-committee.

6.1. Introduction to Council’s Audit NZ Auditor

6.2. Confirmation of the Sub-committee Work Programme (resolved: Agrees that the work programme for the Sub-committee will be developed through workshops ahead of confirming the schedule of work and budget allocations at the 13 May 2019 FARS meeting, and that in the meantime Internal Audits agreed in August 2019 will be scoped and/or carried out as planned.)

6.3. Treasury Report for Period to 31 December 2019 (resolved: receives and notes the “Treasury Report for period to 31 December 2019” staff report and that recommended amendments to the SIPO be provided to the 11 March 2020 Corporate and Strategic Committee meeting for adoption.)

6.4. Business Continuity Plan (resolved: receives and accepts the “Business Continuity Plan” staff report and associated plan)

6.5. Cyber Security Internal Audit (resolved: receives and notes the “Cyber Security Internal Audit” staff report and requests that staff report back to the May FARS meeting on progress on management actions that have been undertaken to respond to the issues identified and recommendations made in the Crowe Horwath Cyber Security internal audit report.).

Authored by:

Leeanne Hooper

Governance Lead

Joanne Lawrence

Group Manager Office of the Chief Executive and Chair

Approved by:

Jessica Ellerm

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

⇩1	3 March 2020 Finance, Audit and Risk Sub-Committee Workshop notes
⇩2	Scope of HBRC 2020 Risk Managment Review
⇩3	Scope of HBRC 2020 Follow Up Review
⇩4	Proposed Terms of Reference for the Finance, Audit & Risk Sub-committee
⇩5	HBRC Treasury Reporting December 2019

Proposed Terms of Reference for the Finance, Audit & Risk Sub-committee

Attachment 4

Finance, Audit and Risk Sub-committee

Terms of Reference

for Council adoption 25 March 2020

1. Purpose

The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for:

1.1. The provision of appropriate controls to safeguard the Council’s financial and non-financial assets, the integrity of internal and external reporting and accountability arrangements

1.2. The review of Council’s revenue and expenditure policies and the effectiveness of those policies.

1.3. The independence and adequacy of internal and external audit functions

1.4. The robustness of risk management systems, processes and practices

1.5. Compliance with applicable laws, regulations, standards and best practice guidelines.

2. Specific Responsibilities

The Finance, Audit and Risk Sub-committee shall have responsibility and authority to:

2.1. Consider the appropriateness of the Council’s existing accounting policies and principles and any proposed changes

2.2. Satisfy itself that the financial statements and statements of service performance are supported by adequate management signoff and adequate internal controls and recommend adoption of the Annual Report by Council

2.3. Confirm that processes are in place to ensure that financial information included in Council’s Annual Report is consistent with the signed financial statements

2.4. Monitor the performance of Council’s investment portfolio

2.5. Confirm the terms of appointment and engagement of external auditors, including the nature and scope of the audit, timetable, and fees

2.6. Receive the internal and external audit report(s) and review actions to be taken by management on significant issues and recommendations raised within the report(s)

2.7. Enquire of internal and external auditors for any information that affects the quality and clarity of the Council’s financial statements and statements of service performance, and assess whether appropriate action has been taken by management in response to this

2.8. Conduct a sub-committee members-only session with Audit NZ to discuss any matters that the auditors wish to bring to the Sub-committee’s attention and/or any issues of independence

2.9. Review whether Council management has a current and comprehensive risk management framework and associated procedures for effective identification and management of the council’s significant risks in place

2.10. Undertake periodic monitoring of corporate risk assessment, and the internal controls instituted in response to such risks

2.11. Undertake systematic reviews of Council operational activities against Council stated performance criteria to determine efficiency/effectiveness of delivery of Council services

2.12. Review the effectiveness of the system for monitoring the Council’s compliance with laws (including governance legislation, regulations and associated government policies), Council’s own standards, and best practice guidelines; including health and safety.

3. Accountability

3.1. The Finance, Audit and Risk Sub-committee is not delegated to make any decisions unless by specific delegation of Council.

The Finance, Audit and Risk Sub-committee is delegated by Council to:

3.2. Obtain external legal or independent professional advice within approved budgets in the satisfaction of its responsibilities and duties

3.3. Secure the attendance at meetings of third parties with relevant experience and expertise as appropriate

3.4. Receive all of the information and documentation needed or requested to fulfill its responsibilities and duties, subject to applicable legislation

3.5. Ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management

3.6. Review the objectives and scope of the internal audit function, and ensure those objectives are aligned with Council’s overall risk management framework

3.7. Assess the performance of the internal audit function, and ensure that the function is adequately resourced and has appropriate authority and standing within Council.

4. Membership

4.1. Up to four members of Council, being: Councillors Will Foley, Craig Foss and Neil Kirton (confirmed by Council resolution 6 November 2019)

4.2. An external appointee, being: Rebekah Dinwoodie (confirmed by Council resolution 6 November 2019)

5. Chairperson

A member of the Committee as elected by the Council, being Councillor Craig Foss (confirmed by Council resolution 9 November 2016)

6. Meeting Frequency

The Committee shall meet quarterly, or as required

7. Quorum

The quorum at any meeting of the Committee shall be not less than 3 members of the Committee.

8. Officers Responsible

8.1. Chief Executive

8.2. Group Manager Corporate Services

8.3. Group Manager Office of the Chief Executive and Chair

HBRC Treasury Reporting December 2019

Attachment 5

3.0 SIPO review

We have undertaken a review of the SIPO and requested comments from both PwC and the investment managers. This section highlights areas where the statement could be enhanced. PwC believe the SIPO remains fit for purpose.

PwC SIPO comments

Whilst PwC agree that Council’s return target may be more difficult to achieve over coming years due to the historically low interest rate environment and extended investment markets, PwC do not believe it prudent to alter the portfolio’s strategic asset allocation by moderating the risk profile. This would introduce a level of risk to the portfolio that is not congruent with Council’s willingness and ability to take risk. It may also hinder Council’s ability to achieve its investment objectives should a significant negative event occur in any period.

Comments 7 and 8 below refer to Jarden’s inability to invest in illiquid assets under the current SIPO. PwC believe this should be reviewed to ensure it is fairly aligned with Mercer’s ability to invest up to 10% of the portfolio in illiquid, ‘unlisted property’ and ‘unlisted infrastructure’. PwC agree with Jarden’s comment that as long as there is an expected accelerated return for the additional risk of investing in illiquid assets that are expected to be held over the medium term, an acceptable proportion of the Fund should benefit.

Comment 9 by Jarden refers to the minimum credit rating required for fixed income investments. PwC agree with Jarden’s view that the minimum rating could be lowered to BBB- from BBB+. This would continue to maintain a minimum ‘investment grade’ credit rating across the portfolio, enhance the fixed income yield opportunity and diversification allowing access to a deeper issuance population. There have been minimal defaults in the global BBB credit rating space over the past four decades; the highest year was 1% of total BBB issuance in 2002 and has been close to 0% over the past decade.

Comment 11 by Mercer refers to a minor wording adjustment around hedging. PwC believe this is a suitable change.

Comment 13 by Mercer refers to a more formalised ethical investment policy as part of this SIPO review. Based on recent discussions with management, PwC believe this issue will become more important over the coming years and believe it would be appropriate to start formalising a policy at this juncture. PwC understand that a discussion with elected councillors to articulate this policy is to be undertaken.

Comments 12 and 14 by Mercer are minor administration points that Council may wish to update in the SIPO.

PwC also recommend updating the SIPO to reflect there are now three separate portfolios with each investment manager, including the capital amount invested into each one and the respective dates of inception.

Conclusion

PwC do not suggest any further changes to the SIPO to those mentioned above. PwC will wait for the above changes to be discussed by the Finance and Audit Risk Committee before formally updating the SIPO.

Jarden’s SIPO comments

1. Is the asset allocation too conservative? Council have assessed the capacity to take risk as low to moderate noting: Financial capacity and cash flow requirements: Council’s cash flow requirements imply low capacity to tolerate short to medium term volatility in the value of its Investment Fund. This reduces the capacity to accept risk. This is unfortunate as it means they are focused on the near term despite the long time horizon and has to be the factor which limits risk in the portfolio to 50:50 Growth:Income.

2. The willingness to accept risk is interesting as it says Council is a risk averse entity. Consequently we feel there is a reluctance to accept risk even though the conclusion is Council’s willingness to accept risk would characterised as moderate due to an acknowledgement of the impact of inflation.

3. Given we are looking at a low interest rate environment for some time the ability for Council to hit its return target in the short term will likely be challenged. Based on Jarden’s long term forecasts we expect a 60% growth 40% income portfolio to deliver 6.8%pa and a 80% growth 20% income portfolio to deliver 7.5%pa.

4. If the portfolios are ahead of their target return with respect to the reserving policy, Council might consider a temporary shift in asset allocation to growth with the knowledge that they have a buffer, if in fact a buffer exists?

5. We are happy for International bonds to remain fully hedged, as currency fluctuation just boost risk without benefiting long term returns for bonds.

6. We are interested in more investigation on International Equities hedging. We see historically there has been a gain to be had by NZ investors hedging offshore currency exposures. Last time Jarden did the exercise there was zero gain, although admittedly not a cost either. Typically we see the allocation to global equities left unhedged due to the currency stabiliser if there is a large NZ specific event. We see some arguments that the best option is to have 50% hedged and 50% unhedged which means you are indifferent to changes in the currency. There is no strong reason to change, but worth another look.

7. Given the long term nature of the fund and its size, we question the need to invest only in liquid securities. Jarden’s view is that as long as there is an expected extra return for the additional risk of investing in illiquid assets, we believe the fund should exploit this.

8. A limit should be imposed on the level of illiquid assets. This would require a review of Investment in assets other than those contemplated by this policy statement (including antiques, art, stamps, gold, silver, hedge funds, commodities, private equity or venture capital investments) are not permitted without the prior approval of the Council.

9. The minimum BBB+ credit rating seems conservative. We think consideration should be given to reducing to BBB if not BBB-. If nothing else this broadens the range of investments available. To ensure the portfolio doesn’t become over burdened with weaker credits we could set an average credit rating for the portfolio of say BBB+ and place lower limits on the holdings of weaker credits?

Mercer’s SIPO comments

10. Investment Performance Objective: taking current expected returns per asset class into account, we believe the 5% real return target may be too ambitious. Our modelling indicates that the Council’s current 50% Growth strategy has a very low (<10%) probability of achieving this objective over the long term.

11. Asset Class Guidelines (page 11): 4th bullet states a 50% lower bound for hedging, whereas the Foreign Exchange section on page 13 correctly notes a 30% bound. We suggest 30% is noted in both sections.

12. Rebalancing (page 12): the second paragraph may be interpreted to mean the Council needs to explicitly approve each rebalancing trade. In practice, this is carried out by Mercer on an ongoing basis. We would suggest the wording is amended to reflect the delegation of rebalancing activity.\

13. Ethical Investment (page 12): We understand the Council has given significant consideration to Ethical Investment issues but the SIPO reads fairly “light” in this regard. We would suggest formalising a more thorough RI Policy as part of the SIPO review.

14. Manager Performance (page 16): We would suggest adding SIPO compliance explicitly as one of the factors to be taken into account when reviewing the managers.

4.0 Liability Management Policy Compliance Checklist

The table below illustrates Council’s compliance with funding, interest rate and liquidity risk parameters set out within the Liability Management Policy. A snapshot of current funding in place (maturity term and pricing) as well as interest rate fixing is also provided.

New treasury transactions in the period are outlined in Appendix 1.

5.0 Borrowing Limits

Ratio	Hawke’s Bay Regional Council	LGFA Lending Policy Covenants	Actual
Net external debt as a percentage of total revenue	<150%	<175%
Net interest on external debt as a percentage of total revenue	<15%	<20%
Net interest on external debt as a percentage of annual rates income	<20%	<25%
Liquidity buffer amount comprising liquid assets and available committed debt facility amounts relative to existing total external debt	>10%	>10%	20%

6.0 Funding and Liquidity Risk Position

The chart below shows the spread of Council’s current funding maturity terms and positioning within funding maturity limits set out within the Liability Management Policy. Council’s liquidity buffer amount is also shown.

Debt Funding Strategy

Council’s cash flow and debt forecast indicate a requirement for an additional $10 million of core borrowings during this financial year. This level of debt requirement is a function of FY19 borrowings being $2.5 million of the expected $7 million. The first tranche of new funding is anticipated to be required in the second quarter of FY20 (circa $5 million) and is proposed to be met via participation in upcoming LGFA tenders.

7.0 Interest Rate Risk Position

The interest rate profile below shows the level of Council’s interest rate fixing within Liability Management Policy parameters. The shaded area represents fixed interest rate commitments (i.e. term loans and/or derivatives) and their maturity terms over the 15-year Policy period. The red line represents the current rolling debt forecast for the forward period with the maximum and minimum bands a function of the debt forecast.

As can be seen from the chart and table below, the interest rate risk position is fully compliant to all policy parameters.

Interest rate strategy

With short term interest rates expected to be lower for longer, as the RBNZ stimulates with loose monetary policy settings, the fixed rate position will progressively move towards minimum policy limits. The strategy is therefore to increase exposure to short-term floating rates (within policy limits) through issuing all new debt on a floating rate basis.

Long term interest rates are expected to remain around current levels as global central banks maintain their loose monetary policy requirements along with influencing low, longer term interest rates. The longer term interest rate risk position will be maintained around minimum policy limits through the use of interest rate swaps or fixed rate debt issuance.

8.0 Funding Facility

Bank

(Facility maturity date)

Maturity Date

Drawdown Amount ($m)

Facility Limit ($m)

BNZ

15-Jan-21

0.00

5.00

TOTAL

0.00

5.00

Available bank facility capacity (liquidity buffer)	This month ($m)	Last month ($m)
Gross amount	5.00	5.00
Policy liquidity buffer requirements	2.55	2.30
Excess amount	2.45	2.70

9.0 Cost of Funds vs Budget

Month		YTD
Actual ($m)	Budget ($m)	Actual ($m)	Budget ($m)

10.0 Counterparty Credit

All counterparty credit exposures are fully compliant with policy.

11.0 Market Commentary

Investment markets

The last quarter of 2019 was a good news quarter, and in broad terms, financial markets responded accordingly. The monetary stimulus provided by central banks in earlier quarters has done its job with economic data generally improving. The improvement is particularly evident in the housing market (rising median sales prices and lower days to sell). In the US, the number of houses being built has increased, while in Australia and New Zealand house price inflation has picked up. This has supported an overall improvement in the economic outlook, which has bolstered equity markets.

Accompanying the rosier outlook has been waning expectations of further interest rate cuts, which is best illustrated by US Federal Reserve (Fed) Chair Jerome Powell’s comment that “monetary policy is in a good place”. Despite this, both the Bank of Japan and European Central Bank announced their intention for an open ended easing bias to deal with stubbornly low inflation. Adding to the good economic news was the positive progress towards resolving: 1) The US/China trade dispute, with the announcement of phase one of a trade agreement between the US and China announced in January 2020; and 2) Brexit, with a decisive election victory for Boris Johnson’s Conservative Party, which should see an orderly exit of the United Kingdom from the European Union no later than 31 January 2020.

In this environment, investors were content to invest in riskier assets types such as equities. This resulted in the strong performance of New Zealand equities (+5.3%) and global equities (+7.8%) in local currency over the quarter.

Unfortunately, the global equity market return in New Zealand dollars (+1.5%) was significantly eroded by the rise in value of the New Zealand dollar at the end of December, which rose against all major currencies except GBP (GBP strengthened on the back of a more favourable Brexit outcome). The NZD benefited from expectations the Official Cash Rate would not be cut further, more optimistic investor sentiment and importantly stronger commodity prices.

Increased investor appetite for riskier assets meant that safe-haven asset values, such as gold and fixed interest securities/bonds declined.

The stellar performance of the New Zealand equity market over the quarter and year (+31.6%) warrants closer examination. Without doubt, there has been increased interest in the New Zealand equity market as bank term deposit interest rates tumbled from 3.3% in April 2019 (where they had been since the end of 2015) to the current six month deposit rate of 2.6%.

There has been an extraordinarily diverse performance of equities over the quarter – from Metlifecare (+53%, following a takeover offer) and Summerset (+34%) as outperformers, down to Sky Network Television (-37%) and Gentrack (-28%) as underperformers. While the weak performers reflect company specific issues, the outperformers, except for Fisher & Paykel Healthcare, are all in the aged care industry, which is benefiting from a reinvigorated housing market. The other group of companies worth commenting on are the electricity generation companies, which gave back a chunk of the gains achieved in early months on the back of investors chasing dividend yields. They fell in price, due to concerns around Rio Tinto’s review of the Tiwai Point aluminium smelter’s operation. The smelter consumes 10% of New Zealand’s annual electricity production, so a decision to shut the smelter down would result in an electricity oversupply and subsequent drop in the electricity price.

Funding markets

A total of 21 local government borrowers raised $413 million in the fourth quarter (Q4) of 2019. 39 separate funding transactions occurred, of which all except two were conducted via the LGFA. The two debt issues transacted outside of the LGFA were from Dunedin City Treasury (not a LGFA member). Borrowing volumes remained strong in Q4, slightly lower than Q3. A total of 54% of all borrowing in Q4 was undertaken on a floating rate basis. Over the fourth quarter, Councils borrowed for a weighted average term of 6.9 years.

Looking back on the full year, total issuance amounted to $2.40 billion; the highest level since 2014 ($2.55 billion). Prefunding ahead of the LGFA's April 2020 bond maturity ($1.03 billion) is expected to support borrowing volumes throughout the first quarter of 2020. We understand that, to date, approximately 35% of the 2020 bond maturity have been refinanced/prefunded. However, most councils are currently updating new debt forecasts and this may push out issuance demand to the second quarter of 2020.

LGFA credit spreads have continued to creep up since Q3 in the short end (three to five years) and held reasonably constant for the longer end (7-10 years).

Government bond yields remain at historically low levels reflecting global yield curves, supporting the attractiveness of LGFA bonds as a substitute investment to NZ Government bonds given the higher yields on offer. There was significantly less Kauri bond issuance in 2019 with a total of $1.4 billion of new issuance (relative to total issuance of $4.2 billion in 2018). LGFA bond demand (and pricing) benefits when there is less Kauri issuance competing for the investor dollar. With the expanded bond issuance program from Kāinga Ora (Housing NZ) in 2020 of $2.5 billion (up from $1.5 billion in 2019), we expect some impact on LGFA demand, thus increasing the risk that credit spreads widen gradually in 2020, primarily for longer-dated tenors. We believe that investor interest for LGFA bonds will however, remain robust for maturities up to 5 years and that there may be some upward movement on margins for longer dated issuance.

Interest rate markets

The RBNZ surprised financial markets in November by holding the OCR at 1.00%. The fundamental outlook no longer currently supports another cut to the OCR over the next six months, although we expect risks remain biased lower. RBNZ note while inflation remains below the 2 percent target, employment continues to sit around its maximum sustainable level and other economic developments since the August MPS “do not warrant a change to the already stimulatory monetary setting at this time.” However, risks remain “tilted to the downside.” Domestically, business confidence improved in December but remains weak overall. Businesses are reluctant to make hiring or investment decisions, and have struggled to raise prices, crimping sales margins. The housing market is now showing signs of growth, while inflation pressures are slightly stronger, however global risks (including the coronavirus) remain. ‘Lower for longer’ interest rate settings to prevail.

Long-term NZ swap rates are biased lower as global rates are likely to remain under structural pressure. Global growth remains tepid amid recent (but improving) trade tensions between US and China, as well as Brexit uncertainty (though easing following the election). There are signs of growth stabilising (rather than further weakness) but uncertainty remains. A soft growth outlook from our key export trading nations, Australia, China and Europe means that central banks will continue their ‘looser’ monetary policy settings. Underlying inflation around the globe remains benign. There remains no reason for structurally higher long-term swap rates over the next twelve months.

12.0 Policy exceptions

Date	Detail	Approval	Action to rectify
TBC	SIPO asset allocations non-compliant	Y	Gradual staggering into investment portfolio positions will see strategic asset allocation requirements met over coming months.

13.0 Appendix

13.1 New Treasury Transactions up to 31 December 2019

Borrowing activity

Bank/LGFA	Amount (NZDm)	Borrower notes (NZDm)	Deal Date	Start Date	Maturity Date	Commitment Fee	Margin

Interest Rate Borrower Swaps

Bank	Notional Amount (NZDm)	Deal Date	Start Date	Maturity Date	Swap Rate
n/a	n/a	n/a	n/a	n/a	n/a

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: Investment Strategy Workshop Follow-up including Statement of Investment Policy Objectives Review

Reason for Report

1. On 5 February 2020 Councillors attended an Investment Strategy workshop, the focus of which was to provide a brief history of endowed assets and the pathway to the present asset mix with a focus on Council’s revenue generating assets.

2. Discussions took place regarding;

2.1. The current and future mix of investments and the role of investment income in the overall Revenue and Finance Strategy.

2.2. The investment approach of the Hawkes Bay Regional Investment Company (HBRIC) and specifically any wish to take a more active investment approach and

2.3. Exploring the role our investment capital should or can have in driving regional outcomes.

3. The outcome of the workshop was instruction for staff to progress a number of ‘next steps’ including the immediate review of the Statement of Investment Policy Objectives (SIPO)

4. This paper also presents proposed changes to the SIPO following feedback received from Fund Managers (Jarden and Mercer), PwC Treasury and discussion at the recent 12 February 2020, Finance Audit and Risk Sub-Committee (FARS) meeting.

5. This report outlines a proposed work programme and timeframes to progress the identified ‘next steps’ arising from the Investment Strategy workshop, and seeks Councillor feedback.

Officers Recommendations

6. Staff recommend the Committee provide feedback on proposed actions and timeframes to progress ‘next steps’ of the Investment Strategy Workshop, specifically the additional request from Cr Foss to perform a review of Internal Processes and Controls – Managing Requests for Funding and Proposals for investment.

7. That the committee discuss and adopts the recommended revisions to the SIPO.

Investment Workshop Next Steps - Update

Investment Workshop - Next Steps	Actions
1. Staff recommended planning a series of workshops to review and debate current financial policy decisions and strategies including the Revenue and Financing Policy and Investment Strategy leading up to the 2021-31 LTP, including Councils risk appetite.	Plan and timeline to review will be presented at the 1 April 2020 workshop
2. SIPO - Staff recommended the Finance, Audit and Risk Committee begin a process to review, revise and extend the SIPO to include all financial investment activities and to explicitly reflect the different policy parameters of the two investment funds.	SIPO review has been undertaken by the FARS and recommended changes are attached and detailed later in this paper.
3. Policy recommendations for the establishment of an Investment Income Equalisation Reserve will be presented to the Finance, Audit and Risk committee in May 2020.	Draft policy will be considered by FARS on 13 May 2020. The 2020-21 Annual Plan includes approx. $2mil of income to be attributed to this reserve.
4. Opportunities for investment in afforestation will be considered as part of the Right Tree Right Place project being covered comprehensively through the Environment and Integrated Catchments Committee for incorporation into the Investment Strategy as appropriate.	Alignment of this workstream with the Long Term Plan development is supported by the RTRP Steering Group
5. A carbon strategy should be developed.	To be developed by Ben Douglas, HBRC Forest Management Advisor, with input and assistance from Finance and policy staff. A workshop is currently being scheduled to agree steps required to develop the policy.
6. A robust process is developed to ensure elected members and officers involved in the investments decision making have access to adequate information to enable them to make informed decisions as to whether to enter into or progress due diligence of a specific investment. Significant investment decisions should ideally be considered through existing planning / budgeting timeframes such as Annual Plan or Long Term Plan processes.	Formal process and policy to be developed by J Ellerm and B O’Keefe

Review of Internal Processes and Controls – Managing Requests for Funding and Proposals for investment

8. In addition to the above next steps recommended by Staff at the workshop (detailed above) Cr Foss has requested staff develop an overview which outlines and maps existing internal controls, policies and processes used to manage external requests for funding and / or proposals to council for investment either directly or via the Hawkes Bay Regional Investment Company (HBRIC). These proposals and requests are varied and may arise from but not limited to; PGF funding / co-funding opportunities, requests for sponsorship, requests for funding, joint-venture and partnership arrangements and opportunities.

9. This review is intended to demonstrate the necessity for robust processes in this area, highlight the increasing pressure on Councils fiscal position, and the volume of financial demands received in any given year / budgeting period.

10. The outcome should provide assurance around the current process and highlight potential improvements. It is expected to include a recommendation for the development of a registry to provide transparency and visibility of all requests that are made, the response or actions of staff including where funding has been granted or declined, and why.

11. Staff acknowledge there are many independent groups and organisations that share Councils objectives, and in many cases are better placed to deliver on them. However, it should also be noted that Council does not currently have any budgetary provision for contestable and discretionary community grants or funding allocations outside of sponsorship. If this is something Council would like to explore further it should be channelled through either the Annual Plan and / or Long Term planning processes.

12. This work, if supported by the committee, will be progressed and reported through to the 13 May FARS meeting.

Proposed Changes to the SIPO

13. Following the Investment Strategy Workshop staff reported feedback and recommended changes to the current SIPO from Fund Managers, staff and PwC treasury via the Treasury Report to the 12 February FARS. (Treasury report including fund performance analysis has been attached to the Report and Recommendations from FARS)

14. The review also addresses the need to explicitly reflect the different policy parameters of the two investment funds being the Long Term Investment Fund (post RWSS) and the Future Investment Fund (Napier Port proceeds).

15. Overall staff believe the SIPO remains fit for purpose and no fundamental changes have been made or are required.

16. Further staff acknowledge and agree that Council’s return target may be more difficult to achieve over coming years due to the historically low interest rate environment and extended investment markets. However, we do not believe it prudent to alter the portfolio’s strategic asset allocation by moderating the risk profile. This would introduce a level of risk to the portfolio that is not congruent with Council’s willingness and ability to take risk. It may also hinder Council’s ability to achieve its investment objectives should a significant negative event occur in any period.

17. A number of minor edits to the attached SIPO have been made including minor wording adjustments around hedging which are deemed suitable, and administrative points that have been updated or refined in this first review since the policies inception. More significant changes are detailed and explained below:

18. Illiquid Assets – addresses Jarden’s inability to invest in illiquid assets under the current SIPO. We believe this should be reviewed to ensure it is fairly aligned with Mercer’s ability to invest up to 10% of the portfolio in illiquid, ‘unlisted property’ and ‘unlisted infrastructure’. Staff and PwC agree with Jarden’s comment that as long as there is an expected accelerated return for the additional risk of investing in illiquid assets, which are expected to be held over the medium term, an acceptable proportion of the Fund should benefit.

19. Minimum ‘investment grade’ Credit Rating - refers to the minimum credit rating required for fixed income investments. Staff and PwC agree with Jarden’s view that the minimum rating could be lowered to BBB- from BBB+. This would continue to maintain a minimum ‘investment grade’ credit rating across the portfolio, enhance the fixed income yield opportunity and diversification allowing access to a deeper issuance population. The minimum country credit rating requirement remains unchanged. Overall there has been minimal defaults in the global BBB credit rating space over the past four decades; the highest year was 1% of total BBB issuance in 2002 and has been close to 0% over the past decade.

Strategic Fit

20. The purpose of the SIPO is to assist Council, the Corporate and Strategic Committee, the Finance, Audit and Risk Committee, Council executives and the Investment Managers in effectively supervising, monitoring and evaluating the management of Investment Funds.

21. The revenue or income derived from invested funds contributes to Councils Investment Income which is a fundamental element of Councils overall Revenue and Financing Policy.

Financial and Resource Implications

22. No fundamental changes have been made to the SIPO and specifically no changes to return expectations. As a result there are no expected financial implications.

Other Considerations

23. Council has previously given significant consideration to the matter of Ethical Investment however staff believe the SIPO reads fairly “light” in this regard. It is noted that Mercer suggested formalising a more thorough Responsible Investing (RI) Policy as part of the SIPO review.

24. The FARS did not support a RI review at this time, however it remains topical and Councillors may be particularly interested in being socially responsible investors who encourage corporate practices that they believe promote environmental stewardship.

25. Fund Managers from Jarden will be in attendance at the Corporate and Strategic meeting on 11 March and Councillors can explore this subject if they wish.

Decision Making Process

26. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

26.1. The decision does not significantly alter the service provision or affect a strategic asset.

26.2. The use of the special consultative procedure is not prescribed by legislation.

26.3. The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

26.4. The decision is not inconsistent with an existing policy or plan.

26.5. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

That the Corporate and Strategic Committee:

1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion and make decisions on this issue without conferring directly with the community and persons likely to be affected by or to have an interest in the decision.

2. Supports the proposed actions and timeframes for staff to progress next steps from the Investment Strategy Workshop.

3. Supports the request from Cr Foss for staff to perform a review of Internal Processes and Controls – Managing Requests for Funding and Proposals for Investment; to be reported back to the Finance Audit and Risk Sub-committee.

4. Recommends that Hawke’s Bay Regional Council accepts the proposed changes and revisions to the Statement of Investment Objectives for adoption; following which the Group Manager Corporate Services will provide instructions to the Investment Managers.

Authored by:

Bronda Smith

Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1

Statement of Investment Policy and Objectives

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: Remission of Penalties on Rates Policy (Fixed Term) Statement of Proposal for Consultation

Reason for Report

1. This report asks the Corporate and Strategic Committee to recommend to Council that it adopts the Remission of Penalties on Rates Policy (Fixed Term) Statement of Proposal for consultation.

2. This report also seeks direction from the Committee on its preference for the make-up of the hearings panel that will hear submissions on this consultation (set down for 19 May 2020). A panel could be all of Council, a sub-group of nominated Councillors or the Hearings Committee.

Officers’ Recommendations

3. Council officers recommend that the Committee accepts the Remission of Penalties on Rates Policy (Fixed Term) Statement of Proposal for consultation as proposed, and recommends its adoption by Council.

4. Officers also recommend the establishment of a sub-committee made up of three Councillors.

Background

5. The Remission of Penalties on Rates Policy (Fixed Term) was adopted by Council on 25 September 2019, subject to consultation. The aim of the one-time policy is to support ratepayers as we transition to a new final rate payment date; from 31 January 2021 to 20 September 2020.

6. The policy will enable ratepayers to apply for a waiver of penalties added to their rates for late payment for the first year of the changeover - 1 July 2020 to 30 June 2021. The policy is in addition to Council’s existing policy on Remission of Penalties on Rates. Our current Remission of Penalty on Rates Policy ‘conditions and criteria’ allow for one remission every three years for a missed rate payment for circumstances which are under the ratepayer’s control.

7. The Local Government Act (LGA), Section 102(4) requires an amendment to a rates remission and postponement policy be consulted on using the provisions of Section 82.

8. The special one-time, fixed-term penalty remission policy aims to assist ratepayers who may experience financial difficulty in paying their rates on time as we transition to a new rate payment date.

9. This follows Council’s decision on 26 June 2019 when it approved new dates for when Council’s rate invoices are sent out and when payment is due, effective from 1 July 2020.

10. Up until this year, assessments/invoices were sent out mid-September and due 1 October each year, however HBRC allowed ratepayers until 31 January the following year to pay before a penalty was applied.

11. From this year rate, assessments/invoices will be sent out early to mid-August, and the final due date will be 20 September. After this date penalties will be applied.

12. For ratepayers who choose to pay their rates on the final payment date, this change effectively brings the payment due date forward approximately four months and means they will have two rate invoices in the 2020 calendar year.

13. The policy enables ratepayers to apply for a waiver of the 10% penalties added to their rates invoice if they cannot pay their rates on time. The policy will only be in place from 1 July 2020 to 20 September 2021 and will only apply to rates due for the financial year 1 July 2020 to 30 June 2021.

14. The objective of moving the final date for rate payments is to remove the payment pressure on ratepayers over the holiday period, as well as improve Council’s cash flow and recover income earlier.

15. Rates are the main direct source of income for Council. Typically, Council receives approximately 70% of the rates revenue in January and February – seven to eight months into the financial year.

16. Staff have been implementing a communications plan to advise, inform and educate ratepayers on the change to the date payments are due. This has included information in the previous rates newsletter sent to ratepayers with their invoices in September 2019, Facebook posts on Regional Council’s Facebook page, information on Council’s website, information on our email banners, a digital campaign through the Hawke’s Bay Today and Stuff sites, and adverts in the Hawke’s Bay Today, CHB Mail and Wairoa Star newspapers.

17. This campaign of rates communications will be accelerated from March to September 2020.

18. As noted earlier, the proposed Remission of Penalties on Rates Policy (Fixed Term) is an additional policy. Council acts fairly and reasonably when a rate payment has not been received by the due date and has the following rates Remission and Postponement polices in place.

18.1. Māori Freehold Land

18.2. Remission in Special Circumstances;

18.2.1. Remission of Rates in Special Circumstances

18.2.2. Remission of Penalties on Rates

18.2.3. Remission of Rates of Properties Affected by Natural Calamity

18.3. Remission for Uniformed Annual General Charges (UAGC)

18.4. Postponement in Cases of Financial Hardship or Natural Disaster.

19. To be granted a remission or postponement under any of the above policies certain ‘conditions and criteria’ must be met before a penalty remission is granted.

20. Our current Remission of Penalty on Rates Policy allows for one submission every three years for a missed rate payment for circumstances which are under the ratepayer’s control (provided the conditions and criteria are met). The fixed term policy will allow for an additional Remission in this instance.

Consultation Process

21. As noted earlier, an amendment to a rates remission and postponement policy requires consultation under Section 102 (4) of the Local Government Act in a manner that gives effect to the requirements of Section 82.

22. The proposed policy is both a remission and postponement policy as defined by the Local Government (Rating) Act 2002 and Local Government Act 2002.

23. Staff recommend a condensed consultative process, targeting all ratepayers while still giving effect to the principles of consultation in Section 82 Local Government Act. This is based on the likely support by the public and the limited community effect relating to the adoption of this Statement of Proposal.

24. The Council will invite submissions and feedback over a period of two weeks. Submissions will be collated, heard and the final decision made on 24 June 2020.

25. The key dates for consultation are:

26. 14 April 2020 Consultation opens

28 April 2020 Consultation closes

19 May 2020 Set aside for people to present their views in person

24 June 2020 Decision made by Regional Council

27. The proposed communication activities are outlined in the table below. The key messages are:

27.1. The Regional Council seeks public views on a Statement of Proposal to offer some ratepayers a one-time late-payment penalty waiver

27.2. This option can help ratepayers who find it hard to pay this year’s rates on time

27.3. Rates this year are due four months earlier than last year

28. Supporting messages are: Regional Rates are due 20 September. Once adopted, this amendment means that ratepayers experiencing hardship can apply for a one-time waiver of the late-payment fee on Regional Rates. The Regional Rates team is here to help: call 835 2955 (8am-5pm) or email rates@hbrc.govt.nz.

WHAT

WHO BY

AUDIENCE

DUE

April 2020

Web page content – including Statement of Proposal and online form

Email – Māori & Regional Planning Committee

Media release – eNews, web, Facebook

Public notice – Hawke’s Bay Today

Social media posts

Reception TV

Internal communication (staff)

MarComms

(for all actions)

Public

Tāngata Whenua

Media/ Public

Public

Staff/ visitors

Staff

8 April

11 April

14 - 28 April

8 April

May - June 2020

Hearing – details and related comms TBC

Decision – factored into Rates communications

Governance

MarComms

Public

Ratepayers

19 May

After 24 June

Significance and Engagement Policy Assessment

29. Staff have considered Council’s Significance and Engagement Policy as part of the process for developing the consultation approach for the Statement of Proposal along with the principles of consultation in Section 82 Local Government Act.

Financial and Resource Implications

30. The Financial and Resourcing implications for the consultation will be met within existing budgets.

Decision Making Process

31. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

31.1. The decision does not significantly alter the service provision or affect a strategic asset.

31.2. The persons affected by this decision are all ratepayers in the region.

31.3. LGA section 102(4) requires that an amendment to a rates remission and postponement policy must be consulted on using the provisions of Section 82. The planned consultation gives effect to that.

Recommendations

1. That the Corporate and Strategic Committee receives and considers the “Remission of Penalties on Rates Policy (Fixed Term) Statement of Proposal for Consultation” staff report.

2. The Corporate and Strategic Committee recommends that Hawke’s Bay Regional Council:

2.1. Adopts the Statement of Proposal for Remission of Penalties on Rates Policy (Fixed Term) consultation as proposed.

2.2. Establishes a Hearing Panel made up of three Councillors to hear submissions on 19 May if required

Authored by:

Drew Broadley

Community Engagement and Communications Manager

Trudy Kilkolly

Principal Accountant Rates and Revenue

Mandy Sharpe

Project Manager

Bronda Smith

Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

⇩1

Draft Statement of Proposal - Remission of Penalties on Rates Policy (Fixed Term)

Draft Statement of Proposal - Remission of Penalties on Rates Policy (Fixed Term)

Attachment 1

Remission of Penalties on Rates Policy (Fixed Term)

Statement of Proposal

Consultation 14 – 28 April 2019

What is the proposal?

This is a proposal to implement a one-time policy that provides ratepayers an opportunity to apply for a waiver of a penalty fee for late payment on their Hawke’s Bay Regional Council rates.

The objective of this policy is to support ratepayers who may find it difficult to pay their rates on time due to Council’s change in date for when rate payments are due.

The policy would be put in place for one year, to cover the first year of change to the new payment date, and will apply only to rates due for the financial year 1 July 2020 to 30 June 2021.

Background

On 26 June 2019, Hawke’s Bay Regional Council approved new dates for when its rate invoices will be sent out and when rates are due to be paid. These new dates will be in place for the financial year 1 July 2020 to 30 June 2021.

Up until this year, rate invoices have been sent out mid-September and due 1 October, with Hawke’s Bay Regional Council allowing ratepayers until 31 January the following year to pay their rates before a 10% late-payment penalty is added to their invoice.

For the 2020-21 rating year, rates invoices will be sent out early to mid-August, with payment due 20 September. Ratepayers that don’t pay their invoice by then will have the 10% late-payment fee added.

For ratepayers who choose to pay their rates on the final payment date for the 2019/20 rates of 31 January, this change means they will need to pay their rates invoice four months earlier and means they will have two rate invoices in the 2020 calendar year.

On 25 September 2019, Hawke’s Bay Regional Council adopted (subject to consultation) a special one-time, fixed-term penalty remission policy to help ratepayers who may struggle to pay their rates on time because of the change to the payment date.

Regional Council already has Rate Remission and Postponement policies in place so it can act fairly and reasonably when a rates payment has not been received by the due date.

The current remission of Penalty on Rates Policy allows one remission every three years for a missed rate payment for circumstances which are under the ratepayer’s control, provided they meet the conditions and criteria. Under that policy, a ratepayer who was granted a penalty remission in the last two year would be ineligible for another remission.

Introducing this additional Remission of Penalties on Rates Policy (Fixed Term) would mean ratepayers may apply for a remission even if they have received a remission in the last two years as per the standard Remission of Penalties on Rates Policy.

Why are we consulting on this?

This policy is both a remission and postponement policy as defined by the Local Government (Rating) Act 2002 and Local Government Act (LGA) 2002.

An amendment to a rates remission and postponement policy requires consultation under Section 102 (4) of the Local Government Act in a manner that gives effect to the requirements of Section 82.

The purpose of this consultation is to seek the views of people who will or may be affected by, or have an interest in the decision to implement the additional policy.

Scope of the decision

All aspects of the Remission of Penalties on Rates Policy (Fixed Term) are being consulted on. As a result of feedback received during the consultation, the Council may decide not to adopt the policy, or change any aspect of the policy such as the conditions and criteria.

The submission process

People wishing to submit on this consultation are invited to do so by 5pm on Tuesday 28 April 2020.

The Regional Council will support you to present your views in a manner that best suits your preferences, including sign language or any other language.

This includes one of the following ways:

§ Online: through the Regional Council website: hbrc.govt.nz (search #XXXX)

§ Email: info@hbrc.govt.nz

§ Post to: Leone Andrews, Hawke’s Bay Regional Council, Private Bag 6006, Napier 4142

§ Deliver to: HBRC offices in Napier, Taradale, Waipawa or Wairoa.

The submission form on the back of this proposal is also available from the Regional Council offices in Napier, Taradale, Waipawa or Wairoa.

If you have any queries please contact Leone Andrews, Executive Assistant to Group Manager Corporate Services.

Email: leone.andrews@hbrc.govt.nz

Phone: (06) 833 8010

What is the process from here?

§ 14 April 2020 Consultation opens

§ 28 April 2020 Consultation closes

§ 19 May 2020 Set aside for people to present their views in person

§ 24 June 2020 Decision made by the Regional Council

The Remission of Penalties on Rates Policy:

This policy is both a remission and postponement policy as defined by the Local Government (Rating) Act 2002 and Local Government Act 2002

Objective

To enable HBRC to act fairly and reasonably when a rates payment has not been received by the due date as a result of the Council changing the due date from 31 January 2021 to 20 September 2020. This policy will only be in place from 1 July 2020 to 20 September 2021 and is in addition to the existing policy on Remission of Penalties on Rates, and will apply only to rates due for the financial year 1 July 2020 to 30 June 2021.

There are two parts to this policy.

1) Ratepayers on an existing payment plan

Conditions and criteria

Upon receipt of an application from the ratepayer either in written or email format, or if identified by Council, a penalty may be remitted where all of the conditions listed below are met

i. A full payment of outstanding rates due (excluding a penalty amount) has been made prior 31 January 2021

ii. The ratepayer has an existing payment plan which has been adhered to over the previous 12 months, and

iii. The ratepayer amends the existing payment plan to ensure that the rates for the financial year 1 July 2021 to 30 June 2022 are paid no later than 20 September 2021.

2) Ratepayers not on an existing payment plan

Conditions and criteria

Upon receipt of an application from the ratepayer either in written or email format, or if identified by Council, a penalty may be remitted where all of the conditions listed below are met

i. Full payment of outstanding rates due (excluding a penalty amount) has been made prior to the application (but no later than being 31 January 2021) is received by the Council, and the ratepayer has previously paid all rates by the due date within the last three years

ii. The ratepayer pays the rates for the financial year 1 July 2021 to 30 June 2022 no later than 20 September 2021.

Policy notes

The penalties are only postponed until all the criteria are met.

Where there is a deliberate non-payment, remission will not be granted.

Consultation on establishing an additional Remission of Penalties on Rates Policy (Fixed Term)

Feedback must be received by Hawke’s Bay Regional Council no later than 5pm on Tuesday 28 April 2020.

You can give us your feedback in one of the following ways:

§ Online: through the Regional Council website: hbrc.govt.nz (search #XXXX)

§ Email: info@hbrc.govt.nz

§ Post to: Leone Andrews, Hawke’s Bay Regional Council, Private Bag 6006, Napier 4142

§ Deliver to: HBRC offices in Napier, Taradale, Waipawa or Wairoa.

---------------------------------------------------------------------------------------------------------------------------

SUBMISSION FORM

Contact details

(Your name and submission will be made available to the public on the Regional Council’s website)

Full name: ________________________________________________________________________

Name of organisation (if applicable): ____________________________________________________

Address: _____________________________________________________Postcode: ____________

Telephone: ______________________________Mobile: ___________________________________

Email: ___________________________________________________________________________

Do you support this proposal?

Please tick one:

Y YES

Why or why not?

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Need more room? You can attach extra pages but please make sure they include your name and address.

Do you wish to speak to your submission on Tuesday, 19 May 2020?

Y YES

Privacy Act 1993

Submissions are public information. Information on this form including your name and submission will be made available to the media and public as part of the decision-making process. Your submission will only be used for the purpose of this consultation process. The information will held by Hawkes Bay Regional Council. You have the right to access the information and request its correction.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: HBRC 2020 Local Governance Statement

Reason for Report

1. This item presents a draft version of the proposed 2020 Local Governance Statement to the Committee for consideration and feedback.

Officers’ Recommendation

2. Council officers recommend that the Committee agrees to the approach to the 2020 Local Governance Statement explained within the body of this agenda item and shown in the attachments to it.

Executive Summary

3. The Local Governance Statement (LGS) is a requirement of the Local Government Act (LGA) as a means of informing the community about how the Council’s democratic decision-making processes are structured and operate, and how they can participate in and influence those. The LGS brings the information together in a single location for easy access.

4. Over the last three election cycles, access to information about the Council has increasingly shifted to online platforms, mainly the HBRC website, and the public expectation is that all relevant information is available online.

Background /Discussion

5. Section 40 of the Local Government Act 2002 (attached) requires that each local authority prepares a Local Governance Statement and makes it publicly available within six months after each triennial election.

6. A Local Governance Statement (LGS) is a collection of information about the processes through which the Council engages with its community, how the Council makes its decisions, and how citizens in the region can influence those processes. Its purpose is to help support the purpose of local government by promoting local democracy by providing the public with information about ways to influence local democratic processes.

7. The previous LGS is available online, and also as a hard copy document upon request. Historically, the document has been accessed almost exclusively online; with hard copy documents being provided only to councillors, some staff and in response to about 6-10 requests from members of the public.

Options

8. Publication of a Governance Statement is a legislative requirement, within 6 months of each triennial election, however it is within Council’s discretion to determine how extensive or otherwise it wants to publication to be, insofar as:

8.1. Whether publication is online only

8.2. Any information beyond the LGA s40 requirements that is included in the LGS.

9. Because there has been so little demand for hard copies and to bring the LGS in line with Council’s “digital by default” strategy it would make sense to move to online only publication of this information. Screenshots of how this translates on the Council’s website are contained in attachment 2 to show how this might look.

10. In relation to the information contained in the LGS, staff consider that the requirements of LGA section 40 include sufficient information, and would be comfortable that information seekers would be able to find the information they require on the HBRC website. The contents of the webpages would contain documents and content including:

10.1. What is a governance statement?

10.2. Functions, responsibilities and activities

10.3. Regional, district and city councils: what is the difference?

10.4. Legislation

10.5. Information processes (LGOIMA)

10.6. Key approved planning and policy documents

10.7. The electoral system

10.8. Representation options (including Māori representation)

10.9. Councillors

10.10. Members’ roles and responsibilities (Code of Conduct & Declarations of members’ interests)

10.11. Governance structures and processes

10.12. Meeting processes (LGA, LGOIMA & Standing Orders)

10.13. Consultation (Significance & Engagement Policy)

10.14. Management structures and relationships

10.15. Equal Employment Opportunities (EEO) Policy

10.16. Council controlled organisations.

Financial and Resource Implications

11. The costs associated with the development and publication of the Local Governance Statement accounted for within existing Governance and Community Representation budgets for the 2019-20 financial year and will not exceed budget.

12. Should the decision be taken to provide hard copy LGS documents, costs will be higher to cover publishing and printing but will still be covered within existing budgets.

Decision Making Process

13. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

13.1. The decision does not significantly alter the service provision or affect a strategic asset.

13.2. The use of the special consultative procedure is not prescribed by legislation.

13.3. The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

13.4. The persons affected by this decision are members of the regional community interested in local government and democracy.

13.5. The decision is not inconsistent with an existing policy or plan.

13.6. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

1. That the Corporate and Strategic Committee:

1.1. receives and considers the “HBRC Local Governance Statement” staff report

1.2. agrees that publication of the 2020 Local Governance Statement will be online only

1.3. provides feedback on any additional content required for incorporation into the final version of the 2020 Local Governance Statement web pages.

2. The Corporate and Strategic Committee recommends that Hawke’s Bay Regional Council:

2.1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion and make decisions on this issue without conferring directly with the community and persons likely to be affected by or to have an interest in the decision.

2.2. Adopts the 2020 Local Governance Statement web pages, including additional content agreed by the Corporate and Strategic Committee on 11 March 2020, and as provided to the 25 March 2020 meeting.

Authored by:

Leeanne Hooper

Governance Lead

Approved by:

Joanne Lawrence

Group Manager Office of the Chief Executive and Chair

Attachment/s

⇩1	Local Government Act Section 40 - Local Governance Statement
⇩2	2020 Local Governance Statement Sample Webpages

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: Regional Water Security

Reason for Report

1. This item provides Councillors with an update on the Regional Freshwater Security programme with a specific focus on the aligned work streams addressing medium term supply certainty for all water users in the Heretaunga and Tukituki districts.

Introduction and Executive Summary

2. Regional freshwater supply security is one of Council’s core responsibilities, particularly in the context of climate change. Such is the importance of freshwater to the environment, iwi, the broader community and the economy, certainty of freshwater supply arguably represents HBRC’s most important area of impact on the long term wellbeing of the community.

3. The Regional Freshwater Security programme is a discrete work stream which forms a subset of Council’s wider freshwater responsibilities and work streams, including freshwater quality initiatives that bridge both instream and land-based activities, allocation and enforcement regimes, continuous improvement in the region’s regulatory framework (e.g. implementing the NPSFM), and the establishment and execution of key non-regulatory interventions that will deliver multi-value outcomes (e.g. the Erosion Control Scheme). In total, the focus on freshwater occupies a significant proportion of HBRC’s overall resourcing and activity.

4. The programme is capital funded with $5m through the current Long Term Plan and guided by the Freshwater Security Scheme Policy approved by Council in March 2019. Council has also secured approx. $4.7m co-funding from the Provincial Growth Fund to support and accelerate the delivery of the programme’s objectives:

4.1. the completion and delivery of the Regional Water Assessment

4.2. the conclusion of full feasibility on an option(s)/solution(s) for a Heretaunga flow maintenance scheme

4.3. the conclusion of full feasibility on an option(s)/solution(s) for improving Tukituki freshwater supply security.

5. Staff are continuing to initiate a multitude of work streams across these three projects. While the Regional Water Assessment is more straightforward, the physical and social complexity of the Heretaunga and Tukituki projects commands the requirement for a clear and transparent decision pathway for governors in order to ensure wider community trust and confidence in these critical projects. Accordingly, the work under commission is focussed on scoping (problem definition, issues assessment and options analysis) so that governors can make decisions whether and how to proceed to pre-feasibility as soon as possible.

6. Staff take the opportunity of this presentation to seek councillor decisions in relation to aspects of these scoping work streams and well as feedback on the extent to which the programme delivers on the ambitions of the combination of Council’s policy and the Provincial Growth Fund’s objectives.

Regional Freshwater Security Programme – Why?

7. In 2010 Stephen Solomon, author of “Water – The epic struggle for wealth, power and civilization” wrote:

“Every era has been shaped by its response to the great water challenge of its time. And so it is unfolding – on an epic scale – today.”

8. Climate change will impact our freshwater systems in many ways and a transition to more extreme drought-flooding hydrological patterns could have profound consequences for freshwater ecosystems, and severe social and economic impacts. The effects of higher temperatures, declining precipitation and more frequent extremes will have implications not only for land and water management, but also community resilience and well-being (see also paragraphs 45 – 48).

9. That HBRC carries the highest level of responsibility for meeting this challenge in this region is reflected in the significance of its resourcing dedicated to improving freshwater quality and quantity, which is in turn driven by its statutory obligations under legislation, national direction and regulation. A qualitative analysis of the Strategic Plan demonstrates that over 50% of the organisations 23 Strategic Goals are directly linked to freshwater objectives. A similar exercise for the Long Term Plan identifies approximately 35% of HBRC’s 48 core function Level of Service Measures as contributing to and resourcing improved freshwater outcomes.

10. This effort represents a core public-good function of this organisation and one which the ratepayers of this region rightly expect local government to provide. Measuring the objective impact of Council’s provisions of public goods is difficult and in this instance presents the challenge of quantifying the value of loss avoidance as opposed to value of wealth creation. Whereas economic development traditionally focusses on economic growth in absolute terms, ensuring that the region’s freshwater supply provides for both the environment’s needs and the broader community’s will ensure the region avoids both the costs and opportunity costs of mismanagement of our freshwater resource.

11. The impacts of failing to avoid a water-scarce future should not be underestimated. The summer of 2019-20 has witnessed multiple local and regional authorities having to grapple with acute and unexpected water deficits. Independent economic analysis completed for the TANK plan change demonstrated that the impacts of even relatively modest alterations to the reliability of water takes from the Ngaruroro River translated to negative GDP impacts in approaching $100m per annum. Furthermore is was found through social and cultural assessment that poorer communities were likely to disproportionality bear the impact of lower water security. In this regard, sensible and sustainable management of our freshwater supply delivers long term benefits in an order of magnitude over and above other economic development and growth initiatives. A key part of the “Why” of this work will be captured in supporting analysis that will be provided to decision makers that will assess the economic and social impacts of inaction, or the ‘do nothing’ scenario.

12. The potential impacts of lower water security are increasingly coming into focus at a time when the demands for water security are only escalating. The 2018 census revealed that Hawke’s population increased at the rate of 10% over 5 years, the highest rate of increase in the lower North Island. This growth likely reflects the buoyant economic growth the region is experiencing with Hawke’s Bay annual GDP growth last year outstripping the national average. These statistics reflect the activity within the region including residential and commercial property growth, horticultural expansion on both the Heretaunga and Ruataniwha plains and the significant transport infrastructure investments completed in recent years to manage the movement of people and goods. The Port of Napier’s capital requirements for Wharf 6 were a driver behind its successful listing by this Council.

13. The main focus of the Tukituki and Heretaunga projects is the investigation of water storage to carry winter water surpluses through to periods of summer deficit. However, regional freshwater security will not be achieved through storage alone. Our freshwater plan changes will continue to attempt to make more water available for the environment and communities through tighter allocation regimes as well as requirements for conservation and efficient use by all water users. Accordingly, this programme of work should be viewed as one of a matrix of interventions by HBRC to deliver a more certain freshwater future.

14. Therefore it is important to be transparent about the ideological driver behind this body of work. Climate change will inevitable intensify the competing tensions associated with freshwater use and allocation. Water storage is seen by many as a maladaptation that only sustains unsustainable water use (particularly associated with agriculture and horticulture) in areas already experiencing environmental stress and now threatened by lower rainfall, drought and other climate disruption. A February 2020 report supported by MPI’s Sustainable Land Management and Climate Change Fund observes how “debates over irrigation highlight the deeply held social, cultural and environmental values held by many New Zealanders about their natural environment, privileged groups and the delays in addressing the lock in of unsustainable intensification pathways, leading to overuse and compounding nutrient run-off, leaching and degradation of water quality.”

15. With these factors in mind, this programme of work may be criticized for a lack of ambition by some who believe that our focus should be on larger scale storage solutions that solve for the environment, for growth and for future-proofing our communities all at once. The primary, but not sole, focus of this programme is to identify solutions, in the Tukituki and Heretaunga catchments, that seek to offset the collective environmental impact of our current use of water, and to recover the cost of this offset from water users as the price to pay for continuing to access existing reliability of supply (or reliability standards set down in a regional plan change). Apart from relatively small “growth” water opportunities (see Maori development below), the first objective is to find water for the purpose of environmental flows other than by way of radical and disrupting reductions in exiting water allocations. That is not to say that through the options analysis pathways ahead decision makers will not have opportunities to consider or direct a focus on storage options that can deliver on both environmental and growth objective (and in this regard it is further worth noting that in the Heretaunga Catchment the need to future-proof municipal and industrial water security will be equally as important as the issue of irrigation water security).

16. Policies guiding the funding of this programme (see next section) overtly refer to the requirement for Māori social and economic wellbeing to be addressed through the delivery of the programme. The proposals are consistent with the Crown’s and Local Government’s treaty partner obligations and that the programme provides concise, prioritised and specific opportunities to participate and benefit from individual projects. Identifying and developing solutions for undeveloped Māori owned land, or creating a pathway to take advantage of the TANK proposal to set aside an iwi-allocation of high-flow water on the Ngaruroro River are two such examples of opportunities that might be advanced through these projects, over and above the environmental objectives that will be on interest to tangata whenua and the wider community (see also paragraphs 49 – 51).

Regional Freshwater Security Programme – What?

17. The 2018-28 LTP proposed the establishment of a $5m fund to be available for water augmentation, not fixed to any particular programme but available for technical investigation and feasibility.

18. In late 2018 a guidance policy in respect of this funding was developed and the Freshwater Security Scheme Policy (Attach) was adopted by Council in March 2019. The policy states:

“Through experience and engagement, the Regional Council understands the region is demanding an integrated and holistic set of freshwater solutions. The Programme is part of a multi-layered approach to identifying and supporting the development of water management solutions that maximise the benefits of water available for users today, without compromising current and future ecosystem health or the ability of people to meet their needs in the future. Two concurrent work streams will set an evidence-based platform for community engagement and investigate opportunities for water security and reliability through conservation, efficiency or storage.”

19. The policy proposed the $5m be allocated between a technical investigation of the entire region’s long term freshwater supply and demand balance and a ‘ready reaction fund’ to enable targeted investment for further investigation into and support for specific initiatives. It was intended that the ready reaction fund be used where the Council has completed issues and objectives assessments with the community, such as the Tukituki and TANK catchments. These projects are described in greater detail in the next section.

20. Concurrently with the development of the Freshwater Security Scheme Policy the coalition government launched the Provincial Growth Fund, including a specific funding pool allocated to support water storage. The objectives of PGF investment are to:

20.1. strengthen regional economies by shifting to higher value sustainable land uses

20.2. address disparities in Māori access to water for land development

20.3. support micro to medium-scale water storage projects that strengthen regional partnerships and provide wider public benefits

20.4. support land use that does not increase - and ideally reverses – negative impacts on water quality, and maintains and improves the health of waterways.

21. In meeting these objectives, PGF investment will also consider how investment can:

21.1. contribute to a transition to a low emissions economy and/or

21.2. contribute to building community resilience to climate change

21.3. provide an incentive to change land use that risks degrading the environment to high value more sustainable uses.

22. In early 2019 staff made a suite of applications to the PGF with a view to leveraging HBRC’s Freshwater Security Scheme funding. The specifics of the PGF applications mostly mirrored what was originally proposed under the Freshwater Security Programme projects but with allowances for better alignment with the PGF’s objectives.

23. Note that the 3D Aquifer Mapping project which secured PGF funding as a part of the application package is in fact a HBRC science project promoted and managed by the Integrated Catchment Management group. HBRC’s co-funding share sits in ICM budgets and is not sourced from the $5m sitting within the Freshwater Security Programme.

24. The four projects encapsulated under the Freshwater Security Programme are depicted in Diagram 1 including a breakdown of the primary funding sources and where this budget resides within the Council.

Diagram 1 – Freshwater Security Programme composition and funding sources

25. The 3D Aquifer Mapping project uses the airborne electromagnetic technology developed by SkyTEM that provides imagery of our sub surface to depths of approximately 300m. It will provide a detailed coverage horizontally and to depths we haven’t seen before. The data captured through this project will significantly enhance our understanding of the region’s key aquifer systems in the Heretaunga, Ruataniwha and Poukawa/Otane Basins and provide information critical for effectively managing our freshwater resources in the future. The aerial operation was recently completed within budget and ahead of schedule. Now follows a two and half year comprehensive science work programme to process, analyse, interpret the data and develop (or enhance) select models.

26. The Regional Freshwater Assessment will put in place the framework and tools to collectively shape and generate pathways via a range of solutions for long term water use and management (with a horizon of 30-50 years). In pursuing an assessment of the region’s water resources, linkages and synergies to environmental reporting and natural capital accounting practices are being employed to enhance the ability of local authorities, iwi and other stakeholders to make informed policy and investment decisions. This work is designed to support the region in taking a long-term outlook to ensure that our natural assets are valued, managed effectively and continue to balance the region’s economic, social and cultural well-being.

27. The Tukituki Water Security project, centred around the Ruataniwha plains in Central Hawkes Bay, will identify and assess viable option(s) or pathways to:

27.1. Mitigate the depletion impacts (both ground and surface)

27.2. Recover the aquifer and groundwater system improving the health of the waterways; and

27.3. Provide reliable access to a level of water necessary to secure a sustainable supply to the Tukituki Catchment.

28. These solutions are necessary to provide for growth water to provide viable options to the district in transitioning to lower emission land use (such as horticulture or other feasible alternatives) that demand increased water and certainty of supply.

29. The Heretaunga Flow Maintenance Project’s origins lay in findings and recommendations of the TANK collaborative group and ultimately the policy direction of the draft TANK plan change. The Council, in conjunction with the TANK Community group, explored options strongly focussed on mitigating the impact of groundwater abstraction on the environment as well as maintaining acceptable standards of water security to current consent holders. This project aims first and foremost to mitigate the impacts of declining groundwater levels from groundwater abstraction to:

29.1. Protect ground water dependent ecosystems and improve the overall health of our waterways; and

29.2. Provide existing consent holders confidence of a secure and reliable water supply to sustain their current level of investment.

30. Additionally the solution aims to deliver “new” water to”:

30.1. Promote iwi well-being through access to a new allocation of water available at times of high and medium flow.

30.2. Allow issuing of new consents to support smart growth to continue to contribute to the region’s economic future.

31. The Heretaunga and Tukituki projects aim to develop and implement schemes that deliberately targets both the avoidance of loss in the region’s economy (given the inevitable negative economic consequences of reduced levels of water security - particularly in relation to investment decisions and community confidence) alongside the aim to unlock further potential and enable ‘new’ water to support smart growth.

Regional Freshwater Security Programme – How?

32. The Regional Freshwater Security Programme is planned to be delivered over the next 3.5 years. Whilst projects will leverage resource and intelligence across the programme where applicable they are managed as individual projects and run to their own timelines. The Regional Water Assessment is due to be delivered within 12 months (Dec 20) and the 3D Aquifer Mapping project is scheduled to be completed by March 2023 with the first of the products released in March 2021. Both the 3D Aquifer Mapping project and Regional Water Assessment project plans are approved and in varying stages of design and delivery.

33. The Tukituki and Heretaunga projects differ somewhat in that each phase of project development is seeking to explore and assess viability to manage investment risk. They will follow a standard and accepted infrastructure development process and staged with clear and definitive decision points for Governors approvals. The plans for each phase will be submitted for approval following an assessment of ongoing viability and commitment.

34. The infrastructure process that the Tukituki and Heretaunga projects will follow is depicted in diagram 2 and whilst they will ultimately run to different timelines the process and decision points are consistent.

Diagram 2 – Infrastructure project development process

35. The Tukituki Water Security Project scoping and options analysis phase will draw upon previous studies completed and look to revise the outputs and assumptions based on current objectives. We propose a two-part study running on simultaneous but different tracks (and timelines) as storage options are explored and a Managed Aquifer Recharge (MAR) field pilot is run. This is an investigation to determine whether groundwater replenishment might form a tool or option that supports freshwater security objectives. In this respect we are looking to investigate MAR so as to ‘rule it in or rule it out” as a long-term option in this catchment.

36. Exploring an optimal groundwater scheme is dependent on a related HBRC project that is building a Ruataniwha groundwater model (managed through HBRC’s science team). Part one of the prefeasibility is planned to be completed by December 2020 and Part two by June 2021.

37. Staff have met with CHBDC who have expressed a strong desire for HBRC to step up momentum and engage community stakeholders during the process to help support and shape solutions. The Tukituki Leaders Forum, a group comprising key stakeholder representatives from across the district, has been put forward by the CHB District Council for the project to engage with to provide input and community intelligence. A consulting group, Catalyze, who specialise in supporting organisations with complex decisions and multi-stakeholder engagement was identified by the District Council as a potential candidate to support that forum. This will be similar to the role the consultancy Mitchell Daysh played in supporting the development of the Coastal Hazards Strategy.

38. Subsequent discussions with the Tukituki Leaders Forum secured that group’s approval to fulfil the role of community reference group and to receive presentations from Catalyze and Bob Bower from WGA (a hydrology consultancy) Mr Bower will discuss MAR and the opportunity to conduct a field pilot as part of the prefeasibility investigations. The project will subsequently be seeking a decision from Council to approve a MAR field Pilot, estimated at approximately $1M, to be run for 12 months commencing during the pre-feasibility stage. The pilot would test whether MAR is a viable and effective tool that can work in tandem with water storage to replenish groundwater within Ruataniwha area. Councillors will also receive a presentation from Mr Bower on 25 March.

39. The Heretaunga Flow Maintenance project, as with the Tukituki project, will explore storage options that deliver the environmental outcomes in the first instance with an option of additional storage for “new” water. Similar to the Tukituki project, this work will revisit expert analysis completed in 2011 that identified medium-scale storage sites in the Ngaruroro catchments but this time seeking to identify small scale sites that are ideally located to feed water back into waterbodies affected by groundwater takes during periods of low flows. This information will be presented to decision makers as soon as it is available so that directions can be made in respect of a transition to prefeasibility investigations on preferred options. The pre-feasibility is planned to be completed by December 2020.

Programme Governance

40. The 3D Aquifer Mapping project and the Regional Water Assessment sit as HBRC work streams with dedicated project management structures and operate according to normal internal accountability and governance structures.

41. However, for the substantially larger Tukituki and Heretaunga projects, the Provincial Development Unit’s funding agreement directs HBRC to investigate a broader governance model that is consistent and aligned with the regional leadership’s support of the application. Specifically, the agreement proposes that:

[HBRC] undertakes to comply with the following additional undertakings:

In recognition of the representations made by Hawke's Bay's regional leaders that water security was the agreed priority they wished the Ministry to consider and support for Provincial Growth Fund funding, [HBRC] undertakes that it will use reasonable endeavours, within 6 months from the date of this agreement to:

investigate and propose a model for the ownership, structure and governance of the Project, being the pre-construction phase of the Scheme, that is appropriate for Hawke's Bay and consistent with the priority of and interests in water; and

if required, transfer this Agreement and all other interests to an entity established under such a model;

subject to the Ministry's approval.

42. By way of example, PDU officials are particularly interested in a Charitable Trust model that has regional leaders and Treaty Partners as trustees who in turn incorporate a limited liability company to progress and deliver all the Tukituki and Heretaunga projects works teams through to the end of full feasibility (assuming either or both proceed to that stage). Under this model both HBRC and the PGF would retain oversight and accountability through funding agreements with the Charitable Trust. The following diagram is provided for illustrative purposes only.

43. Staff are seeking your approval to initiate a work stream that identifies and assesses a short list of programme governance models for council’s consideration. The scope of work will allow for an assessment of options to include both legal and financial (including taxation) implications, canvassing of the views of those regional leaders who supported the PGF application, and a staff recommendation.

Strategic Fit

44. In paras 9 above the alignment between this programme and both the Strategic Plan and the Long Term Plan are set out.

Climate Change Considerations

45. Climate change will impact our freshwater systems in many ways and a transition to more extreme drought-flooding hydrological patters could have profound consequences for freshwater ecosystems, and severe social and economic impacts. The effects of higher temperatures, declining precipitation and more frequent extremes will have implications not only for land and water management, but also community resilience and well-being.

46. It is safe to say that we expect more extremes, which includes becoming more drought prone and more severe rainfall events leading to flooding, and this impacts the reliability and quality of the region’s water resources. We expect temperatures to increase in our lakes, rivers and streams which will affect the freshwater ecology.

47. A February 2020 report supported by MPI’s Sustainable Land Management and Climate Change Fund recorded that, under extreme climate scenarios, the Karamu catchment could experience up to 60 additional ‘hot days’ per year, 10% less spring rainfall and 10% more extreme rainfall and a 160mm increase in PED (potential evapotranspiration deficit or drought proneness).

48. In general, rainfall is projected to decrease across the region but there are seasonal differences. Even under a moderate climate change scenario, decreases in annual rainfall of up to 5% are projected for most of the region. The exceptions are coastal areas where an increase in annual rainfall of up to 5% is projected. At the seasonal scale, spring exhibits a drying signal across the region. In parts of the Hastings district the decrease in spring rainfall is projected to be up to 15%. Winter is the season with the largest increase in rainfall projected, with up to 10% more rainfall projected for parts of the Hastings district.

Considerations of Tangata Whenua

49. The Provincial Development Unit’s position paper “Water Storage and the Provincial Growth Fund” includes the following statement under the heading “PGF Investment Principles”

Māori land development: Projects will be prioritised that support Māori to achieve higher returns from their land by addressing access to water. There are catchments where Māori have undeveloped land but low levels of access to water, which creates a barrier to Māori land development. A comparison of Kerikeri and Kaikohe illustrates the issues, where differences in levels of water storage and Māori ownership of land drive very different land prices and economic returns between the two towns. In parts of Northland and East Coast, Māori communities lack water as a key enabler of development.

50. HBRC’s applications to the PGF specifically references the opportunities for these projects to contribute to Māori.

51. TANK has identified that higher temperatures and declining rainfall may reduce water availability, while demand for water is likely to increase. Freshwater resources also have significant cultural significance for Māori. Shading along riverbanks, stream flow and water quality have effects on aquatic habitats which support mahinga kai – food gathering – which is highly valued.

Financial and Resource Implications

52. This paper has identified the existing LTP and PGF funding sources for this programme. Perhaps the greater risk right now is a failure to conclude full feasibility before June 2021 as a result of time delays in relation to the PGF application process and allocation of dedicated staff resourcing, combined with the general availability of both internal and external subject matter experts.

53. However, it is likely that HBRC will need to continue to resource a comprehensive work programme focussed on regional water security into the next LTP and beyond. Staff will be addressing the longer term resourcing requirements via the business cases for the 2021-31 LTP.

54. In respect of HBRC’s financial contribution to or involvement in the ownership and/or construction of infrastructure, it is premature to speculate what shape or form that will be until such time a preferred options are under investigation. It is unlikely that this can or will align with the 2021-31 LTP consultation window, but it is a possibility. In any regard, Council’s usual Significance and Engagement criteria will apply which will trigger the need for appropriate community consultation.

Decision Making Process

55. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

55.1. The decision does not significantly alter the service provision or affect a strategic asset.

55.2. The use of the special consultative procedure is not prescribed by legislation.

55.3. The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

55.4. The decision is not inconsistent with an existing policy or plan.

56. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

1. That the Corporate and Strategic Committee receives and considers the “Regional Water Security” staff report.

2. The Corporate and Strategic Committee recommends that Hawke’s Bay Regional Council:

2.2. Agrees that Council will continue to resource a comprehensive work programme focussed on regional water security into the next LTP and beyond.

2.3. Directs staff to further investigate alternative governance models for the Tukituki Water Security Scheme and the Heretaunga Flow Enhancement Scheme that that will identify and assess a short list of programme governance models for recommendation to Council for adoption.

Authored by:

Amanda Langley

Projecthaus

Michelle McGuinness

Communications Advisor

Approved by:

Tom Skerman

Group Manager Strategic Planning

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: Strategic Bi-lateral Arrangements

Reason for Report

1. This item provides the opportunity for the Committee to discuss the establishment of bilateral meetings between Hawke’s Bay Regional Council (HBRC) and the TAs across the region to ensure consistent engagement on infrastructure challenges and issues that impact on the receiving environment, taking into account the effects of climate change.

Officers’ Recommendation(s)

2. Council officers recommend that the Hawke’s Bay Regional Council Chairman and Chief Executive put forward a proposal to the next available HB Local Government Leaders Forum to establish regular bilateral meetings with the governors of each of the four territorial authorities in the region, with the broad scope of discussion to cover matters linked to the provision of urban infrastructure including resilience and adaptation to climate change, long term asset management planning, long-term water quality and ecological goals, and agreed public communications.

Background

3. HBRC’s Risk Register identifies human health effects from contamination of drinking water as the number one risk for HBRC. The management of this risk has been a significant focus of HBRC work programmes since 2016.

4. During consideration of the 2018-19 Compliance Annual Report in November 2019, a request was made for the establishment of regular governance level bilateral meetings with each of the four territorial authorities in the region, to focus on raising awareness of issues with their infrastructure that may impact upon the receiving environments.

Options Assessment

5. At a strategic level governance engagement occurs with the territorial authorities through a number of avenues including:

5.1. Local Government Leaders’ Forum

5.2. Joint Drinking Water Governance Committee

5.3. Matariki Economic Development

5.4. Regional Transport Committee and other joint committees

5.5. Joint regional briefings

6. At an operational level HBRC and TA staff engage on an almost daily basis across a broad range of matters including those listed above, and also liaison on such matters as resource consent compliance, stormwater management, forestry slash management, and a myriad of other issues.

7. What is potentially missing is engagement at a governance level that allows for more in-depth discussion and understanding of the issues and challenges faced by the TAs in designing and funding their infrastructure and the impacts of managing their effects on the environment.

8. HBRC consents new infrastructure applications from a territorial authority but generally has little line of sight of long-term asset and infrastructure planning by the TAs. Conversely, the TAs may not have the benefit of HBRC knowledge of the receiving environment or source environment. Informative exchanges from both sides will assist in greater understanding of one another’s challenges.

9. The establishment of bi-lateral meetings will enable discussions to occur at a political level that are beyond the bounds of regulatory matters, the latter of which are by necessity prescribed by resource management legislation, plans and resource consent applications. This will allow councillors to have a more complete picture of the resourcing challenges and planning intentions of TLAs in relation to their infrastructure, the information for which is not always available through regulatory processes.

Communication and Collaboration

10. The Hawke’s Bay Triennial Agreement 2019-2022 (currently in draft but required to be ratified by March 2020) provides the framework for local government in Hawke’s Bay to work collaboratively and improve communication and coordination at all levels. One of the principles of the agreement is that the parties support the establishment of processes for communication and collaboration at both governance and management levels in ways that will enhance the overall performance and reputation of local government in the region.

11. The strategic priorities in the Triennial Agreement include water and climate change and the agreement acknowledges that cooperative approaches can be further developed in the following areas:

11.1. Water – freshwater management issues, including Three Waters infrastructure and service delivery to meet the requirements of central government reform

11.2. Climate change – the development of a coordinated response to a changing climate, including integration with regional transport and hazard management planning.

12. While the agreement envisages that these cooperative approaches will occur at a combined council level there is also scope to consider these matters at a more focused HBRC-individual TA level, especially as these matters relate to the resource consents held by the TAs.

Resource Consents

13. The four territorial authorities whose land areas lie completely with the Hawke’s Bay region all have resource consents from HBRC for a range of their activities. These include (but are not limited to):

13.1. Wastewater discharges into the coastal environment (Napier, Hastings and Wairoa)

13.2. Wastewater discharges into fresh water (Central Hawke’s Bay)

13.3. Stormwater discharges into the coastal environment

13.4. Municipal water takes from aquifers or from rivers

13.5. Landfill consents

13.6. Air discharges

13.7. Consents for culverts etc. as part of roading infrastructure

13.8. Coastal protection works

14. These activities generally operate within compliance of their resource consents, but from time to time events occur outside of that which is consented and the environmental consequences and public reaction can be significant.

Strategic Fit

15. The proposal for strategic bi-lateral meetings will assist Council to achieve its strategic goals and objectives in the Sustainable Services and Infrastructure area, including:

15.1. High performing regional infrastructure enables the region’s natural resources to transform into goods and services that underpin the prosperity and wellbeing of the Hawke’s Bay community

15.2. The region has resilient physical, community and business infrastructure to unlock potential growth and prosperity from our natural resources base

16. The proposal also reinforces the organisation’s values of partnership, collaboration and accountability as a means to:

16.1. Work with our community in everything we do

16.2. Hold ourselves to account to deliver results, be responsive to community expectations, and the best use of ratepayers’ funds and assets

16.3. Develop our skills and capacity to partner with Tangata Whenua, communities, councils, central government, businesses, farmers and growers for collective action

16.4. Clearly identify the core business priorities for our communities and target our resources and capabilities for tangible results, alongside the resources of partners.

Consultation

17. The Chair and CEO of HBRC will consult with their territorial council peers and invite them to take part in the bi-lateral meetings.

Financial and Resource Implications

18. The meetings would be expected to fall within a business-as-usual scope and no additional staff resources are envisaged. ,There will be minor expenses incurred within the Governance budget in terms of travel and incidental expenses.

Next Steps

19. It is proposed that the HBRC Chair and CEO put forward a proposal at the next Local Government Leaders Forum for the institution of bilateral meetings between relevant councillors from each TA (for example the chair and deputy chair of the committee responsible for infrastructure/environment) and the HBRC councillors for that territorial authority area.

20. The following format is put forward to precipitate further discussions on the scope and format of bilateral meetings:

20.1. The meetings are held four times a year and are hosted by the relevant territorial authority

20.2. The broad scope of discussion will cover matters inked to the provision of urban infrastructure including resilience and adaptation to climate change, long term asset management planning, long-term water quality and ecological goals, and agreed public communications.

20.3. An agenda is circulated prior to the meeting and notes are kept of the meetings for reporting to the relevant HBRC meeting. These meetings are not public meetings for the purpose of the LGOIMA Act.

21. Should this (or any amended) approach be agreed to, this will be presented as an item for a decision at the next Corporate and Strategic Committee meeting.

Decision Making Process

22. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

22.1. The decision does not significantly alter the service provision or affect a strategic asset, and is not inconsistent with an existing policy or plan.

22.2. The use of the special consultative procedure is not prescribed by legislation.

22.3. The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

Recommendations

That the Corporate and Strategic Committee:

1. Receives and considers the “Strategic Bi-lateral Arrangements” staff report.

2. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion and make decisions on this issue without conferring with the community.

3. Requests that the Hawke’s Bay Regional Council Chairman and Chief Executive put forward a proposal to the next available HB Local Government Leaders Forum to establish regular bilateral meetings with the governors of each of the four territorial authorities in the region, with the broad scope of discussion to cover matters linked to the provision of urban infrastructure including resilience and adaptation to climate change, long term asset management planning, long-term water quality and ecological goals, and agreed public communications.

Authored by:

Liz Lambert

Group Manager Regulation

Approved by:

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: HBRC Agrichemical Collection Service Funding

Purpose

1. This item seeks the Corporate and Strategic Committee’s recommendations on continued funding of the Hawke’s Bay Regional Council Agrichemical Collection scheme for the 2019-20 financial year and the continued funding of the scheme for future financial years. A number of options are presented to the Committee for its consideration and recommendation to Council.

Background

2. The Council currently provides a service to ratepayers for unwanted agrichemical collections. Until 2015, a full time staff member employed by the council, who would arrange collections and disposal fulfilled this service. Since 2015, this service has been contracted out to the 3R Group who operate this program on council’s behalf. The costs of compliance and adherence with health and safety restrictions for chemical collection, handling and storage has meant that it was more economical to contract the service out.

3. The service currently collects unwanted agrichemicals from rural and urban property owners within the region, most of which are private users. Some smaller commercial operations are also captured by the service but larger agricultural operations are not subsidised.

4. The purpose of the collection service was originally to remove stores of legacy chemicals and ensure that they were disposed of appropriately rather than discharged into our environment. Although we would expect the legacy chemicals to eventually dwindle and collection costs to decrease over time, we are seeing a reversal of this trend in recent years. There are a number of factors that may be contributing to this trend:

4.1. Organic certification, as producers and small holders switch to organic agriculture strict audits by certifying organisations results in the removal of all non-organic chemicals from properties

4.2. Restrictions on chemicals, chemicals on the market are constantly under review by the Environmental Protection Authority and global bodies and every decade more and more chemicals are removed from permitted use or manufacture discontinued

4.3. Grower audits, overseas buyer groups such as large chain supermarkets in the UK impose audit requirement on growers, which further restricts what chemicals can be used. A combination of grower audits and regulation results in bulk chemicals purchased to save money being restricted and needing disposal

4.4. Increased public awareness over the past few years and especially with the recent product stewardship and freshwater regulations coming in has resulted in more enquiries and people wanting to safely dispose of chemicals and agrichemicals.

Current Situation

5. Council annually contributes $40,000 alongside another $30,000 from AgRecovery to fund the service. Hawke’s Bay is one of the few regions in New Zealand that still operate a subsidised collection service.

6. In the period 1 July to 24 December 2019, the service collected 2.160 tons of unwanted agrichemicals (manifests appended). Of this total, 651.8kg were solid and liquid chemicals of an unknown concentration and variety.

7. The unknown chemicals are often older with worn labels and are most representative of legacy chemicals presenting the highest environmental risk. However, other chemicals that are being collected are considered non-legacy chemicals and are still approved for use in New Zealand.

8. Unwanted chemicals that are still permitted for use and manufacture in New Zealand should be returned to the manufacturer for disposal. It is the view of Council staff that current chemicals available for purchase and use should not be eligible for collection.

9. For 2019-2020 the collection service has already spent the total $70,000 allocated funding for the period July 2019 to June 2020 and AgRecovery are not putting up any more money this financial year.

10. The total budget for hazardous waste and contaminated land at $108,000 for the 2019-20 period, and the remaining $68,000 hazardous waste budget is already allocated to other projects.

11. There are four potential options for managing the service until the end of the period which are presented below:

11.1. Option 1

The service continues as is with collection of all unwanted chemicals at a projected additional cost of $40,000 if the current trend continues. The costs for this option cannot be accommodated by the current budget and would represent a budget overspend of $40,000.

11.2. Option 2

Council funds 50% of all collections regardless of the chemical. Partially subsidising all collections would still provide incentive to customers to dispose of chemicals appropriately while limiting the costs to Council. The costs for this option is likely to be $20,000 if the current trend continues which cannot be accommodated by the current budget.

11.3. Option 3

High-risk chemicals are fully subsidised while a user pays system is implemented for low-risk chemicals. Fully subsidising high-risk chemicals would maximise the potential environmental benefits from the service by ensuring appropriate disposal of the most toxic chemicals. High-risk chemicals currently make up 36% of the total collection volume. This option is likely to cost $15,000 additional non-budgeted cost. Once spent the user would pay for the remaining high-risk chemicals not covered by this subsidy.

11.4. Option 4

The allocated funding for the year has been used and no additional funds are put forward during this period. Not topping up funding could result in an increase of dumped high-risk chemicals or may push the problem into next year, as people will hold onto product until it is free to dispose of in the 2020-21 period when more funding becomes available.

Staff Recommendations Short Term 2019-2020 Period

12. Staff recommended Option 3, funding for the up to an additional $15,000 to subsidise the collection costs of the more hazardous high-risk chemicals and then no further funding until the 2020-21 period. Once spent the user would pay for the remaining high-risk chemicals not covered by this subsidy.

Future Funding Options

13. This is a timely opportunity to seek the Sub-Committee’s recommendations for our approach to the long-term funding requirements and options for this service. We could apply the same options presented above to the long-term funding of the service or whether Council should continue to subsidise the collection of chemicals that are predominantly no longer legacy agrichemicals.

13.1. Option A

HBRC cease funding the service as many regional councils have already done and put the funding to other contaminated land investigations and projects. There are a reasonable level of businesses within the Hawke’s Bay region that offer chemical collection services, although these services are limited in the Wairoa District and cost of private collection may be prohibitive for many people.

13.2. Option B

HBRC could contribute instead to HazMobile collection events held annually by the district and city councils. These events target residential users and tend to exclude commercial users, which could make our funding go further. It is recommended that we restrict our collections to non-commercial users only as business owners should take this responsibility and cost into account as part of their operations. Staff would work with Wairoa District Council to establish and run a HazMobile collection service annually to cover disposal in the district.

13.3. Option C

A partially subsidised service would provide some incentive for responsible disposal practices while providing a service to ratepayers. It could be beneficial to keep some incentive in place to avoid illegal disposal of agrichemicals into the environment. However, there is greater awareness of the impacts of illegal disposal and people feel compelled to dispose of waste appropriately. Additionally we could look to restrict the type of chemicals that are collected to higher risk chemicals such as unidentified substances or known high-risk chemicals such as unknowns, DDT and other organochlorides. This would encourage users to be more conscious of the agrichemical types and volumes when purchasing and provide a more targeted service for higher risk chemicals. We could also limit the access of commercial operators to the service by providing fully subsidised collections for domestic use products but only subsidising 50% of commercial operator collections.

Staff Recommendations LTP 2021-2031

14. For long-term funding, staff seek the Sub-committee’s advice on options A, B and C presented above. At current staffing levels, HBRC do not have the resources to manage collections ourselves. If option B is preferred, then staff recommended that restrictions be placed on the range of chemicals eligible for subsidised collection.

15. Alternatively council could part fund HazMobile collections on an annual basis where collections are pre-booked and can be managed by chemical type, volume and total cost of disposal to ensure that the budget is not exceeded.

Climate Change Considerations

16. This matter does not contribute towards climate change mitigation or adaption response, either directly or indirectly.

Consideration of Tangata Whenua

17. This matter is not anticipated to impact Tangata whenua, either directly or indirectly.

Decision Making Process

18. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

18.1. The decision does not significantly alter the service provision or affect a strategic asset

18.2. The use of the special consultative procedure is not prescribed by legislation

18.3. The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy

18.4. The persons affected by this decision are ratepayers in the rural areas of the region that currently utilise the collection service

18.5. The decision is not inconsistent with an existing policy or plan

18.6. Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

19. That the Corporate and Strategic Committee:

19.1. Receives the “HBRC Agrichemical Collection Service Funding” staff report

19.2. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council can exercise its discretion under Sections 79(1)(a) and 82(3) of the Local Government Act 2002 and make decisions on this issue without conferring directly with the community and persons likely to be affected by or to have an interest in the decision.

19.3. Agrees to Option 3 and recommends that Council fund up to an additional $15,000 to subsidise the collection costs of the more hazardous high-risk chemicals and then no further funding until the 2020-21 period. Once spent the user would pay for the remaining high-risk chemicals not covered by this subsidy.

19.4. Advises staff on a preferred option (A, B and C presented above) for future funding the Agrichemicals collection scheme, this will help with budget preparations for LTP 2021-2031.

Authored by:

Jack Blunden

Environmental Officer - Compliance

Nick Zaman

Manager Compliance

Approved by:

Liz Lambert

Group Manager Regulation

Attachment/s

⇩1

Chemical collection disposal manifest - disposal options breakdown

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 11 March 2020

Subject: National Environment Standards for Plantation Forestry Update

Reason for Report

1. The purpose of this paper is to provide a report on forestry activities in response to the questions on forestry that arose as part of the November 2019 discussion of the Compliance Annual Report 2018-19. The focus of the report is on the impact of the new National Environment Standards for Plantation Forestry (NES-PF) on forestry activities, what the new requirements mean and whether there are any outstanding risks to be resolved.

Background

2. New regulations for the plantation forestry sector came into effect on 1 May 2018. The National Environment Standards for Plantation Forestry are a set of regulations made under the Resource Management Act 1991 and they have primacy over the Hawke’s Bay Regional Resource Management Plan. The NES-PF has standardised conditions and consent requirements across New Zealand to increase certainty and efficiency in plantation forestry while maintaining and improving environmental outcomes.

3. Under the Regional Resource Management Plan Hawke’s Bay Regional Council has a comparatively permissive approach to the management of forestry activities (compared to neighbouring regional and unitary councils). As a result of the NES-PF a significant number of forestry activities are now subject to resource consents and other requirements.

4. There are around 130,000 hectares of land planted with pines in Hawke’s Bay. Forestry and associated manufacturing employs over 600 people, makes up 14% of the region’s primary industry workforce and 4% of Hawke’s Bay’s GDP.

Discussion

What the NES-PF requirements mean

5. The NES-PF applies to any block greater than one hectare and specifically planted for commercial activities and harvest. It sets out rules for eight plantation forestry activities:

5.1. Afforestation

5.2. Pruning and thinning to waste

5.3. Earthworks

5.4. River crossings

5.5. Forest quarrying

5.6. Harvesting

5.7. Mechanical land preparation

5.8. Replanting

6. Most forestry activities are permitted by the NES-PF so long as specific conditions to prevent significant adverse effects are met. If these conditions cannot be met then a resource consent must be applied for.

7. Before anyone starts planting a forest, or carrying out earthworks, river crossings or harvesting a forest they must give written notice to HBRC. This allows HBRC to assess the activity, assess the risks and determine whether any further regulations apply.

8. For example the NES-PF includes an Erosion Susceptibility Classification that is used to identify the erosion risk of land as a basis for determining where a plantation forestry activity:

8.1. is permitted, subject to certain conditions being met; or

8.2. requires resource consent because it’s on higher-risk land

9. Territorial authorities also have responsibilities under the NES-PF in respect of afforestation and harvesting. A forester must give notice to the territorial authority ahead of planting and harvesting. The TA considers matters related to setback distances from urban areas, dwellings and papakainga housing. It must also consider the location of any new plantings in relation to visual amenity landscapes, significant natural areas and outstanding natural features.

10. In addition to the Erosion Susceptibility Classification other risk management tools in the NES-PF include the Fish Spawning Indicator and the Wilding Tree Risk Calculator. Any forestry activities that would disturb permanent river or lake beds, or wetlands, when fish are spawning are not permitted without resource consent. Spawning periods vary depending on the fish species and its location, so Fish Spawning Indicator helps councils and foresters manage and plan forestry operations

11. Similarly the Wilding Tree Risk Calculator must be used by foresters to assess the risk of wilding conifers spreading when:

11.1. planning new forests; or

11.2. replanting with a conifer not previously planted.

Preparation, Implementation and Resourcing

12. Both the Consents and Compliance teams have been proactive in liaising with neighbouring regional councils as well as the forestry industry ahead of and following the introduction of the NES-PF. This is to try and achieve consistency in approach in the mid and lower North Island.

13. Ahead of the introduction of the NES-PF HBRC Consents and Compliance staff met on a number of occasions with representatives from the forestry companies operating in Hawke’s Bay to clarify areas of NES implementation and provide a forum to discuss key industry consents.

14. HBRC has traditionally had a good working relationship with forestry companies and the introduction of a greater regulatory approach, as required by the NES-PF, did not undermine those relationships. HBRC staff provided clarity to the forestry companies on our overall approach to risk management. Forestry operators are required to provide notices in advance of a number of activities. Harvest plans, quarry plans, sediment control plans and stream flow calculations can then be requested by Council.

15. As at 28 February 2020 HBRC has:

15.1. Evaluated 107 permitted activity notices received under the NES-PF, of which five have yet to commence; and

15.2. Processed 72 resource consents for forestry activities of which 49 have yet to commence.

16. As reported in the Compliance Annual Report the forestry consents monitored in 2018-19 were graded as follows:

16.1. 57% fully compliant

16.2. 14% low risk non-compliant

16.3. 29% moderate risk non-compliance (mostly related to forestry infrastructure that required remedial action e.g. water sediment retention structures)

16.4. No significant non-compliance was identified.

17. As part of managing the volume of forestry permitted activities and resource consents the forestry compliance officers have set up an online portal and system for managing applications, notifications, monitoring and enforcement.

18. A description of the additional resources required in the Regulation Group as a result of the NES-PF is not as clear-cut as may otherwise have been expected. The NES-PF requirements arrived at the same time as the requirements for Farm Environment Management Plans in the Tukituki catchment and the work to prepare for production land use consents in the Tukituki catchment.

19. The processing of forestry resource consents is being undertaken by experienced staff in the form of a team leader and a senior planner within the consents section. These staff members are also leading the work on the Tukituki catchment resource consents so additional staff have been and will continue to be engaged to process other consent applications.

20. To date HBRC has employed two additional compliance officers to meet the monitoring and enforcement expectations under the NES-PF. One position was filled in late 2018 and the second position was filled in late 2019. This latter position is funded equally for the 2019-20 financial year by HBRC and Hastings District Council. Should HDC discontinue its funding share HBRC will retain the role full-time.

21. Further resourcing has been required in the area of technical administration and data management and this is likely to increase as we have not reached the peak of harvest volumes. This will be required on an ongoing basis to allow the compliance officers to spend more time in the field.

Outstanding Risks

22. The question was posed in the Compliance Annual Report discussion by Council about what outstanding risks need to be resolved. This can be answered from two perspectives – a national perspective and a local one.

23. At a national level in 2019 the government instructed Te Uru Rākau (Forestry New Zealand, a division of MPI) to undertake a year one review of the NES-PF to look at, among other matters, issues that have arisen during implementation. The review is still in progress but is expected to put forward recommended actions to resolve the issues identified. These include:

23.1. Whether the settings in the NES-PF relating to harvesting and slash management are sufficient for controlling the effects of plantation forestry on erosion-prone land, particularly in the areas identified as orange and red zones in the Erosion Susceptibility classification

23.2. Whether any changes to the afforestation and replanting provisions in the NES-PF are need to ensure it is consistent with the One Billion Trees programme

23.3. The appropriateness of the Wilding Pine Tree Calculator within the context of the government’s Wilding Conifer Management Strategy (is it doing what it is meant to do? is it still appropriate?) and

23.4. The relationship between the NES-PF and national instruments for biodiversity protection, including protection for indigenous flora and mobile fauna like birds and fish.

24. While the central government review panel works through these issues the one area where the region remains at risk in terms of the NES-PF is the legacy of forestry slash deposits. The regulations are not retrospective and there are areas where forestry slash will pose risks to infrastructure for a number of years to come. One of the drivers for HDC part-funding a HBRC Compliance Officer was to assist in identifying the more at-risk infrastructure (especially bridges) downstream of harvested areas.

25. The NES-PF does provide tools for dealing with slash management on any harvesting operations undertaken since May 2018. Regulation 66 requires the preparation of a harvest plan for all harvesting operations. The purpose of the harvest plan is to ensure environmental and site-specific risks associated with harvesting are identified and managed up-front. The harvest plan must include slash management procedures.

26. Regulation 69 sets out a number of requirements relating to slash management during harvesting. It includes a requirement that slash not be deposited in water bodies or land that would be covered by water during a 5% AEP (Annual Exceedance Probability i.e 1 in 20 years) event. It requires that slash is deposited onto stable ground, which will generally be achieved through avoiding steep areas and areas prone to slips/flows. This reduces the likelihood of large volumes of the slash moving downhill, because it has become unstable as it rots.

27. We can monitor only what is notified to us part of NES-PF requirements. This means we do not have knowledge of past harvesting activities pre-May 2018, unless we have picked it up through a complaint or an associated resource consent requirement. It is difficult to enforce against a legacy site unless the forest is still currently under harvest and we can work with the site owner to address it.

28. We are working through industry groups for them to address legacy issues as part of Good Management Practice (GMP). The larger forestry companies who have the resources have been very proactive in their area.

29. In our view the risks associated with legacy forestry slash are reducing every year as works are carried out on-site to remove and reduce the slash and as those areas are re-planted and the new afforestation becomes more dominant.

Decision Making Process

30. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision-making provisions do not apply.

Recommendation

That the Corporate and Strategic Committee receives and notes the “National Environment Standards for Plantation Forestry Update” staff report.

Authored by:

Nick Zaman

Manager Compliance

Approved by:

Liz Lambert

Group Manager Regulation

Attachment/s

There are no attachments for this report.

PWC Treasuring Reporting

Attachment 2

3.0 SIPO review

PwC SIPO comments

Comment 11 by Mercer refers to a minor wording adjustment around hedging. PwC believe this is a suitable change.

Comments 12 and 14 by Mercer are minor administration points that Council may wish to update in the SIPO.

Conclusion

Jarden’s SIPO comments

5. We are happy for International bonds to remain fully hedged, as currency fluctuation just boost risk without benefiting long term returns for bonds.

Mercer’s SIPO comments

14. Manager Performance (page 16): We would suggest adding SIPO compliance explicitly as one of the factors to be taken into account when reviewing the managers.

4.0 Liability Management Policy Compliance Checklist

New treasury transactions in the period are outlined in Appendix 1.

5.0 Borrowing Limits

Ratio	Hawke’s Bay Regional Council	LGFA Lending Policy Covenants	Actual
Net external debt as a percentage of total revenue	<150%	<175%
Net interest on external debt as a percentage of total revenue	<15%	<20%
Net interest on external debt as a percentage of annual rates income	<20%	<25%
Liquidity buffer amount comprising liquid assets and available committed debt facility amounts relative to existing total external debt	>10%	>10%	20%

6.0 Funding and Liquidity Risk Position

Debt Funding Strategy

7.0 Interest Rate Risk Position

As can be seen from the chart and table below, the interest rate risk position is fully compliant to all policy parameters.

Interest rate strategy

8.0 Funding Facility

Bank

(Facility maturity date)

Maturity Date

Drawdown Amount ($m)

Facility Limit ($m)

BNZ

15-Jan-21

0.00

5.00

TOTAL

0.00

5.00

Available bank facility capacity (liquidity buffer)	This month ($m)	Last month ($m)
Gross amount	5.00	5.00
Policy liquidity buffer requirements	2.55	2.30
Excess amount	2.45	2.70

9.0 Cost of Funds vs Budget

Month		YTD
Actual ($m)	Budget ($m)	Actual ($m)	Budget ($m)

10.0 Counterparty Credit

All counterparty credit exposures are fully compliant with policy.

11.0 Market Commentary

Investment markets

Increased investor appetite for riskier assets meant that safe-haven asset values, such as gold and fixed interest securities/bonds declined.

Funding markets

LGFA credit spreads have continued to creep up since Q3 in the short end (three to five years) and held reasonably constant for the longer end (7-10 years).

Interest rate markets

12.0 Policy exceptions

Date	Detail	Approval	Action to rectify
TBC	SIPO asset allocations non-compliant	Y	Gradual staggering into investment portfolio positions will see strategic asset allocation requirements met over coming months.

13.0 Appendix

13.1 New Treasury Transactions up to 31 December 2019

Borrowing activity

Bank/LGFA	Amount (NZDm)	Borrower notes (NZDm)	Deal Date	Start Date	Maturity Date	Commitment Fee	Margin

Interest Rate Borrower Swaps

Bank	Notional Amount (NZDm)	Deal Date	Start Date	Maturity Date	Swap Rate
n/a	n/a	n/a	n/a	n/a	n/a

Policy document	Policy parameters	Compliance
Treasury Policy	Borrowing limits	Yes
	Funding risk control limits	Yes
	Liquidity buffer	Yes
	Interest rate risk control limits	Yes
	Treasury investment parameters	Yes
	Counterparty credit limits	Yes
SIPO	Asset allocations	No

Policy document	Policy parameters	Compliance
Treasury Policy	Borrowing limits	Yes
	Funding risk control limits	Yes
	Liquidity buffer	Yes
	Interest rate risk control limits	Yes
	Treasury investment parameters	Yes
	Counterparty credit limits	Yes
SIPO	Asset allocations	No

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
Proposed Wellington Leasehold Property Sale	7(2)s7(2)(i) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of the information is necessary to enable the local authority holding the information to carry out, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

⇩1	FARS 12Feb2020 Treasury Report
⇩2	PWC Treasuring Reporting

Topic	Raised by