Agenda of Corporate and Strategic Committee

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 03 March 2021

Subject: Recovery Fund Projects

Reason for Report

1. This item seeks the Corporate & Strategic Committee’s recommendation to Council to commit $400,000, of the remaining $700,000 Recovery Fund, established through the 2020-21 Annual Plan towards two projects; a Jobs for Nature Private Land Biodiversity Fund application and the development of a constructed wetland in the Tukipo catchment.

Officers’ Recommendation(s)

2. Council officers recommend that the Committee supports the funding of $400,000 and puts forward a recommendation to the 24 March 2021 Regional Council meeting for confirmation.

Executive Summary

3. This item seeks funding for two projects:

3.1 An application to the Department of Conservation Jobs for Nature Private Land Fund (PLBF) to protect 15 Ecosystem Prioritisation sites. The total application value is $1,957,309 of which Council is requesting $1m from the PLBF (maximum request allowable). The balance comprises of $611,080 HBRC and $346,229 private land occupier/QEII contribution. Contributions towards the project include external costs and in-kind time. For this application to be successful, $300k is required from the HBRC Recovery fund to leverage funding from the PLBF.

3.2 Council is working in partnership with NIWA, Fonterra and the Tukipo Catchment Care Group on a research and development project to build a 1.6ha constructed wetland. This project will be included in a national monitoring program by NIWA to show the effectiveness of constructed wetlands to reduce DIN levels on a catchment scale. To date the project has been exclusively funded by Fonterra ($250k). Due to the impacts of COVID-19 lockdown estimated construction costs now exceed the available budget to complete the project within timeframe required for NIWA. To take the greatest advantage of this collaborative opportunity we are requesting $100k from Councils Recovery Fund to complete delivery of this project.

4. The $1million Recovery Fund is part of the HBRC Climate. Smart. Recovery. Programme to ensure our recovery from the COVID-19 crisis is sustainable and our environment enhanced.

5. Both projects will fund operational activity that has intergenerational benefit and as such can appropriately be funded by borrowing.

Background: Recovery Fund

6. In July 2020, Council resolved to proceed with its proposal through the 2020-21 Annual Plan to establish a $1m Recovery Fund.

7. The purpose of the Recovery Fund is to enable Council to act quickly and with some flexibility to leverage potential government co-funding into planned Council related capital projects that promote employment, encourage economic activity and accelerate positive environmental change and therefore support the Hawke’s Bay economy back to its fastest recovery.

8. The $1m for this fund was reallocated from a budget tagged for additional office space and updated facilities for field staff. New opportunities arising from COVID-19 have enabled the Council to revisit needs for additional office space and delay the timing for this project.

9. A draft Recovery Fund Policy was presented to Council at the time the Annual Plan was adopted to give confidence to submitters to the Annual Plan and ratepayers that there is rigour around the spending of the funding. The Policy is a non-statutory policy that sets out the decision-making process, including criteria that will be used to assess proposals.

10. On 15 September 2020, Regional Council committed $700k of the Recovery Fund to two Freshwater Improvement Fund applications: Ahuriri Catchment project ($400k) and Porangahau Catchment Group ($300k). The Porangahau Catchment Group project was successful, but our Ahuriri Catchment project was not.

11. Currently we have $700k remaining within the Recovery Fund.

12. This paper requests $400k of the Recovery Fund, (i.e. $300,000 Jobs for Nature Private Land Biodiversity Fund application and $100,000 Tukipo constructed wetland) to be considered for projects that are a good fit with the funds objectives and score highly when assessed against the Climate. Smart. Recovery criteria in the draft Policy.

13. At this stage no other projects have been identified and scored against the Climate. Smart. Recovery criteria, but staff have earmarked the remaining $300k to support the Mahia and Ruakituri catchment Freshwater Improvement Fund proposals that were recently presented to the EICC (subject to successful applications to the next round of the Freshwater Improvement Fund and final council approval).

14. As noted in the draft Policy, staff recommend these projects to Council for consideration.

Project one: Jobs for Nature Private Land Fund (PLBF) application ($300k)

15. On 14 January 2021, a Jobs for Nature Private Land Biodiversity Fund round was announced as part of the $1.3 billion Jobs for Nature programme. It is a one-off fund of $18 million, available for biodiversity restoration work on private land to create nature-based employment. Grants range from $300,000 to $1 million (in total), for organisations with projects working with private landowners that create temporary employment for up to three years.

16. Hawke’s Bay Regional Council are well placed to leverage from this fund through accelerating its Ecosystem Prioritisation (EP) programme whilst creating employment opportunities. The EP programme builds on the Zonation process undertaken by the Council, which is a tool (software) that prioritised ecosystem or habitat sites based on their representation, connectivity, and condition. Resources are stretched for biodiversity protection in Hawke's Bay; therefore, this framework plays an integral part in prioritising sites for protection. These sites/segments represent a full range of ecosystem types that are present in the region.

17. Unfortunately, all remaining terrestrial ecosystems in lowland Hawke's Bay are either acutely or chronically threatened. Of this, most are small in size and sit on private land. The sites proposed for protection in the PLBF application have been assessed by a Biodiversity Advisor and confirmed as high biodiversity value, generally being diverse old growth remnants. The sites were also assessed for condition, including threats e.g. pest plants and animals, to make sure biodiversity outcomes are achievable.

18. If successful, this application will result in an additional 15 Ecosystem Prioritisation sites (433ha) being deer fenced (42km fencing) and receiving pest plant and animal control ($264k). This will fast-track the EP programme by approximately six years.

19. It is expected this application will create work for approximately 18 people over three years, primarily in pest management and fencing.

20. Other Jobs for Nature funds, such as the Freshwater Improvement Fund (FIF), require a 50/50 co-funding arrangement. Although the PLBF fund does not require this, it is likely applications with an approximate 50/50 co-funding arrangement will be marked favourably due to creating more jobs.

21. The Council have worked closely with QEII and private land occupiers to reach a 50% funding contribution of $957K to match the maximum grant available through the PLBF ($1m). A contribution of $300k to this application from the Recovery Fund is required to meet this approximate 50/50 co-funding arrangement.

Proposed funding by year

Financial Years	Existing HBRC Budgets		Landowner/QEII contribution	Request from Recovery Fund	PLBF match funding
Financial Years	Staff time (In-kind)	External Costs	Landowner/QEII contribution	Request from Recovery Fund	PLBF match funding
Year 1 - FY21/22	$61,360	$17,500	$117,501	$100,000	$325,000
Year 2 - FY 22/23	$61,360	$53,500	$50,088	$100,000	$300,000
Year 3 - FY 23/24	$61,360	$56,000	$178,640	$100,000	$375,000
TOTAL	$184,080	$127,000	$346,229	$300,000	$1,000,000
TOTAL PROJECT					$1,957,309

Strategic Fit: Assessment Criteria

22. This project has been assessed to determine their fit with the draft criteria from the HBRC Recovery Fund.

	Score	Reasoning
Climate action	4	Protecting Ecosystem Prioritisation sites will increase their carbon absorption and ensure they continue storing carbon in perpetuity. Indigenous ecosystems are living carbon sinks and sequesters, thus protecting them means continued carbon sequestration, and retaining carbon and nitrogen (gas) which would otherwise be released to atmosphere. A group of scientist recently called for urgent solutions to global climate change, identifying the protection of existing forest as the number 1 priority (Di Dacco et al 2020). Old-growth forest not only continues to sequester the carbon but are 2.5 times more effective than exotic species at storing carbon in the soil. Old-growth and existing forest also has substantial advantage over new-plantings as new plantings will take over 100 years to provide the same functions as the old-growth forest. Ultimately, they will provide habitat for wildlife and assist in climate action whist allowing farmers to continue farming the sustainable areas of their farms.
Strategic Alignment	5	The recovery fund portion of this project will protect and enhance healthy functioning and climate resilient biodiversity, contribute to achieving water quality and ecosystem health of waterbodies, and climate-smart sustainable land use outcomes.
Core Competencies	5	HBRC is already delivering the Ecosystem Prioritisation program and is only limited by funding. It is a core competency of the council.
Ease of implementation	5	This project will use the current structure in place to deliver the EP programme, in partnership with QEII. Year one and two projects are already lined up ready to go. The Ecosystem Prioritisation team have delivered similar sized projects in the past.
Leverage	4	This funding, alongside existing HBRC funds and contributions from private land occupiers and QEII will be used as leverage for an approximate 50:50 funding from the Jobs for Nature Private Land Biodiversity Fund. HBRC’s contribution is approximately 30% of total project costs.
Impact	4	The HBRC Ecosystem Prioritisation Programme focusses on protecting HB's acutely and chronically threatened ecosystems. With current budgets, it will take an approximate 150-year timeframe to secure these sites which is poor and will not meet the Strategic Plan objective of completing this by 2050. The current programme is oversubscribed. This change proposal will accelerate the Ecosystem Prioritisation programme by approximately six years. This will have significant regional Biodiversity gains through securing approximately 15 threatened ecosystems. It will create fencing work immediately and will create pest plant and animal work into the future. Without this funding it is highly likely nine of these sites will not be protected from biodiversity threats within the next six years.
Recovery	3	Local growth and investment will be supported by the EP site projects directly related to this.

Project two: Tukipo Constructed Wetland ($100k)

23. Ambitious nitrogen targets have been set in the Tukituki Plan, and in some cases require instream DIN levels to be more than halved.

24. Ongoing research has proven the effectiveness of constructed wetlands and confirms that a strategic network of constructed wetlands, in combination with on farm improvements around nutrient management, may help achieve the ambitious nitrogen reduction targets.

25. Fonterra included the Tukipo catchment to be part of their Sustainable Catchments programme, due in large part to proactive work being led by the Tukipo Catchment Care Group (TCCG). The Tukipo subcatchment is currently sitting at 2.32 mg/l, which is almost 3 times over the 0.8 mg/l DIN target and means a 66% reduction in instream DIN levels are required.

26. When Fonterra provided HBRC and the TCCG funding to undertake a scoping exercise to identify willing landowners who had suitable sites to build a constructed wetland to achieve DIN reduction on a catchment scale ($30k). A further $226k was then provided to design and construct a wetland on the most promising site.

27. Over this same time period, NIWA obtained funding from MPI’s Sustainable Land Management and Climate Change: Freshwater Mitigation Fund to comprehensively monitor 5 constructed wetlands to collect high quality data to refine our understanding on wetland performance and help improve the wetland modules available in Overseer. The two projects aligned and so NIWA designed the Tukipo wetland so that it could be used in their national project.

28. NIWA will be committing their expertise and the equipment required to continuously monitor flow, nitrate, turbidity and floods, alongside covering the laboratory costs for monthly monitoring at the wetland inflow and outflow.

29. The Council Tukituki implementation team think that constructed wetlands may form a key part of the strategic Tukituki response, and are very supportive of the constructed wetland initiative. It is hoped that the outcomes from this project will provide a model that is transferable to other properties in Hawke’s Bay.

30. The Hawke’s Bay region has a paucity of functioning wetlands and the establishment of any new wetland, including man made systems, will be of significant value to the region for both biodiversity and water quality outcomes.

31. Following completion of the scoping exercise a preferred location was selected that had full support from the landowner to construct a 1.6ha wetland that will capture and treat water from a 180ha catchment.

32. To fit in with project timelines and due to COVID-19 lockdown preventing site visits, the wetland design work had to be completed remotely and was based off LiDAR (remote sensing using pulse lasers to measure elevation) which gave the most accurate data set available at the time.

33. Prior to construction the design was double checked with a surveyor building a 3D model for machinery to run off. However, this process revealed that the LiDAR data underestimated the volume of earth that needs to be moved, and so the costs of construction are expected to exceed budget.

34. The initial estimated pricing for earthworks, based off the LiDAR design, was $100k, this has now been raised to $180k, which has used the remaining budget set aside for planting and initial maintenance of the wetland.

35. A decision was made to proceed with the construction as to meet project timeframes. This means the wetland will be constructed, but the site will not be planted with the correct wetland plants needed to ensure a highly functioning constructed wetland in time to be part of the NIWA monitoring project until additional funding becomes available in the future.

36. Currently the constructed wetland project has been exclusively funded by Fonterra ($250k), with Council only committing a small amount of staff time.

37. If $100k, for this financial year, could be committed from Councils $1m Recovery Fund, it would allow for the complete delivery of this project to meet the timeframes for inclusion into the NIWA national monitoring programme.

38. Councils investment would provide an opportunity to further collaborate with national organisations to lead and deliver an exciting research and development project. The results of which could provide a model that would add significant value to how we target nitrogen reduction throughout the region and provide a more holistic understanding of the water quality benefits derived from wetlands.

Strategic Fit: Assessment Criteria

39. This project has been assessed to determine their fit with the draft criteria from the Council’s Recovery Fund.

	Score	Reasoning
Climate action	4	This project aims to develop a model for constructed wetlands that will protect and improve our rivers from the challenges posed by climate change while allowing the farmers to continue farming the sustainably.
Strategic Alignment	5	This project aligns with our strategic outcomes. It is targeting DIN reduction on a catchment scale to improve water quality and river health. While the planting will promote biodiversity outcomes.
Core Competencies	5	HBRC is already collaborating on this project, while the outcomes will provide increased knowledge and skill to multiple teams including the catchment management, water quality and Tukituki implementation teams.
Ease of implementation	5	This project is already underway with full landowner support and resource consent obtained. The recovery funding portion is an extension of this and will help facilitate the complete delivery of this project within the timeframe to be included in the NIWA national monitoring program.
Leverage	3	This funding will not be used to leverage additional external funding. However, we have already been successful in leveraging $250k from Fonterra to deliver the project with NIWA also committing significant resources for the ongoing monitoring.
Impact	4	The project can have a significant impact across several fronts in particular water quality, by providing landowners another tool to help address high nitrogen levels on a catchment scale.
Recovery	3	Local growth and investment will be supported by future projects directly related to the outcomes of this project.

Project Funding

40. The proposed PLBF application is an expansion of the current council Ecosystem Prioritisation programme, leveraging off established processes, existing budgets, and staff resources. This programme is funded by general rates.

41. The Tukipo Constructed Wetland project has been exclusively funded by Fonterra with Council only committing a small amount of staff time.

42. The Recovery Fund established as part of the 20/21 Annual Plan is to be funded via a 10-year external loan. A total of $400k is requested from this fund, to be used towards the PLBF application and the Tukipo constructed wetland, as outlined in this paper.

43. As the PLBF application is a multi-year project, the contribution requested from the Recovery Fund would not all be required in 20/21. If the request for funding from the Recovery Fund is approved and we are successful in obtaining the PLBF funding, there would be a requirement to phase the loan drawdown over three years.

44. The two projects requesting contribution from the Recovery Fund are not building Council owned assets, but they are creating community assets that will benefit future generations. As such, the use of the Recovery Fund loan funding is in alignment with the intergenerational equity principle.

45. If a contribution from the Recovery Fund is approved for both projects, a budget would need to be added to these projects for the loan financing costs. This would not be an increase above existing funding, but rather a re-allocation from the original building project, which the Recovery Fund was created from.

46. Council should note that the PLBF fund is a contestable process and as an applicant we have no greater chance of successfully obtaining funding than any other applicant. If unsuccessful, the funds in the Recovery Fund would then be potentially available to fund other projects as they are identified. The funding would be treated as ‘committed’ until such time as we are notified either way about our application, by approximately mid-March.

Projects (across 4 Financial years)	HBRC Existing Budgets		Landowner/ QEII contribution	Request from Recovery Fund (HBRC)	PLBF application (funding match from MfE)	Total Project $
Projects (across 4 Financial years)	Staff Time (In-kind)	External costs	Landowner/ QEII contribution	Request from Recovery Fund (HBRC)	PLBF application (funding match from MfE)	Total Project $
PLBF	$184,080	$127,000	$346,229	$300,000	$1,000,000	$1,957,309
Tukipo constructed wetland	$0	$0	$0	$100,000	$0	$100,000
Total	$184,080	$127,000	$346,229	$400,000	$1,000,000	$2,057,309

Decision Making Process

47. 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:

47.1. The decision does not significantly alter the service provision or affect a strategic asset, nor is it inconsistent with an existing policy or plan.

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

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

47.4. 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 Hawke’s Bay Regional Council:

1. Receives and considers the “Recovery Fund Projects” 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 directly with the community or persons likely to have an interest in the decision.

3. Notes the opportunity to utilise the Recovery Fund for leveraging funding from the Jobs for Nature Private Land Biodiversity Fund, through an application made by Hawke’s Bay Regional Council, and Tukipo constructed wetland, and agrees to support the funding of both these projects.

Authored by:

Thomas Petrie

Programme Manager Protection & Enhancement Projects

Mark Mitchell

Acting Manager Catchment Services

Approved by:

Iain Maxwell

Group Manager Integrated Catchment Management

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 03 March 2021

Subject: Report from the 17 March 2021 Finance Audit and Risk Sub-committee Meeting

Reason for Report

1. The following matters were considered by the Finance Audit and Risk Sub-committee (FARS) meeting on 17 March 2021 and are now presented for the Committee’s consideration alongside any additional commentary the Sub-committee Chair wishes to offer.

2. The purpose of the Finance, Audit and Risk Sub-committee, in accordance with its Terms of Reference, is to report to the Corporate and Strategic Committee to fulfil its responsibilities for:

2.1. 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

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

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

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

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

2.6. Monitor the performance of Council’s investment portfolio.

Agenda items

3. The Six Monthly Risk Report and Risk Maturity Update item updated the Sub-committee on implementation of Council’s maturing risk management system as well as introducing Karen Walters, Information Management Advisor, who presented about the risks associated with information and the project plan to mitigate those risks. The Sub-committee resolved:

3.1. Confirms that the management actions undertaken and planned, as detailed in the February 2021 Enterprise Risk Report, adequately respond to the Risk Management Maturity Roadmap as endorsed by Hawke’s Bay Regional Council on 24 June 2020.

3.2. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Six Monthly Risk Report and Risk Maturity Update provides adequate evidence of the robustness of Council’s risk management policy and framework and progress to implement the maturing risk management system.

4. The Internal Audit Work Programme Update item updated the Sub-committee on the internal audit work programme and a dashboard update on corrective actions taken, with discussions also covering the potential for an audit of Third party contractual agreements and MoUs; how those are negotiated, managed and monitored as well as assessed for risk. The Sub-committee resolved:

4.1. Confirms that management actions undertaken or planned for the future adequately respond to the findings and recommendations of previously reported internal assurance reviews.

4.2. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Internal Audit Work Programme Update provides adequate evidence of the adequacy of Council’s internal assurance functions and management actions undertaken or planned to respond to internal assurance review findings and recommendations.

5. The Assurance Framework Relevant to S17a Reviews item provided an update on the development of Council’s Assurance Framework and where s17a reviews will fit within it. It highlighted that the proposed assurance framework has three levels, with S17a reviews sitting at the organisational level with elevation to FARS where there is significant non-compliance or material issues identified. The Sub-committee resolved:

5.1. reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction with progress made to draft a Regional Council Internal Assurance Framework.

6. The Quarterly Treasury Report for 1 October - 31 December 2020 item provided an update on the performance of Council’s investment portfolio for the second quarter of the 2020-21 financial year, highlighting some upside in returns against Annual Plan budgets resulting in reduced requirement for Council to borrow. The following resolution was then passed.

6.1. That the Finance, Audit and Risk Sub-committee receives and notes the “Quarterly Treasury Report for 1 October - 31 December 2020” and confirms that the performance of Council’s investment portfolio has been reported to the Sub-committee’s satisfaction.

7. As part of today’s meeting, representatives of Jarden will provide an update on the funds they manage for Council.

8. The 2019-20 Annual Report Adoption Delay provided an update on progress toward adoption of the Annual Report by Council on 24 February. It explained the issues that caused the delays, including the valuation of the Napier Port administration building as a result of different accounting policies.

Decision Making Process

9. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as all items were specifically considered at the Sub-committee level this item is for information only and the LGA decision making provisions do not apply.

Recommendations

1. That the Corporate and Strategic Committee receives and notes the report from the 17 March 2021 Finance, Audit and Risk Sub-committee, including the following resolutions of the Sub-committee.

Six Monthly Risk Report and Risk Maturity Update

1.1. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Six Monthly Risk Report and Risk Maturity Update provides adequate evidence of the robustness of Council’s risk management policy and framework and progress to implement the maturing risk management system.

Internal Audit Work Programme Update

1.2. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Internal Audit Work Programme Update provides adequate evidence of the adequacy of Council’s internal assurance functions and management actions undertaken or planned to respond to internal assurance review findings and recommendations.

Assurance Framework Relevant to S17a Reviews

1.3. reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction with progress made to draft a Regional Council Internal Assurance Framework.

Quarterly Treasury Report for 1 October - 31 December 2020

1.4. receives and notes the “Quarterly Treasury Report for 1 October - 31 December 2020” and confirms that the performance of Council’s investment portfolio has been reported to the Sub-committee’s satisfaction

Authored by:

Leeanne Hooper

Team Leader Governance

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 03 March 2021

Subject: 2020-21 Quarter 2 (1 October - 31 December 2020) Financial Report

Reason for Report

1. This item provides the Committee with financial results for the first half of the 2020-21 financial year.

YTD Summary to 30 December 2020

2. Council has an operating surplus of $1m compared to a forecast deficit of $2.3m based on the pro-rata budget.

3. Operating expenditure is on budget, income is ahead due to the higher than forecast returns from the managed funds and HBRIC dividends.

4. Capital expenditure is running at 72% of budget overall, additional capital income is due to receiving PGF funding for Heretaunga Plains Flood Control, Upper Tukituki and Wairoa work. In addition, higher repayments have been received from Sustainable Homes (both early repayments and higher repayments from the increased uptake in the programme).

Summary – Full Year Forecast

5. The forecast year end operating position is favourable to plan by $2.4m.

6. Full year operating expenditure will include Council approved $2.45m accelerated funding for the Erosion Control Scheme. This is debt funded operational expenditure.

7. Full year income is expected to exceed plan due to better than expected investment income; dividends and managed fund returns.

8. Full year capital expenditure is expected to be $800k under budget but income (Sustainable Homes repayments and grants) is expected to be over budget by $3.3m.

Background to the Financial Summary

9. Many of the variances in the financial report to 31 December are the result of:

9.1. no seasonal phasing of budgets.

9.2. timing of the work programme delivery.

10. The FY20-21 annual plan budget was revised in response to the Covid-19 Pandemic. It includes conservative forecasting for investment income in-particular the uncertainly around the economy and financial markets at the time of preparation and adoption.

11. The budgets presented include the carry forwards from FY19-20 approved by Council.

12. For reporting purposes, the annual budget is divided evenly across the year without phasing. Annual spend has considerable seasonality, particularly planting activity, which will occur towards the end of the Financial Year. Future year reporting, from the new finance system will be phased across the year accounting for seasonality.

13. New loan funding is generally drawn down at the end of the financial year when the actual required funding is known.

14. All revenue and expenditure accrued (carried forward) at the end of the FY19-20 financial year has been recognised in the Q2 FY20-21 actuals.

15. The pro-rata budgets do not include additional expenditure and funding agreed after the annual plan was adopted (e.g. PGF funding for Heretaunga Plains Flood Control).

Overheads

16. Employee costs are on track at 31 December, the cost of the deferred mid-year pay review will impact the second half of the year but will be partially offset by savings derived from carrying vacancies.

17. Rental costs are exceeding budget by $130k due to the office expansion in Station St for new accommodation to support the increased headcount. This is due to the originally planned approach to long term accommodation being a capital funded project. This is offset by an underspend in capital.

18. Computer software costs are over budget at 31 December by $300k due to the pro-rata budgeting but these costs are expected to finish the year close to budget.

Operating Expenditure

19. Across the Council, operating expenditure is 99% of the pro-rata budget.

20. Strategic Planning expenditure is at 93% of the pro-rata budget at the midpoint of the year. It is likely that the Response to Climate Change project will be overspent at year end as additional costs will be incurred to obtain a baseline understanding of greenhouse gas emissions as a prerequisite to Kotahi discussions with tāngata whenua, Regional Planning Committee and the community. Statutory Advocacy costs are likely to be higher than budget as the Water Conservation Order and Marine and Coastal Area Act hearings are scheduled to commence 9 February. The legal fees associated with both processes are extensive. HBRC are also committed to funding a third of the fees for Barker and Associates to undertake the Housing and Business Development Capacity Assessment for Heretaunga Plains Urban Development Strategy.

21. Expenditure by Asset Management is below budget, at 88% of the year-to-date total. Westshore coastal works have been completed under budget and the bulk of the work on flood protection and control will take place later in the year. Work on the regional park network is more than budget and this perennial issue is being addressed in the 2021-31 LTP.

22. ICM expenditure is at 94% of the pro-rata budget. Science and Biodiversity budgets have large seasonal components during Q3 and Q4 and expect expenditure to match the budget by year end.

23. Consents and Compliance is operating slightly over budget. Maritime safety expenditure is slightly over budget due to some unexpected repairs on navigation aids in Mahia and Onepoto. Further, additional time has been spent by the compliance team on enforcement activities resulting in increased legal costs.

24. Emergency management expenditure is higher than budget due to approximately 40% of staff time continuing to be spent on Covid-19 response and resurgence planning plus the costs of the Napier flood event. It is expected that some of these costs will be recoverable from central government and this group expects to have a small surplus by year end.

25. Transport is over budget due to the increased work on the Regional Land Transport Plan with hearings due in March. The overspend will be recovered when the other councils are charged their share of the costs. The bus service costs are over budget but this increase will be offset by grants from NZTA.

26. Governance and partnerships expenditure is higher than budget due to external consultancy costs to inform the updated investment strategy for the LTP and the $100k donation to the NCC Mayoral Flood Relief Fund funded from the council disaster damage reserve.

Operating Income

27. Across the Council, operating income is at 111% of the pro-rata budget.

28. Strategic planning is favorable due to receipt of additional funding for the Regional Business Partner programme to support the Covid recovery.

29. Asset management is reporting as under budget; this is due to budgeted interest income on reserves. This income is not assessed until year end but should be lower than expected due to the historically low interest rates received on deposits.

30. ICM is at 85% of its pro-rata budget. Science is less than budget due to delays in claiming refunds from MPI under the ECS booster scheme and to the territorial authorities for their contribution to LiDAR. Invoicing of third parties can only take place after the work is completed, this incurs a delay between the receipt and recognition of external costs and staff time, and being able to invoice.

31. Consents and Compliance income is under budget. Consents income is ahead of budget but Compliance income is 50% of the pro-rata budget due to under recovery of compliance monitoring charges (due to delayed invoicing). In future, we intend to accrue the income where possible to provide a more balanced picture.

32. Emergency management income is under budget reflecting a drop in expenditure and consequent funding for the operation of the East Coast Lab.

33. Transport income is over-budget across all activities with the bulk of the increase being funding from NZTA which offsets and moves in line with the increased operating costs of the bus network.

34. Works group income from external contracts is ahead of budget by $59k and meeting full-year expectations.

35. The growth in the managed funds has exceeded expectations, with $6.4m divested to recognize gains in December 2020. The performance has exceeded the full year budget. Should performance continue to be strong, further divestment and recognition of gains is achievable within the financial year.

36. Forestry income will be received in the second half of the year. There were delays to the start of harvesting due the time taken to establish the infrastructure and procure harvest managers. This will slightly reduce the volume harvested by the end of 2020-21 but the end of year forecast is in line with expected revenue.

37. Leasehold revenue is on track for the year.

38. $4m Dividend from HBRIC was received in December and exceeded the forecast by $1m. Any subsequent dividend would provide further upside in the current financial year.

Capital Expenditure

39. IT expenditure is under budget primarily due to the difficulties recruiting staff in a very competitive market to deliver projects, this has resulted in several delays. The telephony system upgrade has been completed slightly under budget; water information system completed under budget; Finance system is expected to run ahead of the original budget due to higher than budgeted internal costs and having to introduce alternative resourcing solutions in order to complete the project on time.

40. Asset management is underspent on most projects however this reflects actual timing against budget phasing and more time spent on design work in the early stages.

41. ICM capital expenditure is over budget due to the continued success of the Sustainable Homes project which has spent $4.9m of its annual $5.6m budget by 31 December with repayments higher than expected due to the increased take up of the programme. This is a cost recoverable programme.

42. Regional Income capital expenditure includes the water security project. This project is underspent due to ongoing delays in project delivery resulting from COVID-19 events through the middle of 2020. Further, timing of two significant capital projects scheduled for the second half of 20/21 financial year. The project team has now concluded an RFP for technical investigations for Heretaunga Storage and is about to confirm a preferred site for the Central Hawkes Bay Managed Aquifer Recharge pilot. With these now concluded the project team expects to initiate these two significant work streams shortly.

43. The Land and Buildings budget includes $2m for the progression of a long-term accommodation solution. Work is underway to fit-out the new Station St accommodation, repurpose the Raffles St building and renovate the Dalton Street ground floor. This capital underspend is offset by increased operational costs leasing additional space for the short – medium term.

44. Motor vehicle expenditure is ahead of budget due to timing of the purchases.

45. Science have several large purchases planned for the second half of the year and expect to meet full year budget.

Balance Sheet

46. Non-Current Assets have increased by $2.7m, PP&E, Infrastructure Assets and Intangible Assets has increased due to the ongoing capital expenditure noted above. Investment Property has decreased as Napier Endowment Leasehold properties are freehold and Financial Assets have decreased following the withdrawal of $6.47m of growth from the managed funds.

47. Current Assets have increased by $5m reflecting the continued reduction in outstanding rates offset by the receipt of cash from the managed funds.

48. Fair value reserves have decreased as unrealized gains in the managed funds have been realized as the underlying assets have been sold facilitate the withdrawal of $6.47m in cash.

49. Non-current Liabilities have increased due to a new $6.3m loan drawn down in July as delayed funding for the Sustainable Homes and Erosion Control projects offset by the principal repayments in the 1st half of FY20-21.

50. Current liabilities are consistent with the same period in FY19-20.

Other Information

51. Accounts receivables shows the increased $15.1m in rates revenue received in comparison to the same period in FY19-20. The increased “Over 91” days receivable primarily consists of government debtors and does not indicate an increased risk of default from leaseholders or consent holders.

52. Rates receivables continues to reflect the improved level of payments. This is further evidenced through the issuing of two thousand fewer penalty notices at 31 January 2021 compared to prior year.

Reserves

53. Reserve movements are as expected based on the operating and capital income and expenditure to date.

Forecast to 30 June 2021

54. The Operating forecast shows a decrease in the net funding requirement of $2.1m across the groups of activities.

55. The most significant variance to full year budget will be the approved acceleration of expenditure for the Erosion Control Scheme within the year, and the continued success of Sustainable Homes as part of Integrated Catchment Management.

56. In the second half of the year, managed fund growth has been estimated based on the average long-term growth of 5.16%. This is a conservative view based on the continued impact of Covid-19 and uncertainty in world-wide economies and financial markets. This growth, $2.93m, has been split and $1m recognized as realised gains and included in operating income with the balance being recognized as fair value gains on the balance sheet.

57. The Capital forecast shows less than planned expenditure on IT Projects (ability to recruit suitable contract staff) and Regional Income (result of delays in the Water Security project noted above) offset by increased expenditure in Integrated Catchment Management (Sustainable Homes) and Asset Management (PGF/IRG funded projects no included in the 2020-21 Annual Plan).

58. The 2020-21 annual plan included a forecast $7.5m debt requirement to cover the impact of Covid-19 on the budget (zero rates increase, reduced returns on managed funds and HBRIC dividends). The higher than expected returns from the managed funds and dividends indicate that this debt requirement will be reduced by $2.5m to $5m.

Carry Forwards for 2021-22

59. Several capital projects are likely to request a carry forward of funding into the next financial year based on their forecast expenditure for the year:

59.1. ICM expect to carry forward $600k for the SkyTEM 3D Aquifer work due to delays in the programme caused by the pandemic.

59.2. IT is expecting to carry forward $1.1m due to delays in recruiting staff to initiate and oversee projects.

59.3. Asset Management is expecting to carry forward between $500k to $750k on the Clive River Dredging project with the amount dependent on the timing of consent and capability of the contractor to start work.

59.4. Corporate support expects to carry forward $1.5m to complete the work on the Raffles Street and Dalton Street buildings as work continues on the architecture, design and planning prior to construction.

59.5. The Water Security project expects to carry forward $1m due to the time to complete the RFP process and gain landowner agreement prior to commencing the pilot.

Decision Making Process

60. 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 “2020-21 Quarter 2 (1 October - 31 December 2020) Financial Report”.

Authored by:

Tim Chaplin

Senior Group Accountant

Bronda Smith

Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Corporate and Strategic Committee

Wednesday 03 March 2021

Subject: Organisational Performance Report for period 1 October to 31 December 2020

Reason for Report

1. Attached to this cover report is the Organisational Performance Report for Quarter 2: 1 October to 31 December 2020. The Organisational Performance Report provides governors with situation-specific factors affecting the organisation’s ability to deliver on its agreed levels of service, activities and budgets. It holds staff to account for non-financial and financial performance and signals through traffic light status reporting, issues that may require intervention.

2. The Report is supplemented with a new dashboard which provides Councillors with the ability to drill down and filter by area of interest. Instructions on how to log-in and navigate the PowerBI dashboard are attached. All Councillors have PowerBI licenses. A demonstration will also be provided on the day.

3. Year-to-date financials and full year expectations are reported through a separate paper on the agenda. The financial information in the separate report is at a more aggregated level than the financial commentary in the Organisational Performance Report.

Content of the Report

4. The attached Report contains four parts plus an Executive Summary with highlights and lowlights for the quarter.

4.1. Part 1: Significant Events or Programmes impacting this quarter. These tend to be cross-council so sit outside the groups of activities section.

4.2. Part 2: Business Improvement Measures focus on how well we are performing across a number of corporate-wide measures such as health and safety incidents and response to customer feedback.

4.3. Part 3: Level of Service Measures by Group of Activities with traffic light status and commentary by exception.

4.4. Part 4: Activity Reporting by Group of Activities with non-financial and financial (operating only) traffic light status and commentary.

5. This is the eighth Organisational Performance Report to be presented. It is much shorter than the previous versions (26 vs 80+ pages) as the status and commentary reporting has been rolled up from 3-digit code to activity level. Status and commentary by 3-digit code is still available to Councillors via the dashboard.

6. As a reminder, staff complete their reporting in a software tool called Opal3 once actual financial results for the quarter are loaded on the 20^th of the month following the end of the quarter. Staff select the status (red, amber, green) of non-financial results, but it is fixed against agreed criteria for financial results. For example, red is set at >$30,000 or >10% over or under budget. Staff are then required to provide commentary on what they did in the quarter in terms of actual non-financial performance and to explain any variations to budgets.

7. It should also be noted that many of the variances shown as red in the activity financial reporting are the result of the current financial systems inability to phase budgets through the year. The current budget has been spread evenly across the 12 months which does not reflect the actual timing of work programme delivery. The new financial system due to be implemented from 1 July 2021 will address this.

Dashboard

8. A prototype of the dashboard was presented to the Corporate and Strategic Committee at its previous meeting in December 2020. Since then we have made improvements to the content and design, however, data checking/cleansing is ongoing and some areas is still under development. The dashboard will be updated every quarter, ready for the Corporate and Strategic Committee Agenda.

9. We are continuously improving the new dashboard, and improving the data reliability across all areas – we would appreciate any feedback you have.

Decision Making Process

10. 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 “Organisational Performance Report for period 1 October to 31 December 2020” staff report.

Authored by:

Kelly Burkett

Business Analyst

Desiree Cull

Strategy and Governance Manager

Approved by:

Desiree Cull

Strategy and Governance Manager

Attachment/s

⇩1

HBRC Organisation Performance Report Q2 1 October to 31 December 2020

	Agenda Item	Follow-up / Request	Responsible	Status Comment
1	2019-20 Compliance Annual Report	Focused quarterly reporting on Enforcement/ Prosecutions to be resumed	K Brunton	To be actioned to enable reporting to May Corporate & Strategic Committee meeting. Content will be subject to issues of confidentiality during and throughout enforcement processes. Reports will also include completed enforcement action.
2	2019-20 Compliance Annual Report	Request for workshop with councillors about decisions made under the Enforcement Policy, within statutory boundaries, in order to assess the policy’s effectiveness and understand Council officers’ decision making considerations	K Brunton /J Palmer	Still to be scheduled – likely July/August 2021, once new Compliance Manager is on deck.
3	2019-20 Compliance Annual Report	Municipal 3 waters compliance to be separated into its own section of the Compliance report.	K Brunton /J Blunden	Yes, the 2020-21 Annual Compliance Report will reflect this change.
4	2019-20 Compliance Annual Report	A visit to CHB is proposed for the new year, for councillors to engage with CHBDC councillors on their Long Term Plan and their 3 waters upgrade programme	K Brunton /J Palmer	Not yet actioned. To be confirmed post LTP adoption.

	Agenda Item	Follow-up / Request	Responsible	Status Comment
	Follow-ups	Query arose as to when Councillors’ health and safety refresher session will be scheduled	K McInnes/ J Palmer	Refresher H&S session for councillors is scheduled 28 April following the Council meeting.

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
HBRIC Ltd Quarterly Update (to 31 December 2020)	s7(2)(b)(ii) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of that information is necessary to protect information which otherwise would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information.	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
HBRIC Ltd Draft 2021-22 Statement of Intent	s7(2)(h) 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, commercial activities.	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
Wellington Leasehold Property Offer	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.

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